Monday, September 24, 2012

Energion Political Roundtable: Medicare

Question number six is up and it is another pretty broad one!

Here in Florida we’re getting a lot of political ads. One of the key topics in both the Senate race between Connie Mack and Bill Nelson and in the presidential race is Medicare. How would you evaluate the plans that each presidential candidate has for Medicare? Should senior citizens be concerned?

So here is my retort:

What plans?

Neither candidate really has any sort of feasible plan to maintain the Medicare system for the long term because neither one is looking past the next election cycle. What needs to be said, i.e. that Medicare is unsustainable in the current form, is political suicide and few elected officials are willing to say what needs to be said. By any measurement the Medicare system is headed for bankruptcy because there simply are too many people drawing on the system and too few paying in, an inverted pyramid that shows no signs of abating and in fact is rapidly getting worse.

President Obama's "Medicare plan" is basically "my plan is not Mitt Romney's plan" and claims to maintain the status quo, promising to keep the system "solvent" until 2024 (or 2026), or a whole 14 years from now. That means that for me, as a 40 year old, the system becomes insolvent a full decade before I get any benefit from it. Unfortunately I have to keep funding a system that, like Social Security, is a giant sinkhole for me and I have zero say in the matter. It is just one more line item on my paycheck seized by compulsion from me that I receive nothing for in return. Because Democrats rely on the senior vote and essentially buy that vote with the tax dollars of workers they are completely unwilling to even admit there is much of a problem and instead are doubling down on the doomed Medicare system by instituting Obamacare.

At least Mitt Romney's plan has some details whereas President Obama relies on the same warm and fuzzy "hope and change" empty rhetoric that got him elected in the first place and seems likely to sway an ignorant electorate to get him reelected. Romney's plan has some key elements that get short shrift in the media and from the soporific electorate that seems interested only in what they can get for "free" from the government. These include a provision to retain the current system for already in the system and those nearing eligibility and a gradual transformation of the system to a "premium support system" which means "existing spending is repackaged as a fixed-amount benefit to each senior that he or she can use to purchase an insurance plan". In layman's terms that means that rather than a government sponsored insurance plan, the government instead subsidizes seniors and allows them to pick their own plan, with more support for poor seniors and less for more affluent seniors.

Rather than the current system, Romney offers choice and competition, two words that are anathema to the average Federal bureaucrat. That is a far cry from the scare tactics of doom and gloom peddled by the Left but what is left unsolved is the issue of insolvency as more and more seniors rely on a system paid for by a shrinking pool of tax paying workers, workers making less than before (if they even have a job) thanks to four years of catastrophic mismanagement by President Obama. Any system that doesn't tackle the issue of long term solvency is doomed to fail.

Libertarian Gary Johnson has a somewhat different approach focused on block grants to the states that allow them to manage Medicare (and Medicaid) as they seem fit. Unlike a lot of his other positions, this one is pretty short on details but in a nutshell it gets the Federal government out of the health insurance business and sends the discretion for that service to the states. If the government is going to be involved in health insurance, and I don't think that it has any business doing so, it is far better and more important eminently more Constitutional for that to be done at the state level.

As for the second part of the question: Should senior citizens be concerned?

I don't think senior citizens should be concerned at all. As the most powerful voting block they will continue to exert undue influence over the seizing and distribution of wealth in this country and show no signs of letting go or being willing to compromise. The senior population in America has been inundated with messages designed to strike fear in their hearts, fear about health insurance, fear about income replacement, fear about anything and everything and the answer is always the same: let the government take care of you and protect you and in return base yoru votes on who promises to keep the gravy train running no matter what that might mean to future generations. Any perceived threat to this security is met with a swift response from the AARP and other groups, making substantive conversations about desperately needed changes completely off-limits (for an example of this, see the unseemly booing of Paul Ryan at an AARP meeting last Friday for having the nerve to suggest substantive changes).

No, the people who should be concerned are the younger workers, Americans in their 20's, 30's and even their 40's. These are the people who will pay into a broken system for the rest of their working lives only to inherit a bankrupt, dysfunctional system that will be unable to provide the services that they have paid for their entire career. Because they lack a unified lobbying presence in D.C. they are regularly on the receiving end of higher taxes with lower returns. No one seems to care about making younger workers angry, after all they are already jaded and resigned to getting shafted, so it is far easier to keep making promises to seniors that no one seriously believes but reliably brings in the votes.

What ought to concern us all is that we are entering the last days of an election season and we really have to choose between two men who are at heart politicians seeking to maintain the status quo for the benefits it provides them. If it is true that we get the candidates we deserve, then we certainly find ourselves deserving two empty suits. The mediocre quality of these two men should give us pause.

Medicare is the ultimate well-meaning but inherently and fatally flawed endeavour, an attempt by the most fundamentally inefficient organization in America to manage a system rife with fraud, abuse and waste. If that isn't a recipe for disaster I don't know what is! There is certainly no case to be made for Medicare as a legitimate function of the Federal government but that has never stopped politicians from bringing more and more of the economy of the United States out of the private sector where cost, choice and competition exist and into the public sector where programs invariably become bloated and cost exponentially more than was originally promised. The best thing we could do with Medicare is, right now, to start weaning us away from a government run system and toward a market based system. I am under no illusion that will happen but that is what should happen.

