Obama is Chicken Little

Veronique de Rugy of the Mercatus Center at George Mason University prepared the graphic above to allow us to see the catastrophe that Obama is warning us about due to the sequester he requested and refuses to prevent.  Now he is playing Chicken Little and telling us the sky is falling due to the decreased growth in federal spending from 2013 to 2021 from 55% growth to 51% growth.  Or a decrease in super-high growth to 2023 of 72% to super-high growth of 68% is sure to be our doom.

Look, our doom is due the failure of the government to make the drastic cuts needed to bring spending down to the levels of tax income.  Our doom is due to having a government that has grown over the last 80 years to the point it is spending four times as much as it is constitutionally empowered to do while exercising powers appropriate for absolute monarchs and dictators.  We are in this financial fix because more fundamentally we have allowed government to become the chief violator of our sovereign individual rights to life, liberty, property, the ownership of our own bodies, minds, and labor, and to choose our values for us rather than to allow us to pursue our own happiness.  It is very expensive to give up the management of your life to government.  This lesson is perhaps the most repeated and obvious lesson of history.

The 1920s Whose Economic Policies Obama Dislikes

In the last debate with Mitt Romney, Obama said, "When it comes to our foreign policy, you seem to want to import the foreign policies of the 1980s, just like the social policies of the 1950s and the economic policies of the 1920s."  Let us review the economic policies of the 1920s a bit.  We will learn some very important lessons.

Amity Shlaes called Obama out on this.  She notes that real GDP grew by an average of 4% a year in the 1920s.  High unemployment in 1921 at 11.7% was brought down to 2.4% in 1923 while cutting federal spending.  In time, government spending as a percentage of real GDP was cut in half.  80,000 patents a year were being issued on average in the 1920s, which was not again matched until the 1960s.  The 1920s were a decade of growth in technology and for the economy generally.

Now, Obama can not abide by cuts in federal spending.  President Harding cut tax rates as advised by Andrew Mellon, and we know that Obama greatly dislikes that idea.  The income tax marginal rate under the bloated government of Woodrow Wilson for those with an income of $100,000 or more was 60% when Harding took office in 1921.  Under Wilson, those with an income of $1 million or more had paid a marginal tax rate of 77%.  The marginal tax rate for those with income over $100,000 was lowered in 1922, 1923, 1924, and then again in 1925 under President Coolidge, with a final marginal rate of 25%, until 1929 when it was dropped to 24%.  Not only did the economy grow well as noted, but the share of income taxes paid by those with incomes of $100,000 or more steadily and rapidly increased from 1923 to the end of the decade.  The total amount of income tax paid by these higher income taxpayers increased rapidly also.  In 1920, those making over $100,000 a year paid 29.9% of all income taxes.  In 1928, they paid 61.3% of all income tax collected.

Income tax revenues from those making $10,000 or less decreased greatly and stayed much lower throughout the decade.  For those making $25,000 to $100,000, very wealthy people then, the collected tax revenues went down considerably before rising later in the decade to about the level at the start of the decade.  See Tax Rates and Tax Revenue: The Mellon Income Tax Cuts of the 1920s by Veronique de Rugy of the Cato Institute.  The fact that total income taxes decreased somewhat for several years before growing back to levels exceeding that of the start of the decade was fine because the Republican Presidents Harding and Coolidge reduced the size of the government considerably.

Arthur Laffer and other supply side economists have often said that the Mellon tax cuts resulted in both economic growth and an increase in tax revenues. Actually, with such severe tax cuts for all income tax brackets, this is not a sufficiently accurate portrayal of what happened.  However, the income tax revenue collected from those with incomes over $100,000 more than doubled!  Large tax cuts for higher earners result in large tax revenue increases because these taxpayers are much more likely to devote great effort to avoiding paying high income tax rates, including exercising their greater ability to retire early or simply to work fewer hours.  They are also more likely to invest their money in businesses when taxed at lower rates, causing the economy to grow more rapidly, which also adds more to both income tax total revenues in time, but also to other types of taxes as people generally earn and spend more.

