Right to Opine

Did anyone else just love this little nugget from Obama’s State of the Union?

Or we can restore an economy where everyone gets a fair shot, everyone does their fair share, and everyone plays by the same set of rules.

By “same set of rules” I can only assume he intends to stop taking money from people who have made good decisions and worked hard—and are now enjoying the fruits of their effort—and handing it to people who haven’t. The rules I live by—I stayed in school, worked hard for my grades, spent twenty years developing marketable skills, so I am able to own a home, feed and clothe my family and enjoy the occasional vacation–now apply to everyone? Yeah, right.

There’s been a lot of overblown rhetoric coming from the Left lately about the capital gains tax. Even some big investors—like Warren Buffett—who know better have been banging their drums to raise the capital gains rate. To see why this is terribly wrong-headed we need to look at the purpose and impact of taxes and see how that relates to capital gains.

Taxes are imposed for two reasons. The first, and most obvious, is to generate revenue for the government. Everyone agrees that some level of taxation is requisite and reasonable in order to fund necessary government functions. The second, often overlooked, is to encourage or discourage specific behaviors.

Having recently moved from Arizona to North Carolina, I can attest to an obvious example of the complex interaction of these two purposes: cigarette taxes. Many states impose high taxes on cigarettes in order to discourage smoking. Arizona’s cigarette tax is $2 per pack, while North Carolina’s is $0.45. When AZ raised its rate from $1.18 to $2, total revenues from the tax fell as smokers quit. In NC, not only is the tax low, but practically everyone in the state lives within a mile of a tobacco farm—and smoking is rather prevalent. When NC initially raised its rate from $0.05 to $0.30, there was a drop in sales volume, but not enough to counter the tax increase—tax revenues increased marginally. Another interesting impact of taxation rears its head here: when NC raised its cigarette tax, sales increased significantly in neighboring South Carolina which, at the the time, maintained a $0.07 tax rate. I doubt that South Carolinians suddenly started smoking in droves—those sales were going north across the state line. In AZ, sales on Indian reservations—which do not tax tobacco—went up as well, mitigating the smoking cessation effect and leaching both cigarette and sales tax revenues from the state.

I use this as the near-perfect example because it highlights the tension between the purposes and effects of a tax. When tax rates are increased, there may be a corresponding increase in revenues, or there may be a decrease as demand for the underlying activity or product decreases. It may well be that the effect of decreasing smoking incidence is of greater societal benefit than the loss in revenue is detrimental. But that goal is diminished when demand can be met simply by taking business elsewhere. What is of importance here is not to discuss the cigarette tax specifically, but to see and understand the effects of tax increases.

Now let’s slide into the capital gains tax (CGT). Simply speaking, a capital gain is realized when an investor sells an interest in something (most often in the form of property or stocks, bonds, or fund shares in a business, or dividends) for an amount higher than he originally paid. Taxes on the gain are paid at 15% for long-term investments (reduced to 0% for the bottom two personal income tax brackets) or the personal rate for short-term investments (less than a year). Consider a simple example.

An investor buys into a company for $1000, and later sells for $2000. The capital gain is $1000, so at the current 15% rate, he would pay $150 in capital gains tax. That sounds like a screaming deal, right? The guy just walked off with an 85% return on his investment! This is exactly what the Left and their media tail-waggers want you to think. The problem is that they’ve left out a huge factor in the equation: time. If the sale were made relatively soon after the purchase, then the investor really did come out with a screaming deal. But the overwhelming majority of investments don’t double in value over a short period. In fact, when you look at the stock market as a whole you begin to see why financial advisors tell you to pick solid investments for the long-term. Suppose instead that the investor keeps his money in the company for a number of years. Well, if inflation were only 3% then in 17 years his initial $1000 has inflated to $1650 so his real gain from the sale is only $350. That same $150 tax is 43% of the real gain. If, as the Left wishes, we raise the capital gains rate to 35% to match the top personal rate of 35%, then his tax becomes $350 and completely swallows his real gain. In the end he’s only left with the money he started with at its new, inflated value.