Monday, September 17, 2012

Energion Political Roundtable: More on Economic Priorities



As the conversations unfold regarding our budget priorities in the Energion Political Roundtable, the lines are pretty predictable. Bob Cornwall and Joel Watts line up on the left, Elgin Hushbeck and I on the right. There is one major exception here and that is on the topic of the military. I expected some blowback on this one and I wasn't disappointed!

The military is the one area where I get the most disagreement from more traditional conservatives and it is an area where I would have disagreed with my current position just a few years ago! As I have struggled with our militarism as a nation I have found that our passion for foreign entanglements, our flag waving and our prideful posturing is, despite all of the patriotic ribbons we hang upon it, not only not terribly conservative but a;so largely harmful to our national interests. Elgin Hushbeck, my conservative counterpart in this roundtable, took umbrage at my stance and took the time to write a thoughtful response.

I want to take the time to respond at length to Elgin. Joel Watts' channeling of Hugo Chavez in his proposed "solution" of seizing private property for redistribution, nationalizing many industries with absolutely no Constitutional justification and curtailing business across state lines via arbitrary limits on the size of a corporation is so removed from reality that it defies a brief response. I will respond separately to Bob Cornwall because he makes some coherent points even though I vehemently disagree with almost all of them. Because Elgin and I are in agreement on most issues but not this one, I am going to spend a little time laying out the differences as this is going to be an increasingly crucial issue in conservatism in the years to come. Right at the outset, Elgin lays out his point:

Herein is a huge difference between the military and other branches of Government. Not only is it a prime responsibility of the federal government, but experience has shown that with all the talk of cutting waste, cuts in the military normally end up being born by troops who at the end of the day, still need to get the job done, as they operate equipment that is often older than their fathers, and now days, at times their grandfathers.  As a result, peace dividends are often paid for with the lives of our troops. 

I certainly acknowledged in my post that the armed forces are a core function of the Federal government, one of the few in fact. Having said that, the military is not above reproach and military spending is an enormous line item in the budget that needs serious reduction. The issue we need to have a serious conversation about concerns the role and function of the armed forces. Are the Armed Forces of the United States designed to be a force to project American will around the world or as a primarily defensive force that is intended to counter direct threats to our sovereignty? I would argue the latter and further argue that since World War II the United States has created a permanent state of mobilization which in turn led to a general state of mobilization around the world, enormous standing armies squared off against one another knowing full well that outright war between the U.S. and the Soviets would be devastating. In spite of no credible military threats to the United States we have yet to stand down from World War II and in place of actual threats to the U.S. we have engaged again and again in wars, hot and cold, around the world that has no bearing on national security. In fact we have never really known peace in my lifetime. As a child we were terrified of the commie Russians. When the Berlin Wall fell and Russia stopped being a threat we conveniently had all sorts of mini-wars to fight under Clinton, from the Iraq War to Somalia. The decade of the 90's ended and then September 11th happened. From that point forward we have been "at war" against an amorphous enemy. Forty years old and we have been in a state of perpetual war or preparation for war my entire life.

As far as the comment that "peace dividends" are paid for by the lives of our troops, that sounds great but what actually costs the lives of our troops are the constant interventions in affairs that are none of our business. When we look around the globe for threats, the list is pretty short.

Europe? In the pre-World War II years the world was a very different place. Europe had been engaged in war after war for centuries. An uneasy peace was in place after the meat-grinder of World War I. All of the major powers in Europe were sizing each other up, trying to see a weakness. Today? Former belligerent Germany is bailing out the rest of Europe. The entire continent is deeply engaged economically with one another to the point of a common currency. None of the European powers possess a significant military other than Great Britain and why should they when the U.S. spends as much as the rest of the world combined. When the Europeans need some muscle they call in the U.S. Marines and we never say "no". Europe is not a threat to America.

Asia? While China is ramping up military spending we can hardly blame them for that. We tend to classify foreign  nations as "others" and assume that our motivations are pure (at least with a Republican president) and theirs are evil but looking at Asia from the eyes of China might give us a different perspective. The United States has had a major military presence within striking distance of China for decades in Korea and Japan. Our military operates close to their borders on a regular basis. I am not sure how we would respond to the Chinese sailing just outside of our territorial waters and stationing tens of thousands of troops in Canada and Mexico. Is China a repressive regime? Of course. Is China a sovereign nation with all of the same rights as the United States? Yes. We arrogantly assert our right to outspend the rest of the world on "defense" spending and maintain an enormous nuclear arsenal but demand that the rest of the world disarm. China is a growing military presence but also a major economic partner. It is high time for the Japanese, with the third largest economy in the world and a sizable defense force of their own that ranks sixth on military spending, to take the lead in Asia. Looking at the spending charts shows that the U.S. outspends the Chinese by an almost 5-1 ratio, ironically spending that is largely financed by borrowing money from...China. Without a single functional carrier and economically dependent as they are on trade with the U.S. China is not a threat the United States.

What about Africa? Well Africa is a mess by and large but we also have no national interest in Africa although that hasn't stopped us from getting entangled again and again in Somalia, Libya, Egypt, etc. America faces no threat from Africa, not if every nation on the continent banded together.