It is an interesting fact that if high earners were taxed at lower marginal tax rates than lower earners are, total revenues collected by the government by the income tax would increase and increase specifically from the higher earners.  There is even a very good moral argument that this is the way things should be.  Government legitimately serves only to protect our equal, sovereign individual rights from those who would initiate the use of force to deprive people of their rights.  If one man earns 10 times what another man earns, does it really cost government 10 times as much to protect the rights of the bigger earner?  I do not think so.  Some legitimate costs of government overall scale with the population, some with the area of the country, and some with its GDP.  The area of the U.S. is not changing and the population is growing at a rate of only about 1% a year.  Only a fraction of the legitimate costs of government are left as proportional to the GDP.  Total government spending should increase at a rate greater than that of population growth, but less than that of the GDP.  For both moral reasons and for the purpose of maximizing tax revenues, marginal tax rates should decrease with higher income rather than increase.  Such a tax scheme would guarantee that everyone's effective and marginal tax rates could be reduced with time.

Thus we see that the current highly progressive income tax scheme serves only an ideological purpose of egalitarianism.  It makes the primary purpose of the income tax code that of punishing higher income earners, rather than maximizing the income of the government with a minimum of harm to the People.  It sacrifices economic growth.  It sacrifices maximizing income tax revenues at minimal pain.  It means that those many tax revenues that grow with the economy will increase more slowly.  But this highly irrational progressive income tax system is much beloved by Obama.  Therefore, it should be no surprise that Obama hates the tax and economic policies of the 1920s.  Rational Americans should learn from that period of history and at the least greatly reduce the progressive marginal tax rates of the present insane system.  If we had the wisdom to go further and adopt an income tax code that is regressive, we would all benefit greatly in relatively short order.

Treasury Secretary Andrew Mellon

Treasury Secretary Andrew Mellon served under President Coolidge and published a book called Taxation: The People's Business in the early 1920s. My source for information on this is Amity Shlaes' book The Forgotten Man, 2007. At that time, income taxes were only paid by the very rich, but they were very, very high. The top rate was 73%!!!! Mellon believed the rate was too high and prevented investment and job creation. He proposed in his book that lowering the tax rates would result in more revenue for the government. He thought over-taxation was un-American.

"Any man of energy and initiative in this country can get what he wants in life. But when initiative is crippled by legislation or by a tax system which denies him the right to receive a reasonable share of his earnings, then he will no longer exert himself and the country will be deprived of the energy on which its continued greatness depends."

"High taxation, even if levied upon an economic basis, affects the prosperity of the country because in its ultimate analysis the burden of taxes rests only in part upon the individual or property taxed. It is largely borne by the ultimate consumer."

Mellon had the high income tax rates cut and the economy grew handsomely. So too did the government's revenue, allowing the government surpluses.

This process was repeated under Presidents Kennedy, Reagan, and George W. Bush. They cut tax rates and watched government revenues increase. The amount of revenue the government gets from taxes depends on the tax rate, the frequency with which the government tax is paid, and the amount of money or value upon which it is paid. If a lower tax rate results in more taxable transactions or an increase in the size of the taxable transactions, then the government revenue from a tax may go up even with a tax rate cut.

It is very clear that what we need now to create investment and jobs is a very broad-based tax cut program. We should not be stingy in giving tax cuts to investors. The result would be the same that it has been the 4 times it was tried in the 1900s. Investment would increase, unemployment would go down, and government revenues would go up.

What is not to like about this? Why are we not doing this again? Because class warfare is the name of the Democrat game and they are determined to punish the wealthy and those with high incomes, even if it is a case of cutting off the American nose to spite itself. High taxes are about punishment and about control, not about doing anyone any good. If the Democrats wanted to do good for the poor, they would cut taxes and allow investors to create more jobs for the poor. They would also reduce or eliminate the minimum wage which only kills jobs for the low-skilled worker. These actions would create more government revenue to use for programs for the poor as well. But, this is clearly not their priority.

