Obama's Glass House: His Investments Abroad

Obama and Biden like to claim that Bain Capital had the companies it invested in make investments abroad, especially in China or Mexico.  It turns out that they count heavily on the main stream leftist media to protect their glass house from stone throwers.

Thanks to Obama's insistence that the government take a big stake in the bankrupt GM after its restructuring as a government and union owned company, it is fully fair to look at its investments abroad if one is going to cast aspersions on those of Bain Capital abroad.

According to China Daily, GM is expanding its investment in China from its current $1 billion a year to $1.5 billion a year to make a total investment in China's 12th Five-Year Plan (2011-2015) of $7 billion.  GM hopes to increase its sales in China from 2.35 million vehicles in 2010 to 5 million by 2015.  To do this, it is designing and developing new models in China.  GM production plants in China are joint ventures with the Chinese Communist Government.

GM announced in 2011 the investment of $540 million in a plant in Mexico to make engines.  In July of this year, it announced the planned investment of $420 million in two factories to make the Chevrolet Trax and full-sized trucks.

How about Obama's promise to create American jobs of the future in green energy?  This effort was promoted by Section 48C Advanced Energy Manufacturing Tax Credits.  41% of its awards went to foreign-based companies who were awarded an average of $20 million compared to an average of $11 million for U.S.-based companies!  17 of the 25 foreign-based companies receiving Obama awards are or have plans to set up wind or solar manufacturing facilities in low-wage countries.  Those 17 foreign-based companies manufacturing in low-wage countries accounted for $406 million, so a super premium award averaging $23.9 million goes to those manufacturing in low-wage countries.  Six of the U.S.-based companies with awards are also planning to manufacture their products in low-wage countries.

As almost everyone now knows, Obama only picks the loser green energy companies for awards.  As these companies have gone bankrupt, their assets are often picked up on the cheap by foreign investors or companies.

Miasole, a U.S. solar energy company, received $101.8 million in tax credits.  In October 2012, it was sold to China's Hanergy Holding Company for a mere $30 million.

Ener1 was approved for $118.5 million of 48C tax credits in 2009 for its batteries.  Biden toured its plant in Indiana just after Obama announced his plan to have 1 million electric vehicles operating by 2015.  In January 2011, the same month as the Biden tour, Ener1 entered into a joint venture with Wanxiang Electric Vehicle Co. to make lithium-ion batteries for Chinese cars.  Ener1 moved some of its engineers to China along with some of its manufacturing equipment to ramp up the Chinese production.  In 2010, Ener1 lost $165 million.  In January 2012, Ener1 declared bankruptcy.  Its remains were bought by a Russian businessman with close ties to the Russian President Dmitry Medvedev, who Obama patted on the knee and told he would be more flexible after the election.  Perhaps in addition to giving the Russians what they want on missile defense, he also plans to give them more American green energy businesses nurtured on 48C tax credits.

Smith Electric Vehicles was awarded $32 million of American Recovery and Reinvestment Act money.  Its losses since 2009 have been $128 million.  In February 2011, it teamed with Wanxiang Electric Vehicle Co. to make school buses.  Their agreement had Wanxiang make a $25 million equity investment in Smith Electric Vehicles and an investment of $75 million to develop and manufacture school buses and other electric vehicles in China.

Cardinal Fastener received $480,000 from Obama's 48C tax credit program to make fasteners for wind energy generators.  Obama visited their factory in Bedford Heights, Ohio and promised American green energy jobs, as he always does.  Soon afterward, Cardinal Fastener released 12% of its workforce.  In June 2011, it filed for Chapter 11 bankruptcy.  Germany's Wurth Group acquired it in January 2012 for a mere $3.9 million.

Remembering Obama's not so ready shovel-ready infrastructure projects, some wound up being  managed and supplied by foreign companies.  ABC News highlighted a $400 million bridge renovation project in New York, the new $7.2 billion Bay Bridge from San Francisco to Oakland, and a $190 million project in Alaska which were to be managed by foreign firms.  Parts of the San Francisco - Oakland bridge were manufactured in China.  The state of California had to reject some of the federal money so they could keep their Chinese contractor.

Finally, if you want to encourage American companies to invest in plants and facilities abroad and to train workers there rather than in the U.S., leave the developed world's highest corporate tax rate where it is as the trend in the rest of the developed world is to decrease corporation taxes.  You can export even more jobs by raising the long-term capital gains tax from an already high 20.0% to 23.8% as required by ObamaUncaringTax in 2013.  Add a 4.7% tax increase for Medicare to high paid managers so small and medium businesses will be discouraged from expanding operations in the U.S.  Follow this up with another 80,000 pages of new business regulations and add the regulations of ObamaCare and Dodd-Frank Too-Big-to-Fail to that.  Then throw in a slew of EPA rulings to take effect after the election, several of which are designed to keep us from using coal for anything, thus driving up our electricity costs and making vital electricity less dependable.  Export American jobs so they can use cheap coal-fired power plants abroad.

To top this all off, the gift for a 10-year veteran of the Obama Veterans Administration is a pen set made in China.

Obama's complaints about Bain Capital foreign investments are a case of incredible hypocrisy.  Obama is a con man, but how he can even dream that this level of hypocrisy will go undetected by Americans is beyond me.  Or maybe not.  He does think we are incredibly, stone-like stupid.  For that reason alone, we should vote him out of office.

No Improvement in Employment, Recession Continues Unabated

Do not be encouraged by the announced falling unemployment rates.  These are only informing us that the prospects for finding a job have been so bad so long that the unemployed have either given up on hunting for a job or the government has decided to assume that they no longer want a job.