Likewise the Middle East, a region of non-stop violence and strife that has been worse since the end of WW II and the establishment of a Jewish state. Israel has one of the very finest militaries in the world, the very best equipment and of course nuclear weapons. To be perfectly honest Israel is more than capable of defending herself. That is easy to say but not so easy to put into practice as any suggestion that Israel should be treated like any other friendly nation is met with outrage ranging from "abandoning our most important ally" to charges of anti-Semitism. Support for Israel is a sacred cow for conservatives of the highest rank, an issue made all the more muddled by the intermixing of pop culture eschatology on the part of many evangelical Christians with geo-politics which leads to a "sacred duty" for a "Christian nation" to support Israel. This isn't the proper venue for debunking dispensational geo-politics but you can be sure that there is a calculating effort to encourage this sort of thinking by supporters of Israel.

The Middle East has not only Israel but also the issue of oil and whether you admit it or not much of what drives our foreign policy in that region is tied to the ready flow of oil. If we would encourage oil exploration and drilling domestically instead of spending money on military engagement a world away we could dramatically reduce spending and create jobs which in turn generates taxes. Of course the fanatical regimes and terrorist groups would still hate Israel but Israel can take care of herself. None of the Middle East regimes is going to invade or directly attack America unless one assumes that the Iranian Navy of speedboats and antiquated "warships" could somehow manage to make the voyage from the Persian Gulf to Florida without sinking. Certainly Iran is working toward nuclear weapons, the same nuclear weapons that we have had for decades and have used on civilian populations in the past. We already have an unbelievably large nuclear deterrent. Unless we are willing to invade yet another country without provocation based on a potential future threat, there is not much we can or should do about Iran.

The greatest threat we face is from terrorism, as in 9/11, and conventional military spending has very little impact on that. While we have successfully avoided another terror attack in America, we have also shed an unacceptable amount of blood in our military adventures around the world with little to show for it beyond reduced personal liberty, flag draped coffins and young men missing limbs. Oh, and don't forget a ton of new debt.

So why again do we have this huge standing army? What foe do we plan on engaging in a conventional war requiring multiple carriers groups and a huge ground force supported by overwhelming air power, artillery and tanks? For decades we have planned and spent to fight "the next war" and when war doesn't materialize we find one (Iraq anyone?) but the enemy we are built to fight no longer exists. We need a more nimble and a much smaller military, one that serves the purpose of deterring aggression but not one that is prepared to fight non-existent foes. What is the exact number for this? I am not sure but it is substantially less than our current spending. The Cato Institute proposes some very common sense ideas to reduce spending by an average of $120 billion a year over the next decade, a proposal that does nothing to reduce our military effectiveness. I found that proposal to be a bit timid if the truth be known but it is a good place to start.

Elgin concludes with this

Finally, as Sido writes, “Even more troubling is the enthusiastic embrace of unlimited military spending by people who claim the name of Christ.”  Perhaps he would include me in this category, but I find it little more than a straw man.   No one I know wants “unlimited military spending.”  Granted I and others may err on the side of over-spending, but I would rather waste dollars than waste lives.   I would rather be so strong that no one would dare attack us, than just weak enough that we end up in a war.  I would rather our troops go into battle over-equipped than under-equipped and struggling to make do.  In short, I do not believe the threat comes from us being too strong, but rather too weak.

Elgin's argument here is a difficult one. On the one hand he rejects my charge of unlimited military spending but then he talks about overwhelming force that would deter anyone from attacking us.When you examine the rhetoric that surrounds even the faintest suggestion of reducing military spending and indeed suggestions that we increase military spending, the "enthusiastic embrace of unlimited military spending" seems to be appropriate. For example, see Mitt Romney's position on "defense" spending:

As Commander-in-Chief, Mitt Romney will keep faith with the men and women who defend us just as he will ensure that our military capabilities are matched to the interests we need to protect. He will put our Navy on the path to increase its shipbuilding rate from nine per year to approximately fifteen per year. He will also modernize and replace the aging inventories of the Air Force, Army, and Marines, and selectively strengthen our force structure. And he will fully commit to a robust, multi-layered national ballistic-missile defense system to deter and defend against nuclear attacks on our homeland and our allies. 

This will not be a cost-free process. We cannot rebuild our military strength without paying for it. Mitt will begin by reversing Obama-era defense cuts and return to the budget baseline established by Secretary Robert Gates in 2010, with the goal of setting core defense spending — meaning funds devoted to the fundamental military components of personnel, operations and maintenance, procurement, and research and development — at a floor of 4 percent of GDP.

So under Romney we would build almost double the number of ships each year, ships that need to be maintained and manned by sailors, along with other increases in military spending and a "floor" of 4% of GDP. What is notable there is that with a floor of 4% spending on the military would go up as the economy recovers regardless of whether it makes sense or not. If we know anything about bureaucracies it is that they will spend everything they receive. It is hard to make a serious case for deficit and debt reduction when you wall off one of the major line items to not only be free of cuts but actually be penciled in for increases!