The Democrat priority is to hurt the able and the hardworking and to exercise control over their lives. It is not to help anyone, especially not those with lower incomes.

Pelosi's Version of Change in the House of Representatives

The 1994 GOP "Contract with America" changed the seniority system that often left committee chairman in place until they were quite senile. Pelosi and the Democrat leadership of the House have changed the rules to return the seniority system. The younger, more conservative Democrats who have been essential to the Democrat new majorities, will have no say in how the House is run. John Fund wrote an interesting article on this and the other changes I will summarize and discuss below in the Wall St. Journal on 9 January 2009 called "Pelosi Turns Back the Clock on House Reform."

According to the House Rules, you have no right to any of your income or property at all. The minute some robber baron of the House puts together a bill which is designed to take your income or your property, no opponent in the House can offer a simple motion to remove the proposed tax increase without making up for the "lost revenue." Offering a spending cut as an offset to the proposed tax increase is not even allowed. Thus, the House Rules now mandate tax increases and basically will not allow any tax cuts, except those that increase taxes in some way to offset a decrease in taxes elsewhere. As I said, any proposal to take your income or wealth is now essentially guaranteed success. You will have no effective champion for your rights in the House.

This is one very dramatic refusal to recognize that the way to increase government revenues in this overtaxed world has been to decrease tax rates so that people will increase the number of transactions per unit time which are subject to taxation and so economies will grow. Throughout the world, it is now recognized that tax cuts are bringing increased revenue to governments and most nations have been busy cutting their tax rates. But our idiocentric House Democrat leadership has a dinosauric view of taxes and with their new seniority favoring rules, we will stupidly remain one of the world's most highly taxed people. This is punishing both to our economy and to our freedoms.

Medicare is one of the fastest growing expense items among Federal programs. This House Democrat leadership has decided to suspend all cost containment measures for this program in this Congress. How can this be wise? This is a very well-known highly wasteful program.

A century ago, Democrats were given the motion to recommit, which provided them a procedural safeguard after a period in which GOP Speaker of the House Joe Cannon had railroaded bills through the House. In the last Congress, Republicans used the motion to recommit to send 50 bills back to committee for reconsideration. This often required Democrats to take responsibility for items in the bills which they wanted to get passed before anyone had time to read the bill and publicize what was in it. Of course, much of what they wanted to railroad through on these bills was clearly not in the public interest. This was often documented by the fact that many recommitted bills were never brought back out of committee. Too many eyes were by then aware of what was in the bill and too many minds now knew what the consequences of the bill really were.

The Democrat idea of "change you can believe in", is clearly to make our gargantuan, bloated, incompetent, rights-violating government ever larger and ever less subject to the oversight of the people. It is clearly intended to primarily feed those special interests which will in turn be most gracious in bed in with the Democrat politicians. Of course, the Republicans have not proven to be very substantial foes to this same process. They are just a little less committed to the same outcome with a slightly different set of preferred special interests. It is way past time that we Americans remember the principles of limited government and why they are essential to our retaining our individual rights to life, liberty, and the pursuit of happiness.

I for one am not happy with having Nancy Pelosi dictating what my happiness should consist of and how I can pursue it. I am constantly amazed that so many other Americans want to put her in charge of their pursuit of happiness. This clearly implies that they believe they are incompetent to live and manage their own lives.

Vicious, Pointless Idiocentricity

I have often written about idiotic and wrong-headed politicians and those who join them and encourage them as unthinking fans. We saw a great many Americans arduously pursue and promote a socialist community rabble-rouser from the streets of Chicago who rose meteorically through the highly tainted Chicago and Illinois political scenes to become the most socialist U. S. Senator, in the belief that he was going to provide real change, presumably beneficial change. Now he is the President Elect and filling his appointments with Democratic hacks, just as anyone should have expected he would.