One effect, then, of a capital gains increase is to make long-term investment less valuable. Mega-investors like Warren Buffett and George Soros are very well aware of this impact on the market, and use it to their advantage. Think of how often you read in the paper that one of those two just invested hundreds of millions of dollars in some particular venture—nearly every week. Billionaires like those two can afford to play more often in the medium-term market—and do—because they can afford to take the occasional significant loss. (Consider in particular that Soros made his name by shorting the pound in the U.K., contributing greatly to the crash of their monetary system.) Now you can see why Buffett has no problem raising the capital gains rate—because his investments are often of shorter term, they are less impacted by inflation. (Short enough to diminish the effect of inflation, but long enough to avoid the short-term CGT, which is the same as the higher personal income rate.)

The second effect of a capital gains increase is—as in the case of the cigarette tax—to move monetary transactions (and the profits they generate) elsewhere. Why do you think so many people worldwide sink their money into Asian, Caribbean, and South American banks and funds? Barbados, with no CGT, reportedly has over $25 billion in Canadian investments. Other growing economies with no CGT include Belize, the Cayman Islands and Jamaica and, on the other side of the Pacific: Hong Kong, Malaysia, and Singapore. Do you think it sheer coincidence that many of these are also major financial centers with investors from around the world? And even Brazil, with a CGT of 15%, stands to gain if we were to raise our rate to the Left’s envisioned 35%. Their economy is booming. Do you really think that if we raise our rate investors from both here and abroad will even hesitate to move their funds to Brazil? Get real.

You don’t improve an economy by undermining the capital base upon which growth is built. Before you buy into the class warfare rhetoric being spewed by the current denizens of the White House, consider the real purpose and effect of taxes and decide for yourself where the greater good of our nation lies.

With all of the recent class warfare rhetoric coming from the Left, I’ve devised the perfect economic recovery proposal for the GOP this election cycle. Why would this work for the Republicans but not for the Democrats?

• It only rewards taxpayers. Rather than redistributing wealth from those who produce to those who don’t, it would acknowledge the contributions of those who actually shoulder the burden of the federal government.
• Democrats like buying votes, but only when it increases their power and makes more people dependent on them. This plan would foster hard work and decrease overall dependence on government handouts.
• It would significantly reduce the size and power of the federal government, upon both of which the Democrats rely.

Here’s how it works. Whoever is the eventual Republican candidate should announce as part of his platform:

When I am elected, I am going to institute Taxpayer Appreciation Day, a recurring event to be celebrated on the 16th of every month. On TAD, the Internal Revenue Service shall issue a non-taxable check in the amount of $1 million to one randomly selected taxpayer per Congressional district in recognition of his contributions to this great nation. Eligibility will be determined in accordance with the following criteria:

1. He must have a positive net tax burden for the most recent tax year. This calculation shall not include Social Security and Medicare withdrawals. [If you want to include those, quit pretending that those entitlements aren’t part of the annual federal budget.]
2. Neither he nor anyone claimed as a dependent on his last tax return may have received any federal assistance in the current or previous tax year. This includes, but is not limited to:
   • food programs (e.g., SNAP, WIC, and free/reduced school breakfast or lunch)
   • federally subsidized housing (e.g., HUD housing or FHA loans)
   • tuition assistance (e.g., Pell grants and federally-backed student loans)
   • farm or other subsidies
   • medical assistance (Medicare/Medicaid)
   • retirement (Social Security or retirement pay from federal civil service)
3. Exceptions to #2 are granted to those with military service utilizing benefits such as the G.I. Bill, VA loans and medical care, service-related disability, military retirement pay, etc. This will include the commonly recognized branches of service as well as the Border Patrol, U.S. Marshal Service, Coast Guard, and personnel in government service who are/were employed in positions which either require the carry of a firearm or are otherwise life-endangering (e.g., FBI/BATFE/CIA field agents, but not office workers) for at least 50% of the employment period or the current or prior tax year.
4. He must be registered to vote.
5. He must not be a previous TAD award recipient.