This is an area where both our Kingdom sensibilities (when I am weak then I am strong, 2 Cor 12:10) and a belief in limited government should work together toward the same outcome. An enormous standing military designed for offense rather than defense is not only not fiscally viable and contrary to the mission of the armed forces of the United States under our Constitution, it is contrary to the values we should espouse as Christians. We cannot wall off our Christianity, applying it to gay marriage and abortion but not to offensive wars of aggression. If you are a believer in Christ a terrorist is no danger to you but supporting Caesar in wars of aggression certainly is. The enthusiastic support for wars of aggression and the flag waving that is so common in the evangelical church is damaging to our witness and we have centuries of evidence that the church being entangled in the bickering of the world is harmful.

Our armed forces are rarely used to "defend" America and haven't been used for that purpose since World War II, an era that many conservatives seem stuck in. Korea. Vietnam. The first Gulf War. The second Gulf war. All of the myriad engagements in between from Somalia to Grenda to Bosnia and Kosovo to our recent aid to the Arab Spring rebels in Libya that just murdered our ambassador. The pattern over and over is America sending in our young men and women to try to police the world, the same world that often condemns us (except when they need us) and spends combined about the same that we do alone on the military. The need for America to be the biggest and baddest "sole remaining superpower" certainly appeals to our nation hubris but "peace through superior firepower" and "he brings a knife, you bring a gun" is not what America was founded on and not what Christ would have us do. We cannot afford it as a nation and we cannot support it as the church.

Sunday, September 16, 2012

Energion Roundtable: Libya and the Midde East



Our next question is out for The Great Energion Political Roundtable and has to do with the recent attacks around the world on U.S. embassies and diplomatic personnel, including the barbaric murder of a U.S. ambassador and three other diplomatic personnel. Here is the question.

Do you approve or disapprove of President Obama's and Governor Romney's responses to the violence in Egypt and Libya and now in other countries in the middle east?

My first reaction is "What response?"! On the one hand we have empty platitudes and assurances of "justice" from the White House. On the other we have political point scoring and posturing from the Romney campaign. While Romney was correct in his substance about the initial response from the State Department, the entire thing smacked of political opportunism. I think that Secretary of State Clinton's eulogy was heartfelt and the only decent thing said by anyone in a position of authority during this whole debacle.

The recent events involving U.S. embassies around the world are shocking. Attacking an embassy is something that is just not done. Ambassadors and diplomatic personnel traditionally are off-limits even during times of declared war. It is hard to not be outraged when our civilians are murdered, when civilians trying to help the people of Libya are killed by fanatics. It is hard to not swell up with anger when people burn American flags.

These events are also symptomatic of the problem of diplomacy in a region where the normal rules of civilization don't apply. Likewise we need to recall that not that many years ago Protestants and Catholics were killing one another in Northern Ireland and that much of European history is littered with "Christians" torturing and burning, beheading and drowning Jews and Anabaptists and others and multiple wars in the name of Jesus. Religion has often been used as cover by tyrants and fanatics alike to whip people into a frenzy and this situation is no different. A amateurish, cartoonish video may be the publicly stated reason for these attack but I see the hand of a calculating mind behind them.

So I find both Romney and Obama to be completely off-base here. I would largely echo the words of Libertarian Presidential Candidate Gary Johnson regarding what he would do about this issue in his essay: Libya,Afghanistan and the Middle East -- Why Obama and Romney are Both Wrong

Foreign policy is supposed to make us safer, not get Americans killed and bankrupt us. Yet, even as we mourn the loss of four Americans in Libya and watch the Middle East ignite with anti-American fervor, our leaders don't get it.
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I have a better idea: Stop trying to manipulate and manage history on the other side of the globe and then being shocked when things don't turn out the way we wanted. As far as what we do right now in response to the tragic events of this week, it's actually pretty simple. Get our folks out of places they don't need to be -- and out of harm's way -- and cut off every dime of U.S. tax dollars we are sending to clearly ungrateful regimes.

and most importantly....

Somebody needs to ask, and I will be that somebody: As despicable as he was, would our ambassador and three other dedicated public servants have been killed in a Gaddafi-controlled Libya? Are we safer today after launching all those missiles and killing Gaddafi? Clearly not.

It might just be that not only are large swaths of the world not ready for American style democracy, they also don't want it and resent our efforts to impose it upon them. Our record of meddling in the Middle East is one of stumbling and error that costs lives. We put the Shah in power in Iran and were surprised when that blew up in our face in the 70's. We arm Saddam Hussein in his war against Iran to get back at them and then end up fighting him a few years later. We invade and "liberate" Iraq and then spend the better part of a decade fighting a guerrilla war that has devastated the people of Iraq. We depose the Taliban in Afghanistan and a decade later are quietly negotiating with them to return them to power. We drop bombs on Libya to support the rebels as well as the rest of the "Arab Spring" (except in the politically inconvenient Syria) and then realize that we replaced a dictatorship with mob rule, a mob that doesn't seem to realize it should be grateful for our assistance. How many dead Americans must be dragged by mobs through the streets of Benghazi and Mogadishu?

So what should we do? How should we respond?

So here is my solution.