As I have done many times before, we can calculate the number of jobs that people would want if the economy were robust and offering plenty of good jobs.  It is not doing this due to the huge increases of wealth transfer from the private sector to the government sector throughout the first decade of this century and the many, many tens of thousands of federal, state, and local regulations which are strangulating businesses and preventing the formation of new businesses.  When the situation was better in the late 1990s after the supply-side economics efforts from 1981 on had time to work their magic, many people wanted to work in desired jobs and the unemployment rate was very low.  In January 2000, 67.49% of the total non-institutional working age population was either working, looking for work, or transitioning from one job to another.  Our working age population has grown since then by more than 30 million people.  We can estimate the number of jobs that would be desired now based on the 67.49% who wished to have a job in January 2000.  I know of no fundamental reason why people would not be as eager to work now, if only good jobs were available.

Once we determine how many jobs would be wanted by this criterion, we can subtract the number of jobs actually held by Americans now.  The resulting number is the number of missing jobs.  This number of missing jobs is a great measure for the health of the economy, just as the GDP is also.  The GDP has been improving somewhat for some time in this Great Socialist Recession thanks to productivity improvements per worker, but as we will see, job creation is more dismally deficient than we are led to believe.

Let me provide the job numbers for January and February employment and unemployment before we go on.  The numbers in the table below are from the latest Bureau of Labor Statistics report or earlier reports.  The table does not use seasonal adjustments.  These are the actual numbers of people employed and unemployed.

The unemployment rate, using numbers not adjusted seasonally, was 9.8% in January and 9.5% in February.  This is not as good as 8.9%, the seasonally adjusted unemployment rate.  The real story is much worse than this.  In December, we had 22.067 million missing jobs, which we can compare to only 5.689 million missing jobs in January 2000.  Some sizable fraction of the January 2000 unemployed were probably briefly between jobs as they switched from one job to another, so this actually slightly overstates the number of missing jobs then.  The job market was so good, people were then changing jobs frequently.  In January 2011, the missing jobs rose to 23.5 million and we saw a small improvement in February to a mere 23.1 million missing jobs.  The percentage of missing jobs is actually 14.3% now.  That is much worse than the 8.9% unemployment rate we are told by the government and the media.  Of course, we also know that many people are also underemployed in addition to this appalling number.

To get a better sense of what the progress has been on job creation as the economy measured by the GDP has begun to improve, let us examine a graph of the number of missing jobs (given in thousands, making 1,000 jobs in thousands equal to 1 million jobs).  This graph has a baseline of 20  million jobs, so no month in the time from November 2009 through February 2011 has as few as 20 million missing jobs:

We see that January and February of 2010 were awful months, but there was some job growth through July of 2010.  Then the jobs situation became worse through the end of the year into January 2011.  February 2011 shows a bit of improvement, but the economy is still missing more than 23 million jobs!  If the Democrats had increased taxes as they wanted to before the voters convinced them in November 2010 that that would be suicide for their political careers, this missing jobs situation would certainly be worse.  But, with the upcoming scheduled reduction of corporate tax rates in Japan, the U.S. will have the highest corporate tax rates in the developed world.

It is easy to make a huge difference in the number of jobs available to Americans.  Right now, it makes more sense for companies to expand their operations overseas, close to their non-American customers and where the taxes and the environmental regulations are often less onerous.  The Cato Institute just released a study entitled New Estimates of Effective Corporate Tax Rates on Business Investment.  The effective tax rate on U.S. corporations is 34.6%, but it is only 18.6% for the average OECD nation.  The average for 83 nations is even lower relative to the U.S. rate at 17.7%!  Only an idiot can fail to see that this is a strong negative factor for the creation of U.S. jobs.  Indeed, this is why major corporate tax rate reductions have been made in Canada, our largest trading partner.  Canadian business is booming compared to the U.S. and generating more tax receipts for government as a result, thereby reducing the Canadian deficits.  Over the last decade or a bit more, Austria, Bulgaria, the Czech Republic, Germany, Greece, Iceland, Ireland, Italy, Netherlands, Poland, Slovakia, Turkey, Egypt, Georgia, Kazakhstan, Lesotho, Mauritius, and Singapore have made large corporate tax rate reductions.  Australia, Belgium, China, Denmark, Finland, South Korea, Luxembourg, Mexico, New Zealand, Taiwan, and the United Kingdom made substantial corporate tax rate cuts also.  Many of these countries are going to make further tax rate cuts.

Only the U.S. has been too dumb to stop penalizing companies for providing the goods, services, and jobs we want!  The Democrats have actually raised the future effective corporate tax rate with provisions in ObamaCare and the Dodd-Frank financial reform bill.  They raised the rate with the imposition of mandates to use expensive and unreliable "green energy" and will raise it more with anti-carbon regulations out of the errant EPA.  On top of all that, before the November election, they wanted to raise the basic corporate tax rate.  The Obama budget proposal for 2012 and beyond calls for tax increases of $650 billion.  He wants to add $46 billion of taxes from oil companies, thereby preventing them from taking advantage of many new oil and gas finds in the U.S. to create new jobs and wealth.  Actually, they probably will not be able to extract much more oil and gas anyway while Obama occupies the office of the president since he is allowing no leases to be sold.  In addition, he plans to hit multinational corporations with an additional $129 billion of taxes.  Such an anti-business climate makes the avowedly socialist countries of Europe look like better bets for expansion in too many cases.  The Democrats talk about wanting to create jobs, but virtually every concrete proposal they make will kill jobs.