Federal policies will be modified as follows:

1. All federal outlay to states for unemployment assistance, farm subsidies, funding for non-interstate roadways, etc., will be eliminated immediately.
2. Federal taxes will be simplified to a 20% rate for all sources of income, personal and corporate.
3. Personal and corporate tax deductions will be eliminated with the following exceptions. (Corporations will only be eligible for the charitable deduction.)
   • Charitable donations to organizations which expend at least 25% of their funds providing demonstrable societal benefits such as food, clothing, housing, and medical care. (No upper limit on charitable donation deductions.)
   • Medical payments for insurance premiums, annual medical/visual checkups, and non-elective procedures and prescribed medications. (No upper limit on medical deductions.)
   • Mortgage or rental payments for a single dwelling occupied as a primary residence by the taxpayer up to $12,000.
   • Food allowance of $2000 per dependent.
   • Clothing allowance of $500 per dependent.
4. The award amount and tax deductions will be indexed annually to the average rate of inflation.
5. Federal agencies and organizations not specifically authorized by the Constitution or specifically created by the Congress shall be disbanded. This will include, but is not limited to, every “czar” installed by any previous administration regardless of party affiliation.
6. All regulations created by federal agencies and organizations, which regulations were not specifically voted upon by both the House of Representatives and Senate, and signed into law by the President, shall be declared null and void.
7. DHS will grant a universal waiver for Obamacare.

The Taxpayer Appreciation Day program will cost $5.22 billion annually. This will be more than offset by the reduction in expenses due to closed federal agencies, fewer people using federal assistance (in order to attain TAD eligibility), and the increase in economic productivity as American businesses are relieved of crushing regulations.

In an opinion piece at CNN, Sally Kohn defends mob seizure of private property. Don’t act so shocked. OWS and its media pimps have shown precious little regard for the wanton destruction of property—public and private—and damage to local business that have characterized the movement. This is but the next logical step in the collectivist mind of the entitlement throng.

Help people stay eviction notices? Sure. Help them fend off foreclosure? Great idea. But in a society of law, you can’t just take what you want—even what you need—from others without ushering in anarchy. I’m increasingly afraid that’s exactly what they want.

A new survey shows Britons ‘less willing to pay for taxes to help others’. Among other interesting findings,

Britons are less willing than ever to pay higher taxes to support the National Health Service, schools or the environment, a new survey suggests.

The National Centre for Social Research’s 28th annual British Social Attitudes report also found increasing numbers blaming poverty on “laziness”.

Maybe the U.K. is coming around. Funny, but the BBC reports this as if it’s a bad thing. We need more of that on this side of the pond.

Today I was given a quick poll asking how much Americans spend each year on Christmas: $10B, $450B, or $620B. Mathematician that I am, I had to figure out what the numbers worked out to per person.

With a population of about 309 million, $10B would average $30 each, which is clearly low. But the next higher choice pushes the average up to $1450—double the $715 Gallup published for 2010 average spending. Even that last figure would put a family of 4 at nearly $3000 for Christmas spending. Really? I make a pretty good living, but even adding up decorations, parties, extra baking, gifts, etc., we don’t reach that. I don’t see how a typical American household—with significantly less income—could. So, without seeing exactly what is meant by “Christmas spending” I must admit to some skepticism regarding the numeric choices. Does that include all meals eaten out, or just the “extra” ones that we might have eaten at home during a different season? Does it include travel expenses? Does it include all consumer spending, some of which would have taken place during any other time of the year? And so on.

The real point of the poll, however, was that Americans simply spend too much on Christmas and should, instead, redirect our money to charities that benefit the third world. So what would happen if we spent significantly less? I’m not advocating rampantly selfish consumerism, but there’s a flip side to this coin. Every dollar taken out of the economy has a ripple effect. Stay home instead of flying to spend the holidays with relatives? Lay off a flight attendant. Stick with last year’s Christmas dress? Put a garment worker in Mexico or Central America out of work. Skip the new MP3 player? Cut the pay of a factory employee in Asia. It’s a complicated global market. Shifting money out of it—even for well-run, legitimate charities—certainly benefits some, but inevitably harms others.