Get out and cut them off

I am done with bribing those who hate us. I am done with spilling American blood and the blood of innocents trying to manipulate events in the Middle East, Asia and north Africa. Instead of throwing good money after bad in this part of the world because they happen to sit on oil, start to open up more of America for drilling and exploration. Instead of spending money, allow commerce to happen which will create real jobs, good jobs that will lead to spending and consumption and tax revenue. Instead of oil being a net drain on our economy, let it be something that helps. We might never become energy independent but we can certainly reduce the impact of the fanatics that destabilize world oil supplies. With a land as vast as ours and a coast line as long as ours we have ample natural resources. We should not allow ourselves to be held hostage to one commodity. End foreign aid to all nations, and yes that includes Israel. End foreign occupations and endless foreign engagements. Above all quit using this region as a source for political fodder that leads to dead and maimed Americans.

Sunday, September 9, 2012

Energion Political Roundtable: Budget Priorities



The latest question from the Great Energion political roundtable is up! The issue posed this round is:
 
What are the most critical elements of an economic plan for the United States, and how should they be balanced? For example, consider deficit reduction, managing the size of government, creating jobs, maintaining social services, maintaining military strength, supporting current overseas military operations, reducing spending, and increasing taxes. Which candidate has a plan closest to what you prefer?

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For me, one present consideration outweighs all of the others and yet it is not a line item on any budgets proposed by either major party: the national debt. The issue is not so much the annual deficit as it is the overall debt. Many people use those terms interchangeably but they should be viewed individually. The deficit refers to the difference between government revenue from taxes and the amount is spends in a given fiscal year. In the last few years the Obama administration has overspent by an average of more than $1 trillion and all of that deficit spending goes into the national debt, a sum of $5 trillion and climbing by the day. During the recent Democratic convention the national debt passed the $16 trillion mark with hardly a mention by the speakers.

At $16,000,000,000,000 and a population of 314,000,000, every man, woman and especially child in this country is in debt to the tune of $51,000. That means that my family of ten is responsible for about half a million dollars in debt that others have incurred on my behalf.Gee, thanks a lot!

Debt reduction needs to be a line item in the budget, setting aside a substantial portion of tax revenue to pay down the debt. Politicians in both major parties simply assume that their policies will somehow increase tax revenue to the point that we will just magically start paying back the debt, a naive assumption or perhaps a cynical misrepresentation that avoids the truth that the government already spends every nickel it brings in and then some. If tax revenue goes up, the government will simply spend even more. Any sensible budget priority must deal with the reality of the national debt, a debt that amounts to more money owed than has ever been owed by a anyone. I am under no illusion that this will ever happen because there is no political benefit in it. Politicians in both parties make a living by bribing us with our own money and paying down the debt on spending they already bribed us with gains them no real benefit. Still the question was asked and that is my answer!

The second budget priority is the military. As one of the few Constitutionally defensible line items in the Federal budget, the military gets preference over virtually any other spending area. Having said that, even though military spending is a legitimate area for spending, it does not follow that all (or even most) spending by the Department of Defense is legitimate or proper.

As I have detailed in previous posts the United States military is utilized in ways that are more aptly described as projecting U.S. power over other nations rather than in defense of the United States (for more details see here, here and here), contrary to the clear intent of the Constitution. Very little of what we spend our "defense" budget on is directly related to defending a nation with no serious or credible nation-state adversary. The amount we spend on military procurement, maintenance and deployment is staggering. From the Downsizing the Federal Government project at the Cato Institute:

The department will spend about $688 billion in fiscal 2012, or $5,800 for every U.S. household. It employs 2.3 million people, and it spends about $230 billion a year on procurement, research, and construction.

For comparison, Wal-Mart has about 2.2 million employees worldwide. Other huge corporations like Apple (60,000) and General Motors (200,000) have a fraction of that number. That makes the defense department larger than any private employer in the U.S. and prior to 9/11 the military looked like a really sweet career choice for young people that didn't want to go to college. That is great and all but the military was never intended to be a) a full time standing force and b) or a job bank for young people. Our spending on the military must be a part of any serious effort to pay off the debt and reduce the size of the government. It is the height of hypocrisy for conservatives to rail against big government when it appears in the form of a welfare check but to applaud it when it wears a uniform. What it is the right number for defense spending? I am not certain but I know that the Republican  hysteria over proposed $100 billion cuts is unwarranted. Even more troubling is the enthusiastic embrace of unlimited military spending by people who claim the name of Christ but that is an issue for my other blog.

Other than defense every single department of the Federal government should be subject to substantial budget cuts. By substantial I mean more than 20% and not a reduction in future spending growth, which is what most "cuts" amount to, but an actual reduction in spending in real dollars year over year. Most of what occurs in the Federal bureaucracy amounts to creating onerous regulations, shuffling papers from one desk to another and taking money from the tax payers before doling it back out to the very people in belongs to in the first place. I would give serious consideration to eliminating some departments completely, starting with the misnamed Department of Education closely followed by HUD and HHS. Certainly we should, at the very least, combine commerce, agriculture, energy, labor and transportation. D.C. is full of three things: monuments, lobbying firms and massive block spanning Federal offices. None of them are terribly useful and two of them are outright harmful.

What about creating jobs? The very best thing the government can do for the job market is to stay out of it. It is evident that there are virtually no conservatives in any of the major parties, leaders or rank-and-file, based on the constant talk of "jobs, jobs, jobs" as if bolstering or creating jobs is somehow in anyway a proper function of the government. Taking money out of the private sector or worse borrowing money to employ people is a failed strategy and one that the Federal government has no business being involved in.Both "stimulus" spending and corporate subsidies serve to distort the labor market and the private enterprise system and both should be eliminated.