Investment in U.S. corporations is also blocked with high taxes on dividends.  The owners of a corporation pay an effective tax of 34.6% prior to any dividends being issued and then pay an amount on ordinary dividends equal to their individual income tax bracket.  Through 2012, that bracket may be 35%, making the total tax they pay on an ordinary dividend equal to an overall tax of 0.346 + (1 - 0.346)(0.35) = 0.5749 or 57.49%.  This leaves little incentive for such investors.  In 2013, the situation gets worse, since the Democrats want the highest income tax bracket rate to automatically go up to 39.6%, which will take the dividend rate along with it.  Dumb and dumber.

Job creation is mostly the business of small business.  The personal income tax rates strongly affect small businesses, since their profits are normally added to the income of individuals on their personal income tax returns.  The same is true for many angel investors and the family members who invest in a relative's business when he starts one up.  The risks in starting a small business are huge.  Most go out of business within ten years.  Those that succeed in generating profits, return less to their investors by virtue of the long-term capital gains tax.  Through 2012, this has just been set at 15%, but it is scheduled to go up to 20% in 2013, unless the more economically savvy Republicans can pass legislation opposed by Obama and the Democrat Senate before then.  Meanwhile, no one can undertake a long-term investment without assuming that any success will be taxed at the 20%, not the present 15%, capital gains tax.

One of the most important requirements of good tax laws is that businessmen should be able to count on their tax rates not going up.  When tax rates go up, they turn calculations that justify an investment of money and years of work into failures.  Wealth and jobs are lost as a result.  Even the threat of a tax increase causes proposed investments to be tossed out as excessively risky and it can cause somewhat marginal businesses to be closed down early.  Most businesses have a learning curve in which the owner messes up and has a number of close calls with failure and bankruptcy.  Many wildly successful businesses had such close calls in their infancy.  Every time a tax burden or a regulatory burden is added for a young business, that business may be pushed over the cliff.  We cannot calculate how many future successes are killed in this way.  But, we do see that countries with lower tax and regulatory burdens on businesses do tend to have higher growth rates, generate more wealth, improve the living standards of both the poor and the wealthy, people live longer, there is less pollution, and they have lower unemployment rates.

This picture is so clear that it is evidence of a strong idiocracy in academia, the political class, and most of the media.  Idiocracy is my word for persistent wrongheadedness in the face of a multitude of evidence to the contrary often subscribed to by otherwise intelligent people.  The word is applied most frequently to college indoctrinated Progressive Elitists.  They have worked very diligently to produce the Great Socialist Recession and to maintain our economy in a jobless state.

Texas Rewards Success, California Taxes It

California and Texas are 1 and 2 in Gross State Product (GSP), the state equivalent of the GNP. The 2008 GSP of California was $1.847 trillion and that for Texas was $1.224 trillion, with New York not too far behind Texas. From 2005 to 2008, the states with the fastest growth in GSP and their ranking on the personal and economic freedom index of Ruger and Sorens published by the Mercatus Center of George Mason University (dated February 2009) are:

Wyoming, 33.56%, 20
North Dakota, 28.52%, 4
Texas, 24.59%, 7
Utah, 23.17%, 14
Alaska, 21.72%, 47
Louisiana, 21.42%, 28
Oklahoma, 21.14%, 17
Montana, 20.48, 21
South Dakota, 20.34, 1

The corresponding results for California are:

California, 13.40%, 48

An article in the Investor's Business Daily called A Trenchant Tale of Two States points out further contrasts between these two states.  California had lost 1.46 million jobs due to this socialist recession we are in as of August when comparing to the jobs of December 2007.  But, Texas had replaced the jobs that were lost there earlier in the recession.  As of August, California alone accounted for 22.74% of the jobs lost in the nation since December 2007!

The magazine Chief Executive polls CEOs about the business environment in the states and California was ranked 50th of the states each of the last five years.  Texas was ranked #1.  The CEOs blame California's high taxes, its over-regulation, and bias against the profit motive.  On the other hand, Texas is appreciated for not having a personal income tax, not taxing capital gains, and having a more reasonable regulatory burden.  California's capital gains tax is as high as 10.55%.  Its regulations raise labor costs, promote litigation, and put building projects into suspended animation.  The state and local governments make a habit of preying on businesses and property owners with fees and mandates.

As the IBD article graphics above show, Texas over a ten-year period, had a lower personal tax burden, its gross state product growth was higher, personal income growth was higher, its population growth was much higher, and its non-farm payroll employment growth was much higher when compared to California.  Texas also bettered the national averages in all of these categories.  In addition, there was a strong net domestic migration out of California and a strong migration into Texas.  People vote with their feet.

The issue of a state personal income tax is worth looking at more closely.  Texas and the eight other states with no state personal income tax grew their nonfarm payroll by 11.76% from 1999 to 2009.  California and the other eight states with the highest upper personal income tax brackets, grew the nonfarm payroll by only 2.48%.

Some states, such as California, are very highly biased against the profit motive, business, and property owners.  It makes doing business in those states very unpleasant.  Some companies move out of the state, while others simply choose to do their future expansion in other areas.  Sometimes the other area is Texas and sometimes it is in another country.

The IBD article concludes with an interesting anecdote:  California governments love alternative energy.  The City Manager of Brisbane, CA pretends to be enthusiastic about solar power, but this does not stop him from charging $13,510 for a permit to install a 131 kilowatt system.  He claimed it made no sense to allow a commercial firm a break on that fee, since they only wanted a profit.  The bias against profit might as well be a bias against jobs and income growth.  This bias is a characteristic of the more socialist states such as California and they pay a steep price for that bias.