The sad truth is that the very real problems in most third world areas can’t be solved by simple charity. We’ve spent billions on foreign aid (private and governmental) to Africa alone, with relatively little improvement in the horrid plight of its people. Each year I hear the same heartbreaking stories of rampant hunger and disease that were told by missionaries when I was a kid. Contrast that to Asia where, over the last few decades, economic development has raised the standard of living and increased individual freedom even in places like Vietnam and China. Perfect? No, but greatly improved. The situation on the dark continent isn’t likely to get better until they reform or replace their incredibly corrupt governments, which are far too often propped up or enabled by…our aid and charity. That’s not my own analysis. It came straight from the director of a Christian African business organization—born in central Africa—who spoke at Central Christian Church (Mesa, AZ) a couple years ago making the case that Americans should actually reduce our charitable contributions to the continent and replace them with economic activity and increased direct pressure on governments to reform. That runs against our sense of Christian charitable responsibility, but he made some very good points. In many ways our charity perpetuates their poverty.

All that said, my wife & I support Samaritan’s Purse, Salvation Army/Angel Tree, and World Vision—and encourage others to give generously. Do your homework and choose well-run charities that have a record of real impact. We like these because the first two have the dual benefit of boosting the consumer market while the last lets us help provide sustainable long-term economic assistance in the form of livestock. (Bunnies ain’t just cute. They’re incredibly tasty and reproduce like, well, rabbits.) Most importantly, all three work hard to share Christ with a desperately lost world—the change they really need most.

Consumption isn’t all bad; charity isn’t all good. It may seem counterintuitive, but as in all things, balance and wisdom are required. Keep Christ in the center of your Christmas and the question will become moot.

[Thanks to Kurtis Strunk, Youth Pastor at Mesa (AZ) First Church of the Nazarene for posting the poll via Excess for Africa. Have a teen in the area? Check out ROC Student Ministries.]

In a recent Wall Street Journal Op-Ed piece, Richard Stearns—the head of World Vision, a charity I personally support financially—makes some good points in a compelling argument for American aid to other countries…but not for government aid.

He states that,

Yes, individuals and churches play a vital role in aid and development. But governments play a unique and vital role that private organizations cannot.

But he fails to provide a single example of such a government role. Christian aid organizations have smaller budgets but are much more efficient than the government, with a significantly higher portion of their funds going to aid rather than to bureaucracy. Further, our federal aid far too often props up governments which not only oppress Christians (and adherents to other locally minority religions) but bear little resemblance to anything we would recognize as democracy—one of his (correctly) stated goals of foreign aid.

Stearns is also confused about the meaning of the word “dependence”:

And at a time when more than a billion people do not have enough food to eat, President Obama’s Feed the Future initiative provides nutrition assistance and helps 21 South American, African and Asian countries feed themselves, without dependence on aid.

The sentence is self-contradictory. If these countries don’t depend on our aid, then why are we providing it?

He is also perplexed by Christians—who quite rightly should be concerned with the plight of the poor throughout the world—supporting large cuts to our federal foreign aid. As the leader of a Christian aid organization, this shouldn’t be such a puzzle to him. Government aid is strictly secular in nature. Christians, in particular, should prefer that our foreign assistance be accompanied by evangelism—something that can only be done by Christian groups.

Christians do care about the less fortunate among us, both at home and abroad. We are also concerned that our tax dollars are so frequently spent in ways we believe to be contrary to both America’s interests and to the primary calling of the church—to reach the lost for Christ—which the government cannot do.

Kudos to the NYT for printing this piece, as it flies in the face of most of what they print in their op-ed pages.

When you add up all the money made by all the people who earn more than $1 million a year, it amounts to around $700 billion. But since the millionaires already pay close to $200 billion in taxes, the government would have to increase rates to nearly 100 percent — which is about the worst idea ever — for it to have any real impact.

At least the author gets it half right: even taxing the top bracket at 100% won’t solve our budget and debt problems. But hiking taxes on the middle class isn’t going to help, either. To put a significant dent in just our budget gap—let alone federal debt—taxes would have to be raised enough that we’d face more foreclosures and the economy would falter as the middle class stopped spending on anything but necessities. The problem isn’t federal revenue—it’s federal spending.

Thomas Sowell lays out the reality behind the recent media hype over “income disparity.”