Social services? We have so called social services because the church has abdicating her role to the very government so many Christians love to hate and because families no longer support one another. The system is unsustainable with an increasing population of seniors, living longer and therefore drawing more and more from Social Security and Medicare, and a shrinking population of younger people that are becoming more and more unemployed or underemployed. I would love to see us start to phase Social Security out of existence and find a private sector alternative to Medicare. That is also not going to happen of course.

Bottom line? We need to start every budget with a substantial portion of tax revenue aimed reducing the debt and then everything that follows needs to be cut dramatically or eliminated all together.

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So who among the current crop of candidates comes closest to this vision? Certainly not President Obama who has never met a government program he didn't love and seems to have no end to his appetite for more spending, more borrowing, more taxes, more government and ultimately more people dependent on the government to form a loyal voting block for Democrats. Mitt Romney is closer but only marginally and I frankly don't think he believes in anything. Libertarian candidate Gary Johnson is probably the candidate who comes closest but he has zero chance of winning this year. However, the influence of Ron Paul, while powerful this year, is certain to increase by 2016. If the GOP continues to ignore the libertarian voting block they will soon find themselves without sufficient votes to win an election for county dog catcher much less the presidency. 2012 is a lost cause and the best we can hope for is government gridlock so our Federal overlords cannot make things any worse.

My candidates locally, Mike Pence for Indiana Governor, Richard Mourdock for U.S. Senate and Marlin Stutzman for U.S. House of Representatives tend to be more conservative than average, as is Indiana as a whole, but still fall solidly into the traditional GOP of big spending on the military. I will be voting for all three but none really captures the vision of a truly smaller government.

Wednesday, September 5, 2012

American exceptionalism, military spending and Ron Paul

This is just an outstanding little podcast, about 10 minutes long, that you should listen to.


Responses to the Capital Gains Tax Question



In a follow-up to my prior post, three of the other Energion roundtable participants have posted answers regarding capital gains and whether they should be raised or lowered or perhaps eliminated entirely.

Elgin Hushbeck posted Roundtable Question 3: Capital GainsTaxes and took a very similar position to mine and no surprise I didn't find much to quibble about. Elgin writes:

From my perspective, this is pretty easy. It should be at a minimum lowered significantly, with serious consideration being given to eliminating it all together.   This is because economic growth requires investment, and investment, as the legalese of many financial commercials make clear, involves risk and the past performance is not indicative of future results.  It is the threat of loss that makes capital gains income different than regular wages and salary income. 

Elgin is correct that taxing investment discourages investing and risk taking, the very sort of activities that are necessary for job growth and a healthy economy. He also raises the question, what is the purpose of taxation and how does that fit into our general culture?

In a pretty radically different persepctive, Bob Cornwall responds with his post Is the Capital Gains Tax Fair and Just? -- EnergionPolitical Roundable. Bob looks at the issue of taxes in general as a necessary function of government, something none of us would argue with but then gets more specific about the capital gains tax question...

So, what about the Capital Gains tax?   Since it applies largely to the profits made on the sale of stocks, mutual funds, or property, this tax likely will not hit the poorer among us as hard.  It places a greater burden on those most able to pay.  It should be noted that many of the wealthiest among us derive much of their income from the sale of stock and stock options, which is unearned income. This is why Mitt Romney’s effective tax rate is lower than most people who earn their living with a job – and with capital gains taxes, you’re able to balance gains with losses – selling enough stock at a loss to reduce tax liability.      

Can we make this particular tax fairer than it currently is?  Could a compromise be reached so that the tax is eliminated for those making under $200,000, while we raise it for those above a certain rate?   Such an idea might remove the burden from the many seniors who live off their savings, stocks, and property.

Bob clearly looks at the tax system quite differently than I do. Issues of "justice" and "fairness" creep into the conversation and that makes our tax system a means for more than simply raises revenue and into a system to rectify perceived social injustice by taxing the "rich" more highly for the benefit of the poor. Bob's idea of further skewing the capital gains tax by increasing it on those earning above a certain threshold and lowering or eliminating it certainly would be great political fodder but again is targeting those who invest and produce.

A third entry comes from Joel Watts Energion Roundtable:Capital Gains Tax. I am not really sure what he is advocating for to be honest. He was quite clear about his disdain for "Reaganomics" and Republicans in general but I am unclear as to his position on capital gains taxation:

So, now… for the question of capital gains. First, I think “work” should not be taxed. No income tax. No corporation tax. I believe in a progressive flat tax. In other words, no tax on food and the bare necessities of life, at least on the Federal and higher State level. Capital gains, the tax you pay when you sell imaginary pieces of paper, seems just as imaginary, but without a flat tax, one must tax things otherwise not worth taxing. I guess I view capital gains taxes like taking a census for imaginary friends. Our economy is too tied to Wall Street (imaginary capital) and not Main Street (production). I also do not believe in double taxation, something capital gains does.

But, what about selling real estate? Or actual product. Without a flat tax, you have to secure a method of raising money, and the people who have the most taxable money are those with product to sell. We need to shift capital gains out of Wall Street, limit the money traded on Wall Street (can of worms there), and tax actual product. If we could, I would limit all capital gained from Wall Street and other stocks to refocus the money into actual production.