The September Jobs Horror Story - As Dismal as Dismal August

In September, 204,000 fewer people were employed than in August.  In August, 215,000 fewer people were employed than in July 2010.  Meanwhile, the working age population has been growing.  The September working age population grew by 223,000 people compared to August, at least 60% of whom want jobs.  Yet the usually stated seasonally adjusted unemployment rate remained about the same as it has been for several months.  This is because the number of people the government thinks want work shrank by 619,000 people in September compared to August.  In August the number of people supposed wanting work shrank by 378,000 compared to the number looking for work in July.  As always in a long recession or depression, the shrinking numbers of people known to be looking for work do not mean that more people are not looking for work or wanting work which is hopelessly unavailable.  Obama's promised change has brought an end to the hope for employment.  Many people, especially many of the young people who are coming into the working age now or recently, face horrible odds in finding a job.  They should be attributing this to Obama's transformation of America.  His many anti-business attitudes have certainly had destructive consequences.

The table below presents the jobs numbers taken from the Bureau of Labor Statistics unemployment report for September 2010.  The important ones are that the working age population is growing and so many new jobs need to be created for the majority of that increased number who want a job.  The next number of great importance is the number of people employed.  That needs to increase greatly simply to keep up with the population growth.  When it is falling, that is a disaster.  As noted above, it fell badly in both August and September.  The so-called unemployment percentage is not very meaningful in a long recession.  What is meaningful is the calculation of the number of jobs needed so that as large a percentage of the working age population has jobs as had jobs when the economy was in much better shape, such as in January 2000 when 67.49% of the work age population had jobs or were actively looking for them.  The unemployment rate then was only 4.04%, which was a figure with some meaning in those circumstances.  Of course some of the unemployed then were actually transitioning from one job or career to another and were anything but the long-term unemployed who dominate today's Obama World.

During this recession, the number of missing jobs grew until it reached a maximum number of 23,108,000 jobs in January 2010.  The number of missing jobs then started to decrease and reached a minimum in July of 20,418,000 jobs.  Since then, the number of missing jobs has grown to 21,129,000!  The % Missing Jobs number is less important because that has a similarity to the usual unemployment number: it depends upon the number employed plus the number actively known to be looking for work.  It is of some significance however that that number is considerably higher than the usual unemployment number.

Here are a few interesting employment changes from August to September:

• The number of employed men fell by 633,000.
• The number of employed women increased by 461,000.
• The number of white Americans employed fell by 41,000.
• The number of black Americans employed fell by 161,000.
• The number of Hispanic Americans employed grew by 93,000.
• The number of full-time employed Americans fell by 1,123,000!
• The number of part-time employed Americans increased by 919,000.

It is clear that the changes were very unfavorable to full-time employment, to men, and to black Americans.  They were relatively favorable for women and for Hispanic Americans, though it is likely many of their gains were for the increased number of part-time jobs, rather than in full-time jobs.

This is the last jobs/unemployment report before the election.  Obama's, Pelosi's, and Reid's economic policies and anti-business policies have certainly had a transformative impact on employment.  The impact of ObamaCare on business costs has begun.  The cost of doing financial transactions due to the Dodd-Frank legislation is already going up.  We still wait for news on what taxes will be next year, which is already almost immediately upon us.  Will personal income tax rates go up, will capital gains taxes go up, and will the death tax be collected again as a mechanism to destroy businesses?  We know that the EPA wants to put draconian requirements and costs on using energy that generates CO2, but how expensive will that be in the near future and then in the longer term?  Will the Obama administration ever allow drilling for oil and gas again?  There are many, many business uncertainties and hurdles that the Democrat presidency and Congress have created.  The current dismal jobs situation is the very predictable result.

I will point out explicitly that men and black Americans should be especially eager to see the present Democrat tyranny replaced and punished in the up-coming election.  Most white men will do just that.  Someday, one cannot help but believe that black Americans will catch on to the fact that the Democrats are poison to them and understand that the free market is their only real friend.  Meanwhile, Obama continues to tell us that transferring wealth from the private sector to the public, government sector will somehow create more jobs.  How could he be more wrongheaded on this critical issue?  We are now in a situation in which local and state governments are letting their employees go because the private sector cannot supply the taxes it could in better times, before business fell prey to the Democrat super-majority in Congress and to Obama.

What is Progressivism?

"progressivism." Webster's Third New International Dictionary, Unabridged. Merriam-Webster, 2002. http://unabridged.merriam-webster.com (24 Feb. 2010).

1 : the principles or beliefs of progressives
2 : PROGRESS 4a
3 usually capitalized : the political and economic doctrines advocated by the Progressives
4 : the theories of progressive education -- contrasted with essentialism


OK, that is not very helpful.  So far we know it is some set or sets of principles or beliefs and the progressives who hold these principles or beliefs would like to think they represent some form of progress.  But, the principles and beliefs are apparently defined by those who are progressives.  Who on earth are they?


5 often capitalized : of, relating to, or constituting a political party advocating or associated with the principles of political progressivism

Whoa!  Is this circular or what?  Apparently Progressives do not want to have any limits placed upon their beliefs by anything we could legitimately call principles, or they do not wish to name their principles.  If they had principles, those could be defined, but there may be reasons why they do not want them to be defined.  Arbitrary beliefs cannot be defined and they have an advantage in being very flexible.  Today Progressives believe in minimum wage laws, but if the labor unions were to decide tomorrow that they do not like minimum wage laws, then the principle of minimum wages is tossed aside with no problem.  Today they want to reward the trial lawyers with many extraordinary awards of punitive damages in medical malpractice lawsuits, but if the trial lawyers fail to deliver enough political contributions, why then the Progressive is free to believe in tort reform, at least if the insurance companies give them more political contributions for the purpose than the trial lawyers do.