It is easier and cheaper to collect statistics about income brackets than it is to follow actual flesh and blood people as they move massively from one income bracket to another over the years. […]
The Internal Revenue Service can follow individual people over the years because they can identify individuals from their Social Security numbers. During recent years, when “the top one percent” as an income category has been getting a growing share of the nation’s income, IRS data show that actual flesh and blood people who were in the top one percent in 1996 had their incomes go down — repeat, DOWN — by a whopping 26 percent by 2005.
How can both sets of statistics be true at the same time? Because most people who are in the top one percent in a given year do not stay in that bracket over the years.
If we are being serious — as distinguished from being political — then our concern should be with what is happening to actual flesh and blood human beings, not what is happening to abstract income brackets.

But if we did that, we’d have to have honest dialog about class mobility and the rewards of hard work, patience, and fiscal responsibility. Can’t have that, now can we?

Upon prodding by a liberal friend, I decided to look up the official “Declaration of the Occupation of New York City” to see their specific grievances. It doesn’t contain any more depth than the call to action I examined yesterday. Here goes, with my rating of each of their, um, “points.”

They have taken our houses through an illegal foreclosure process, despite not having the original mortgage.

Partial truth. Yes, there have been numerous cases of wrongful foreclosure. Most foreclosures, however, are the result of failure to make payments. Duh.

They have taken bailouts from taxpayers with impunity, and continue to give Executives exorbitant bonuses.

Partial truth. Most, but not all, of TARP has been repaid, as the funds were not actually bailouts but loans (unlike the GM and Chrysler bailouts, which benefited the unions over the manufacturers’ creditors). Side note: conservatives (not to be confused with Republicans) opposed TARP, which was passed by the Pelosi/Reid Congress and signed by the (rather un-conservative) Bush.

They have perpetuated inequality and discrimination in the workplace based on age, the color of one’s skin, sex, gender identity and sexual orientation.

Partial truth. Discrimination of all kinds is hardly unique to the corporate world. Neither is it rampant throughout the corporate world itself. Abuses should be addressed individually rather than by lumping all corporations together. (I won’t even get into whether gender identity and sexual orientation should be protected. Whole ’nother can-o-worms.)

They have poisoned the food supply through negligence, and undermined the farming system through monopolization.

Partial truth. Our food supply is hardly poisoned. If it were, we’d all be dying of poisoning rather than from the side effects of obesity. And the agricultural industry has been harmed far more by government intervention in the form of subsidies (a bipartisan affliction) than by any corporate actions.

They have profited off of the torture, confinement, and cruel treatment of countless animals, and actively hide these practices.

Partial truth. I’m not sure who’s hiding the fact that drugs and other chemicals are tested on animals before humans. It’s quite true that such testing harms and kills thousands of animals every year. Without that testing, however, we simply wouldn’t have the amazing medicines available today. Every human that is saved from cancer as well as parasitic, viral, and bacterial disease owes his life to animal testing.

They have continuously sought to strip employees of the right to negotiate for better pay and safer working conditions.

Partial truth. If “negotiate” means “unionize” then, yes, many corporations do fight unionization. If workers were smarter, they would as well. Consider the case of auto manufacturing. Not a single foreign maker in the U.S. is unionized, yet their employees enjoy similar pay and benefits and nary a one of those evil corporations has ever been bailed out by taxpayers. Union dues pay for very big union boss salaries and hefty donations to one of our dominant political parties (bonus points for guessing which one). They don’t help the worker all that much.

They have held students hostage with tens of thousands of dollars of debt on education, which is itself a human right.

Lie. Students make a voluntary choice to acquire debt in the form of student loans, and they have both a legal and moral obligation to pay them back. Further, a college education isn’t a human right.

They have consistently outsourced labor and used that outsourcing as leverage to cut workers’ healthcare and pay.

Partial truth. Outsourcing simply hires one group of workers in place of another. Any intelligent business will outsource work that can be performed more affordably by external labor. Most often, outsourcing does not result in a reduction in pay or benefits, but a reduction in employees for one company and an increase in employees for another. There’s hardly anything unfair about it.

They have influenced the courts to achieve the same rights as people, with none of the culpability or responsibility.

Lie. Corporations do not have the same rights as people. In a growing number of states, for example, corporations do not have the right to ban employees from keeping a firearm in a locked vehicle parked in the company’s lot. The right of the individual trumps the right of the corporation. Are there cases where the reverse has been true? Certainly. But to equate the two is plain silly. And responsibility? Companies pay billions every year settling lawsuits. The system is far from perfect, but we do have corporate accountability.