I would take umbrage at the idea that these are imaginary transactions. Someone who owns a share of General Motors is a partial owner of a company that owns and operates hundreds of facilities, that moves untold millions in inventory and employs tens of thousands of people. That is not "imaginary", that is real life. Without villainous Wall Street brokers it would be impossible to raise the capital needed to invest in companies that make the products we use. To be blunt I don't think Joel really understands what capital gains are. He does recognize that they are a form of double taxation but given his desire to eliminate income taxes, consumption taxes on "bare necessities" and apparently also capital gains taxes, I am not sure where the tax revenue to run the government is supposed to come from.

The capital gains tax issue is a complicated one and requires some fundamental understanding of investments, capital markets and how corporate America functions. As I said in my original post taxing capital gains is easy political rhetoric because few people understand what they are other than something that only impacts "rich" people.

I was glad to see that the discussion has somewhat evolved beyond just capital gains taxes and into tax policy more broadly. There are two distinct positions here. One, is that capital gains taxes and taxes in general should be as simple and low as possible so they do as little as possible to hamper economic growth. The other is "Well the rich can afford to pay more and still be rich". That is true and entirely not the point. It doesn't follow that because someone can pay more that they should pay more. Imagine if you went into a store and at the check out they asked to see you tax returns. If you made $25,000 a year, a box of Cap'n Crunch is $0.75 but if you made $100,000 the prior year you would be expected to pay $7.56. That would be ridiculous but that is sort of what the mindset is regarding capital gains taxes.

The reason the Federal government has a taxing function is quite clear and limited in purpose. In Article I., section 8 of the Constitution we see the power of taxation.

The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States; but all Duties, Imposts and Excises shall be uniform throughout the United States;

It is hard to look at that paragraph without assuming our current tax system into it. The level of taxation we have today would be unthinkable to the Founders, as would the various government bureaucracies, the incredible volume of regulations, the enormous standing military and the state of perpetual indebtedness but those are questions for a different day. I for one am not content to simply tinker around the edges of the tax system and instead would rather burn it down and replace it with something that is simpler and more consistent. It is an untenable situation in a culture to have almost half of tax payers paying no Federal income tax and a tiny percentage of the top wage earners paying nearly half of all Federal income tax receipts. As Elgin wrote in his post: "...one of the greatest dangers in a democratic form of government is the ability of the majority to impose tax burdens on a minority, burdens that they do not share themselves." When a society devolves into two camps, payers and takers, we have a problem. Many people vote for candidates without having any skin the game but there comes a point where we will run out of money to take while never running out of people willing to receive.

The power to tax is intended to pay our debts (at this time incurred from borrowing to fund the Revolution, we had not yet started borrowing money to fund all of the other functions usurped by the Federal government) as well as to provide for the "common Defence" and "general Welfare". What exactly the "general Welfare" means is shown in the following lines of Article I section 8. Mostly we see issues having to do with the army and the navy, immigration laws, printing the common currency, patent laws, post offices and post roads for the carrying of mail and other very limited functions. Crop subsidies, food stamps, unemployment benefits, medical insurance, a standing military based overseas, etc. are nowhere in sight.

What does our tax system pay for today? First and foremost the behemoth of the Federal bureaucracy full of Dept of Ag employees who have never been on a farm and Dept of Education employees who have never taught in a classroom. The sheer number of Federal employees is incredible Second, it funds a standing military that is unmatched anywhere in the world. Sure other nations have more men in uniform but no one is a serious threat to the U.S. Our military is the finest in the world by a wide margin and we have the annual spending to show for it.

Our tax system was created to fund very basic functions of the Federal government that couldn't be effectively managed by the states. It was not intended to be a mechanism to take from the rich and give to the poor, a mechanism that has, rather than lifting people up, instead imprisoned millions into a system of multigenerational poverty. The weight of government spending, taxation and borrowing is an anchor on the economy and with the national debt at $16,000,000,000,000 and rising it is clear that neo-Keynesian deficit spending to fuel the economy has been a failure. What we need now is less government, government that taxes less, spend far less and regulates less. Rather than shuffling the deck, taking from some to give to others, we should be pursuing a tax policy that removes barriers to investment and risk taking (without the implicit promise of Federal intervention when something goes wrong). The key to a healthy, robust economy is the private sector, not the government, and we had better figure that out before it is too late.

Sunday, September 2, 2012

Eliminate The Capital Gains Tax!



As part of the Energion political roundtable mentioned in the prior post, several bloggers from across the political spectrum are being asked to respond in a fairly limited fashion to a series of questions.  The first question being posed deals with capital gains taxation. Should they be raised, lowered or eliminated? I will be arguing in this post for the elimination of capital gains taxes entirely as counterproductive and damaging double-taxation.

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Capital gains taxes are a generally misunderstood beast, largely because most Americans are not impacted by them. Very few of us invest in general outside of the tax deferred retirement plan offered by our employer (401k/403b) and if we do invest outside of our employer sponsored retirement plan it is rarely a large enough investment to attract significant taxation. Thus capital gains make for a convenient political football, one that is especially popular with the class warfare crowd and allows for railing against the "rich" using a topic most people don't understand.