How marvelous it is to be assured that you are for progress and you are free to believe in anything you wish to believe in.  How confining it is to actually be a man of principle.  How much more freedom one has by being a woman without principles.  It is so much more practical to have no principles.  It is great to be a pragmatist and an opportunist.  Today, it is good to advocate alternative energy development by government subsidies and mandates and high fossil fuel prices, but if the ground falls out from under the catastrophic man-made global warming alarm story and the People wake up to the foolish economics of alternative energy and balk at the high cost of fossil fuels under Progressive controls, well the Progressives can simply change their beliefs to some other vague and not-yet-understood to be unsound program, which sounds plausibly like progress.


When Obama campaigned to become President, he kept saying over and over that he was for change.  Indeed, he is.  He wants to diminish the role of Capitalism and increase the role of government.  He wants to increase the central planning of government and take away the individual decisions that characterize the free markets of the private sector.  He wants to diminish those few restrictions on government power still recognized as being required by our Constitution and replace them with a more powerful Presidency and Congress.  He wants the President and Congress to have more control over the People.  These are the only changes for which he and the Progressives consistently stand.


There is a remaining program for change, however.  That program has no principles to guide it and it has no defining characteristic, except that it is a constantly changing program of claims which vaguely sound to many people as though the Progressives are trying to improve our society in some collective sense.  In fact, the particular claims are not important.  They are just whatever seems to motivate some people to back the Progressives themselves for a period of time.  The Progressives figure out what increase in government power can be used to buy the votes of a block of voters and they find a rationale for that program.  The rationale can be very flimsy and can be understood to be wrong by those who have expertise in the given area.  For instance, the Progressive is for those minimum wage laws that increase unemployment among the young and the handicapped and in the more remote rural areas of the country, proclaiming that a man must support his wife and children, so minimum wage must allow for that.  Never mind that minimum wage jobs are usually held only by those in training and who are very poorly educated.  These people will simply not be hired at all as the minimum wage is raised.  Keeping them out of jobs is hardly a good change in keeping with progress, but it is a favored program of the Progressives.


Another favored change with the Progressives is union card check.  This program is such a blatant travesty that little rationale is even offered for it.  No one wants this except union leaders and those politicians who expect they will get larger donations from the unions as the unions increase the number of poor workers who have to give union leaders union dues.  The change is to deprive employees of a secret ballot allowing them to determine who will represent them in wage negotiations.  Who on earth would want that, except the party of Progressives who only want it because they want more money to use in elections to gain more government power to gain more control over the People.


It is clear that it is not quite the case that Progressives have no principles.  They do have one principle.  They stand for more government power so the government can have more control over the lives, bodies, property, income, character, and actions of the People.  Some of those Progressives simply want the power of being in control, while others delude themselves with thinking that once they, the college-educated elitists usually, are in control, they will somehow use their power to do good things for the rabble, the trailer trash, the NASCAR fans, those who cling to their guns, religion, and Constitution, and the uneducated.

There are problems with believing this rationale for seeking power to do good.  One problem is all the harm they do to gain the money to gain the power.  Another is the pretense that these elitists know the lives and experiences of the peasants well enough to be able to figure out what is good for them when the Progressive has finally gotten his hands wrapped firmly around the levers of power and no longer has to buy the votes of those who do not care so deeply as the Progressive good souls do.  Another problem is that after decades of fighting to attain the power of government by being an opportunist looking for more power at every turn and dealing with unsavory union leaders and trial lawyers, the well-intended Progressive is very likely to become damaged goods.


Some would claim that the Progressive wants a redistribution of income so that the differences in income and wealth among the People are minimized.  There is usually a claim among the Progressives that they stand for this.  But, when they have exercised power in the U.S., their actions have rarely been consistent with such an idea being taken as a principle.  They have instead been more about picking winners and losers in our society.  Sure, they want high income taxpayers to have high tax rates, but they also want farmers, ethanol refiners, union leaders, trial lawyers, accountants, alternative energy producers, bankers, recyclers, government contractors, and others who are politically connected to have high incomes through subsidies, mandates, and make-work programs.  Meanwhile, they pile on the taxes and while many of these are aimed at the rich or better off, most of those high taxes are passed on to those who need the products and services produced by the more productive people in our society.  These people tend to be those with high incomes and/or great wealth.


In practice, the one single principle of Progressivism is a desire for government to have more power so it will have greater control over the People, while the college educated elite control the government.  Now, our colleges have long been controlled by the Progressives and such jobs as those in publishing are similarly mostly controlled by Progressives.  It is not at all surprising that Merriam-Webster did not name the principle that gives meaning to the words Progressive or Progressivism.  Naming that principle is not helpful to the goals of the Progressives.  It must be kept a bit hidden.  The Progressive is against allowing the individual to choose his own values and to manage his own life in accordance with his freely chosen values.  He is against the Constitution, because that limits the powers of government.  He is against the free market and the freedom of choice that individuals find in the private sector.  But, he is loathe yet to tell us that he is against the individual and his rights.

Whalen: We Broke the Bank!

Mike Whalen, founder, president, and CEO of Heart of America Restaurants and Inns and also policy chairman at the National Center for Policy Analysis, summarized the debt situation of the federal government in an excellent commentary in the 11 August 2009 Washington Times called We Broke the Bank! We need to rein in our overspending. Let us examine some of his key points:

• On-the-books national debt is $11.6 trillion.
• Off-the-books debt including Medicare and Social Security, is $107 trillion.
• Even these amounts do not include pensions and benefits of federal workers and veterans.