They have spent millions of dollars on legal teams that look for ways to get them out of contracts in regards to health insurance.

Finally a true statement.

They have sold our privacy as a commodity.

Lie. We, ourselves, have sold our privacy for the convenience of using credit cards, cell phones, the internet, etc. Read the fine print before you sign anything. Whatever happened to individual accountability?

They have used the military and police force to prevent freedom of the press.

Lie. No press/media in the world have anything approaching the freedom enjoyed here, and our military and police have done nothing to encroach it.

They have deliberately declined to recall faulty products endangering lives in pursuit of profit.

Partial truth. Some corporations have been guilty of failing to voluntarily recall products. More often, as in the recent case of Toyota, recalls are entirely voluntary. No corporation has ever refused a government-mandated recall.

They determine economic policy, despite the catastrophic failures their policies have produced and continue to produce.

Lie. Corporations have no say in determining national economic policy. Their own corporate policies are sometimes disastrous, but blame for overall economic policy falls directly on the federal government and, in turn, on the voters who elect charlatans like Frank and Dodd, whose actions directly led to the Fannie/Freddie debacle.

They have donated large sums of money to politicians, who are responsible for regulating them.

True. And in recent years, that money has gone 2-1 to Democrats. Vote ’em out.

They continue to block alternate forms of energy to keep us dependent on oil.

Lie. Corporations aren’t blocking anything. They are pursuing profit, which currently means oil and coal. There’s nothing illegal or immoral about that. A growing number of corporations are investing very heavily in alternative energy, including some of the evil oilers (like BP was long before the big spill). Nissan, for example, just this week announced a prototype automotive battery cell that holds the promise of being recharged fully within 5 minutes. Realization of that promise is still years off, though, and in the meantime we need oil.

They continue to block generic forms of medicine that could save people’s lives or provide relief in order to protect investments that have already turned a substantial profit.

Partial truth. We grant limited patent protection so that big pharma—which invests literally billions in research, most of which goes nowhere—can profit from their efforts and recoup their investment. Generic forms aren’t blocked. They’re delayed for a few years. If you don’t like the system, lobby your reps to change the law.

They have purposely covered up oil spills, accidents, faulty bookkeeping, and inactive ingredients in pursuit of profit.

True. Such behavior, however, is hardly limited to corporations, and won’t be eradicated until we figure out a way to eliminate all forms of dishonesty from humanity. We should certainly keep working at it, but it’s not something new or unique to corporations.

They purposefully keep people misinformed and fearful through their control of the media.

Lie. Never in the history of humanity has a society had so much access to so much information. The rise of the internet (the infrastructure of which is developed and operated by, um, corporations) has made it virtually impossible to keep anything secret for long. Besides, the vast majority of mainstream media tilts left, with only the Wall Street Journal (ironically) and Fox News leaning right. I would bet less than 0.5% of the OWS protesters has ever voted conservative, so who exactly are they complaining about?

They have accepted private contracts to murder prisoners even when presented with serious doubts about their guilt.

Citations, please. I’m aware of state-directed executions. Haven’t heard of any murders.

They have perpetuated colonialism at home and abroad.

Lie. Someone needs to reread the definition of colonialism.

They have participated in the torture and murder of innocent civilians overseas.

Partial truth. There have been a couple corporations involved in the interrogation and death of people outside our borders. (I quibble over the terms torture, murder, and innocent.) So go after those individuals. It’s not something endemic to corporate America.

They continue to create weapons of mass destruction in order to receive government contracts.

Partial truth. A relative handful of companies (as a percentage of all U.S. corporations) create weapons of all kinds (though we haven’t created any new WMDs in years) at the direction of our federal government, i.e., at the request of “we, the people.” That can be changed at the ballot box. Targeting WalMart isn’t going to stop the business of arming our military.

So we have a list of half-truths twisted into lies sprinkled with a couple true statements. Most of the grievances, where they have any legitimacy at all, are properly directed at a handful of corporations, and are the result of liberal, big-government policies and government interference. Demonstrating against corporate America is not going to change anything. Voting conservative—which the OWS folks would never consider—would.