Yet, this man advocates labor union control of businesses, minimum wage laws, rent controls, government control of many industries, bankrupting coal companies and electric utilities, increased personal and investment and business taxes, forcing people to acquire medical insurance they do not need and want, public propaganda "education", and running the money printing presses to provide trillions of dollars to certain favored companies at the expense of the rest of us. This is a consistent picture of some combination of wrong-headedness, stupidity, and a fraudulent quest for ruthless power. Let us coin a new concept to cover all these bases, though with an emphasis upon cluelessness. Such a man is idiocentric, meaning that almost every evaluation he makes of a complex issue is wrong.

Steve Forbes, a very good commentator on things economic and business, points out in his Fact and Comment section of the 12 January 2009 issue of Forbes that the U.S. has the 2nd highest corporate income tax in the world. As I have pointed out before, it is essentially tied with Japan's corporate tax rate. Of course, the growth of the Japanese economy has long been very poor. Most other countries have realized that we live in a world economy and that capital and often human ability have the means to travel from country to country seeking the most favorable returns. As a result, most countries have very significantly reduced their corporate tax rates. Ireland has led the pack.

The U. S. federal corporate tax is 35% and local government taxes average about 5%. In Ireland, the corporate tax rate is 12.5%! Now, our idiocentric contingent immediately conclude that corporations in the U.S. will pay a much larger part of the GDP per year in taxes since their corporate tax rate is three times as high. Nonsense. Look at the facts! Oh, wait a minute, that is something the idiocentrics will never do. But let us do so and let us then hold their noises in the real horses manure of the real world. Of which there will be a lot more if they succeed in reducing energy use as much as they claim they wish to.

Corporate Taxes as a % of GDP

Year, U.S., Ireland

2003, 1.2%, 3.7%

2004, 1.6%, 3.6%

2005, 2.3%, 3.4%

2006, 2.7%, 3.8%

2007, 2.7%, 3.4%

So, the U. S. corporations pay substantially less corporate tax as a % of the GDP than do corporations in Ireland, despite a tax rate three times as high. How can this be so? Well, because the tax rate is so high, corporations lobby Congress very hard and very effectively for many special interest tax breaks. They then twist and convolute their operations to take advantage of those tax breaks. This involves a great effort on the part of management and it is time which is not going into improving products and services, into designing better manufacturing facilities, into training employees, and into acquiring investment capital. As a result, these companies grow more slowly and hire fewer people. In addition, they prefer to invest more of their capital in plants overseas where the taxes are lower and where labor unions are not so likely to horn in on the management of the company. This is where they will hire many people and spend money on training them in new skills. Then, insofar as they can, they shift as much of their profit as they can to these lower tax-rate out-of-country locations.

Meanwhile, in Ireland there are few or no tax breaks, but a very low corporate tax rate that applies to all income. There companies can concentrate on their own operations and on maximizing their profits with much, much greater freedom of choice and action. As a result, they make good profits and are not afraid to declare some profit. The tax payment is reasonable, so there is no need to pretzelize the company operations to fit an arbitrary and complex tax code. Businessmen are free to make better products, deliver better services, and hire more people.

This is not so complex. It is not quantum relativity. It is mostly commonsense. We pursue a corporate tax policy born not of a desire to produce the means to pay for necessary government services, but one born simply from a desire to hurt corporations. That this hurts all Americans, is not perceived. So, we are governed by the idiocentrics, chosen by an unthinking democratic horde, who allow the idiocentric politicians to define their "educations".

Actually, many of the idiocentrics who lead us are probably sufficiently cunning that they are aware of these smelly facts from the viewpoint of their socialist committment, but they do not care. It is the majority of our democratic mob who are the truly idiocentric, and these politicians pander to their ignorance. What they want is clear: It is power, absolutely corrupting power. In the interest of acquiring this power, they are whores for hire. No, that is not fair to whores, who are more honest and who do offer something of value to their customers. No, we cannot compare the politician's profession to any comparable other profession. They set all the standards for fraudulent behavior. They are chameleon masters posing as the idiocentrics most voters are content for them to be.

And, all too often, American voters set the standard for idiocentricity. Of course, they are hardly uniquely idiocentric in this world. They are the ones I have to put up with, however. Look what they have done to those of us who love our individuality and who truly value our right to life, liberty, and the pursuit of happiness.