Adding just the $11.6 trillion [expected to be $12 trillion by October] to the $107 trillion gives us $119 trillion in debt. The GDP is about $14.3 trillion and federal revenues are about $2.5 trillion, so the debt to federal revenue ratio is 48. But, he points out that there is no available cash in the government revenues to pay the debt, since it is all obligated elsewhere already.

Looking at this another way:

• Total national private net worth is $51.5 trillion.
• Federal unfunded liabilities are 2.3 times the nation's net worth.
• "That's pretty darn broke."

Whalen says there is no way to service this debt. The game is up. "Even if we significantly slash the federal entitlements by half, we cannot fix this problem. Even if we increase federal receipts from the 50 year average of 18.5 percent of GDP to say 27 percent, killing private sector growth, we cannot fix the problem."

Indeed, the problem may well be fixed only after the U.S. goes bankrupt and forfeits on its obligations. The best we can do is to rein in spending drastically and do the opposite of Mike Whalen's suggestion on increasing federal receipts as a fraction of GDP. We know that attempts to increase tax rates result in a drop in federal revenues, while decreases in rates result in increases in federal revenues.

Many people absolutely cannot understand this. But, first, it has been demonstrated when Presidents Coolidge, Kennedy, Reagan, and George W. Bush reduced income tax rates and when Clinton reduced the capital gains tax. Tax decreases result in added growth of the economy, which contributes to more tax receipts for the federal government. But, this is not the only effect. Lower taxes make people feel better and make them more confident about their future, which helps them to deal with the federal debt they are saddled with.

Finally, and this is really important, people work very hard to avoid high taxes. Business decisions that make great sense with low tax rates, make no sense with high tax rates and are not undertaken. People also cheat much more when the tax rates are high. The size of our underground economy, while not proportionally as large as that in Italy, will increase as tax rates increase. Another hugely important factor is the velocity of transactions. When tax rates are low, especially capital gains taxes, people buy and sell with much greater frequency. Taxing 10 transactions of $10,000 at a rate of 12% yields $12,000, but taxing 4 transactions of $10,000 at a rate of 20% yields only $8,000. The frequency of taxable transactions is critical in government revenues.

In summary, our best hope in minimizing the damage is to reduce government spending, stop making unfunded future obligations such as throwing more people into Medicaid, and accelerate the economy with tax cuts for investors and hardworking businessmen. The more business investment, the sooner the unemployment rate comes down and this helps to decrease government spending on unemployment and increases income tax revenues. The more business investment, the more profits are realized and this adds to tax revenues. If there is a solution, this is it.

Unfortunately, the Democrat Congress and Obama will not hear of any of this. Unless the American People throw them out of office as soon as possible, we are doomed to bankruptcy as a nation. Then, of course, the People must demand reductions in spending and tax rates, or we are still doomed. They must learn to appreciate the ability of Americans to manage their own lives and to grow the economy while making life richer and easier for almost everyone.

Obama The Idiocentric, Obama the Insane

I have several times noted that Obama is a man who consistently examines a complex issue pertaining to the lives of individuals in society and comes to all the wrong conclusions. I have termed such a person an idiocentric. However, someone who always makes wrong judgments about reality is very reasonably said to be insane. Obama has made it very clear that he is insane.

For a long while the fact that Congress has been under the control of the Democrats, the very extreme socialist nature of the Democrat leadership in the House and the Senate, and their announced intentions to raise taxes on wealthier Americans, on businesses and investment, to force unions on workers and employers, to do nothing to reform either Social Security or Medicare, to further socialize and ration medical care, to do nothing to keep the world's leading terrorist-supporting nation from acquiring a nuclear bomb and missile capability, and to return us to a pre-industrial and pre-energy lifestyle has all hung over our heads as an individually threatening guillotine. Only the presence of President Bush with his potential to veto legislation and the threat of Senate filibusters saved us from the worst of their plans for some time. But it was clear that there was no way that spending was going to be controlled, there was no way that the Bush tax cuts were going to be maintained when they expired in 2010, and there was no way that the U.S. was going to match the corporate and higher income tax rate cuts which were doing so much to promote growth in many other countries.

Now, the Democrats control the Presidency and not only control it, but have placed the most committed socialist of them all into the position. What were Americans thinking about? Apparently only that they were guilty because of past discrimination against African Americans.

When a presidential candidate says that he wants to bankrupt all coal-fired power plants, which produce half of all of our electricity, and replace them with incredibly expensive photovoltaic power plants and windmills, the man should be recognized as insane. When he constantly implies that if only we tax the rich enough, 95% of us can be much better off, the man is a candidate for a careful mental health evaluation. If you take all of the wealth of the top 5% of Americans and redistribute it, this just means that a different 5% of the population is to be destroyed next. This is like eating all of your seed for next year's crop now because it will make your tummy really full now. The pundits like to attribute the problems of the economy prior to Obama taking the oath of office as due to President Bush. He had a hand in it, but the Democrat Congress had a bigger hand in it, and as the election campaign unfolded, fears of what Obama was going to do had a bigger and bigger hand in convincing investors to pull back their money. The drop in the stock market all the way back to last September was largely due to Democrat idiocentricity!