First, what are these "capital gains" that are taxed? At the most basic level a capital gain occurs when you buy something at a given price and then sell it later at a higher price, thereby incurring a gain (buy low, sell high). This often occurs through investments in private companies via stock ownership where an investor, individual or institutional, buys shares in a company in the hope that the stock will appreciate in value. Issuing stock for sale to the public is one of the primary means for a corporation to raise funds for investment, investment that creates jobs. Stock issuance is how a company like Apple goes from an concept by Steve Jobs and Steve Wozniak into a company with 60,000 employees worth over half a trillion dollars. When an investor buys stock or another investment vehicle for one price and subsequently sells it for a higher price the gains on that investment are taxed.

So what should we do with capital gains taxes? They are a hot issue right now with the foolish statements by Warren Buffet that because he allegedly pays a lower tax rate than his secretary we should raise tax rates and the scrutiny given to Mitt Romney's tax returns with an income largely derived from capital gains. In spite of all of the rhetoric it is my contention that capital gains taxation should be eliminated entirely.

There are two primary reasons for my stance.

First and foremost, capital gains are at some level repeat taxation. When someone earns money through regular income (i.e. at their job) they are taxed on those earnings. The money they have left over after taxes and spending is then invested. When earnings are realized on those investments the same money is taxed again. While not a part of this question it remains the case that for the wealthiest individuals these funds are potentially taxed a third time via the "inheritance tax". The confiscatory tax rates we have on income are bad enough without turning around and taxing those same funds a second time when they are invested.

Second, capital gains discourage investment that is critical to job creation. We hear over and over in this campaign season "jobs, jobs, jobs!" as if it is the purpose of the government to "create jobs". If we really want more jobs rather than merely taking money from one American to give to another, the only the proper way to do that is for the government to be less involved rather than more, removing barriers to investment. We should encourage people to invest rather than punishing them and likewise we should allow risks to have consequences. That is how a free market is supposed to work.

The capital gains tax question is part of a broader discussion that is long overdue regarding the proper role of the government. As it stands right now, virtually every economic activity falls under the oversight of the government, from multi-billion dollars international conglomerates to the selling of raw milk from one individual to another. Likewise every monetary transaction is subject to regulation and taxation by the government, an enormous wet blanket on economic activity.

At the most fundamental level, tax policy speaks to how we think of money. When we think of earnings do we see them as belonging 100% to the individual who earned them and a percentage is taken by the state or does it belong to the state 100% and a certain percentage is given back to the individual earner? We see the second mindset on display on a regular basis with talk of lower taxes being an expense or "spending" as if the government has first dibs on all earnings. My view is that the earner is the only one who has claim to his or her earnings and that taxes should be limited to funding only the essential and Constitutional functions of the Federal government. That is a broader topic beyond the scope of this post but it is a critical distinction. We cannot discuss capital gains taxation in a vacuum but must see it as part of the greater discussion of rights and responsibilities in a free society. We are taxed when we earn income (income tax), we are taxed when we spend that income (sales tax), we are taxed when we save (interest and dividend taxes), we are taxed when we own a home (property taxes), we are taxed when we invest (capital gains taxes) and many of us are taxed when we die (estate taxes). Doesn't it strike you as odd that every time we engage in any sort of economic activity that the government takes another bite?  

As a libertarian I find the capital gain tax to be onerous and burdensome, an unwanted and unnecessary additional tax on investment that serves to swell the government tax coffer while hampering investment. In fact capital gains taxation does precisely the opposite of what is intended by discouraging investment in ways that are perhaps the most lucrative and pushing investment toward vehicles that minimize taxation, a tilting of the investment landscape in an unnatural direction. Many mutual fund companies offer specific funds that are designed to minimize tax exposure in a non-retirement account (for example the Fidelity Tax Managed Stock Fund). The managers of these funds make decision not based on the investment potential of a vehicle alone but with an eye toward minimizing taxation. Often financial and tax advisers encourage their clients to sell at a loss to offset capital gains. This sort of behavior is counter-intuitive and harmful.

The government has no business taking a piece of the action every time an American engages in economic activity and by and large those taxes are counterproductive, taking money that could be invested and spending those funds as transfer payments. In essence capital gains taxes punish those who are successful and expose a preference for transferring money around among citizens (with the aid of well paid unionized government bureaucrats) instead of letting the private sector invest and grow. The insatiable appetite of the government will never be sated with taxes, no matter how high. We should instead encourage economic growth through investment by eliminating the double taxation and growth suppression of capital gains taxes.
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For more information, check out this video from that probably does a better job explaining what I just wrote...

A New Project

I have been asked to join a political roundtable sponsored by Energion Publications and it looks to be an interesting conversation. Five bloggers will be responding to a variety of questions on their individual blogs and hopefully generating some good arguments discussion.

The bloggers (other than me) are:

Elgin Hushbeck

Allan Bevere

Bob Cornwall

Joel Watts

My first post dealing with capital gains tax rates should be going up shortly. I would encourage you to think through these issues with me and engage in the conversation! As you do, you can also submit comments and questions via email to pubs@energion.com or you can interact at http://energion.net/

Looking forward to the great debate!