Now Obama is President and he is leading the charge on one insane act after another:

• An $800 billion stimulus bill which will only stimulate government and shrink the private sector.
• A more than $400 billion supplemental spending bill filled with lard and 9000 earmarks.
• Constant negative talk about how bad the economy is and seeds planted for the nationalization of the auto and financial industries.
• A higher income tax rate for those making more than $250,000 of 39.6%, which will hit many small business owners and surely cause them to create many fewer jobs.
• Applying the Social Security tax to those making $250,000 or more, which is an additional tax of 12.4%, though many people are of the mistaken belief that it is half this amount unless you are self-employed.
• Capital gains is to be returned to the 20% rate, despite the fact that a reduction from this rate to 15% under Bush proved a boost to the economy, a job creator, and still increased government tax revenues.
• A plan to decrease energy use by 14% in 10 years and by 80% by 2050. This is a plan to bring back the horse and buggy, except the horse will be biogenetically engineered not to shit, since that produces methane, a greenhouse gas. We will all be Amish soon.

Given such colossal wrongheadedness, we can be sure there will be many more insane plans announced in short order. Basically, we are now to become cannibals and eat the rich. When they are all devoured, we are to live as the Amish do, but we will have no rich, energy using people to sell our organic products to, so the idea that we will live like the Amish is not realistic. It will be more like a return to the caves. Seriously.

Since we will no longer have an effective military defense, it will be better to be in the caves anyway when the Iranians lauch their nuclear warheaded missiles at the Great Satan. Obama is a commited unilateral disarmament kind of socialist, already made apparent by his early policy moves with respect to Russia, Iran, Hamas, Iraq, and Pakistan. The caves will be the best protection we will have left. But be sure that this is not to be a return to life as the caveman knew it. No, the caveman was allowed to burn wood and create CO2 emissions. He was also allowed to wear animal furs. We will be without the use of energy to keep warm and we will be very naked in Obama's future world. And at least 4 or 5 billion people on earth will have to die so that the almighty, pristine earth will be less damaged by the existence of mankind.

What is a Rational Tax Policy?

The last few posts have been for the purpose of establishing a foundation for a discussion of what a rational tax policy would be and then to proceed with such criteria to examine the tax policies of the Presidential candidates McCain and Obama. It is not possible to evaluate the soundness of their policies without thinking about the proper purpose for taxes and the least harmful ways to impose them upon the people.

First, the amount of tax money needed to operate a government should generally be determined by which derivative functions it can legitimately pursue as compatible with its fundamental function of protecting the right to life, liberty, and the pursuit of happiness of the individual. If our federal government carried out its work consistent with this constraint, the total federal budget would certainly be less than 40% of what it is now. This would allow huge tax reductions. Both state and local government functions are probably just about as bloated with respect to this purpose.

Second, all government budgets should generally be balanced, with tax income equaling government expenditures. Under severe depressions and during a life-threatening war, the last of which was WWII, government deficits are reasonable.

Third, taxes are not to be used to punish people who are either making high incomes, or who do not wish to buy a home, or who do not wish to install a photovoltaic panel on their rooftop, or who smoke or drink alcoholic beverages. Taxes are not to be used for social engineering purposes, since there is no way to do this which will not derive some people of their right to life, liberty, and the pursuit of their happiness.

Fourth, having satisfied the above conditions, taxes should be levied such that the economy as a whole will be able to sustain a maximal growth rate. The fundamental reason for this is based on the observation several posts ago that personal compensation income, including benefits, has been approximately fixed at 70% of national income for about the last 40 years. People across all income levels see their income grow as the national income grows. Thus, if you hold the best interests of anyone, poor or wealthy, at heart, the way to best improve their lives without doing actual harm to anyone else, is to establish policies which allow everyone the freedom to contribute to the growth of the economy. Putting excessively high marginal tax rates on the wealthy simply discourages them from working an additional hour they would otherwise have chosen to work. Or, it causes them to invest their income in a bigger home instead of more efficient machinery for their factory. With less efficient machinery, they cannot hire more employees or they have to fire employees, because a factory in China is making similar items for less. Or similarly, they invest their money in municipal bonds for the tax deduction, but what municipal activity grows the economy as well as their equipment investment would or as their hiring a new worker and providing him training so he can become productive?

Fifth, taxes should be simple and so straightforward that every voter knows very well how much he is paying in taxes each year. From this standpoint, pretending that an employer is paying half of the total Social Security and Medicare taxes is wrong. It is also wrong to tax corporations, because all of the taxes they pay are passed on to individuals in ways much too complicated for anyone to figure out. Ultimately only individuals pay taxes, so the tax should be levied on them directly so they can be aware of what the cost of government is to them. They must be in a position to determine whether the value of government programs equals their cost. Taxes are the equivalent to prices in the free market for government. In the free market each consumer decides which products and services and how much of each product or service he will buy based on his needs, desires, and prices. The voter should be doing the same with respect to government, albeit government limited by the principle of protecting individual rights, and the cost of government, which is given by taxes.

Personal exemptions on income taxes should be based on the cost of a person having sufficient, but just sufficient, means to feed, clothe, and house themself. No other tax exemptions should exist except qualifying medical expenses, which would not include certain types of cosmetic surgery, for example. This deduction should include the cost of medical insurance. This keeps income taxes fair and simple. The tax rate applied to taxable income should be the same for everyone. Programs such as Social Security and Medicare should be phased out since they are not a proper function of government and their functions should be handled by private industries, such as investments and insurance.

Unfortunately, governments have caused many incredible distortions of the free market with their tax policies of the past and present. People have bought homes eagerly of a size more than adequate to their needs in order to have some tax relief. Ending the home mortgage interest deduction would cause a collapse of the housing market. This is admittedly not an easy problem to solve. But, a drastic cut in the cost of governments as they retract to the size they should be, will allow those with homes to at least not be hit with a tax increase due to losing their deduction for the mortgage interest paid. Over time, a great reduction in the size of government and of taxes, will allow the economy to grow so much faster that people will want larger homes due to their greatly increased wealth. So, how do we get to no mortgage interest deduction from here without collapsing the value of homes on the market? Clearly, the deduction will have to be phased out slowly as the size of government is decreased. In year 1, 97% of the mortgage interest could be deducted, then in year 2 the deduction would be 94% of it, until 33 years down the road, there would be no such deduction. This schedule should be viewed as unchangeable by Congress so that everyone can calculate out the consequences of buying a home with a given size mortgage and not have to worry about arbitrary Congressional tampering with their biggest investment decision. Probably the same should be done with the deduction for state and local income taxes. This gives people a fairly long period to re-adjust their decisions on which states and local areas they will live in. These are long-term commitments that need to be made as a sacred covenant on the part of the government toward the people.

Social Security should also be phased out. The proposals to allow young people to invest a part of the present 12.4% in private investments is the way to go here. The part they are allowed to invest will increase over the years. On the other side, people are living much longer now and are much more healthy and generally can more easily find jobs which are not backbreaking than was the case when the Social Security system was begun. This means that people should be expected to work longer before drawing Social Security benefits. They have no right to draw more in benefits than younger people can afford to pay out in taxes. They voted over and over again for this Ponzi scheme, knowing full well that private investments would have provided them a much better retirement. So, benefits given out should not be extravagant. There should be consequences for choosing to do stupid things!

Similarly, Medicare should be phased out. This can also be handled in a very similar manner as with Social Security.

Corporate taxes as mentioned are simply passed on to individuals in many complex ways. If they were eliminated, then American corporations would be much better able to compete in the world economy. Prices for many goods and services would drop, corporations could make wise business decisions without having to worry about disrupting tax issues, they would export more goods abroad, they would hire more people and pay them better salaries, and they would invest more in equipment modernization and personnel training. There would be a serious resulting boost to the economy as a whole. At the least, corporate taxes should be as low as capital gains taxes, since the role of a corporation is largely one of making capital gains.

Capital gains are taxed without regard to the effects of inflation and without regard for the fact that defering the use of money for a period of time has an interest rate associated with it which should not be taxed for sure. So, what part should be taxed? This becomes complicated. Frankly, it is too complicated, so it is best to set this rate low and just be happy that with a low rate on capital gains, the economy is going to grow at a higher rate and in the end everyone benefits from getting their 70% share of the bigger economy. The capital gains rate should be considerably lower than the tax rates paid by the middle class on income at least. This gives the middle class incentive to invest and recognizes that capital gains are not corrected for deferred use of the money and for inflation. Of course inflation is supposed to vanish as governments learn to live within the much smaller budgets needed to fulfill their legitimate functions.

The Death Tax, which causes governments to dance upon the grave of the recently deceased, while they rip what remains out of the heart of grieving relatives and destroy businesses, whether farms or small manufacturing, retail, and services companies. This allows government to deprive employees, who may already have a struggle to keep the business going without the guidance of the owner, of a job. What sound government tax policy this is! This death tax is clearly all about punishing people who spent a lifetime building wealth and commonly providing many others with jobs. This is envy of the worst kind run amok. Sometimes it is claimed that relatives have not earned the income of an inheritance, therefore the government should keep them from getting it. This is not always true. Often family members have played a major role in helping to build a family business. Besides, if they are undeserving, they will commonly lose the inheritance soon enough. In any case, the on-going business and the wealth assets will be taxed into the future in the normal ways, so governments will get their income. Such businesses as do survive the death of the owner will often generate far more taxes over time than will a business sold in a fire-sale in order to pay inheritance taxes. The death tax is a clear example of political tom-foolery. We citizens who accept this disgrace are the Toms made fools of.

Now, I am not unrealistic enough to believe that this entire goal of returning government to its legitimate functions and thereby reducing its size is going to be accomplished in this upcoming election cycle. First, the people have to become committed to the essential principle of government limited to the purpose of protecting individual life, liberty, and the pursuit of happiness. Given that this will not happen soon, it is still advisable to judge the tax policies of politicians on your rational goals, rather than as a cost-free promise of Christmas gifts all year long, as many voters do.

Politicians will always skew their tax plans in a direction designed to win enough votes to be elected to public office. Some count on the electorate being absolutely uninformed about the economy, business, and of course the function of government. Some are in love with class warfare and play on people's envy for those who might have more worldly goods and income than they do. They know that few voters have even read the Constitution. They know that few voters have read much history and tried to learn its lessons over the ages. They count on voters only seeing the first and most obvious effect of any law, including any tax law. They describe the economy as a pie of fixed size, simply to be cut up in different ways. They count on being able to fool most of the people most of the time. And, they have a long track record of showing that they are masters at doing so! They almost never get voted out of Congressional office until they wish to leave. Yet, most of them vote for bills which are clearly not in the best interest of the people and are certainly not limited to functions necessary to protect individual life, liberty, and the pursuit of happiness. They are masters at using the tax code to manipulate one group of people against other groups of people and give out favors to those they want campaign donations from and whose vote they want.

Still, there are sometimes politicians whose tax plans are more fair and more likely to encourage the growth of the economy than are the plans of the completely committed socialists and demagogues. There are politicians who are counting a bit less on the ignorance of the mass of voters. There are some politicians whose time-horizon is a bit further out than that of others. I will try to judge the plans, as best they are known, of the candidates for the presidency. I will also try to assess the commitment of each based on his prior commitments and his prior votes.