Posts Tagged ‘taxes’

The disgrace of the IRS

Tuesday, November 25th, 2014

The IRS scandal has forever discredited the Internal Revenue Service. The scandal is going on two years in length. It began with the notorious Lois Lerner, who headed a division called “The Exempt Organizations Unit.” This was supposed to evaluate applications for tax exemption.

Lerner served for a time on Federal Election Commission, which suggested her interest in electoral politics.

Lerner began her IRS service in 2001 as Director Rulings and Agreements in the Exempt Organizations function of TEGE. [2] In January 2006, she was selected as Director Exempt Organizations. In this capacity, Lerner led an organization of 900 employees responsible for a broad range of compliance activities, including examining the operational and financial activities of exempt organizations, processing applications for tax exemption, providing direction through private letter rulings and technical guidance and providing customer education and outreach to the exempt community.

Here it is apparent that she was promoted by the Bush Administration and was not a political appointee of the Obama people. Why was she involved in this scandal ? The Treasury Department is run by a career Civil Service bureaucracy. Career federal agents and employees are prevented from political partisan activity by The Hatch Act of 1939. Does this work ?

No.

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How to respond to the IRS scandal

Wednesday, May 15th, 2013

Washington DC seems to be convulsed this week with scandals. Most of us were well aware of the Benghazi disaster and coverup. The IRS scandal is new and does a lot to explain the quiet status of the Tea Party groups that were so active in 2010. Many of us expected to see more of them last year in the run up to the 2012 presidential election, as well as the other races for Senate and House. Now we know what happened.

The Tea Party groups that filed for 501 (c) 4 status were harassed and threatened by the IRS. 501 (c) 4 status does NOT grant tax exemption to donations, contrary to the statement of Nancy Pelosi, not a good source in any situation. It only allows tax exemption for activities intended to education the public on issues of interest to the organization. From the IRS web site:

The promotion of social welfare does not include direct or indirect participation or intervention in political campaigns on behalf of or in opposition to any candidate for public office. However, a section 501(c)(4) social welfare organization may engage in some political activities, so long as that is not its primary activity. However, any expenditure it makes for political activities may be subject to tax under section 527(f).

The Tea Parties were organized for political and educational activity, not as lobbies. There are plenty of lobbies. Other organizations singled out by the IRS in this scandal included those concerned with “The Constitution” or other philosophical topics. Several examples are included in this article.

Kookogey’s organization, Linchpins of Liberty, is one of several groups still awaiting approval of their applications for tax-exempt status after more than three years. Linchpins, a conservative mentoring program for high-school and college students, has received extensive and intrusive requests for information about the organization. Unlike most of the groups targeted, however, Linchpins of Liberty was seeking status as a 501(c)(3) educational non-profit, as opposed to a more overtly political 501(c)(4) “social welfare” group, and had no direct “tea party” affiliation. The group’s stated mission is “to challenge the imagination of the rising generation” through “the study of books about the human condition and about civic order.”

I see no evidence of lobbying intent there.

The agency sent him more than 30 questions in response to his application, including some that defied comprehension. “They asked me to identify the students I’m teaching and what I’m teaching them,” he says. “Now, imagine the disservice I’d be doing to the parents of these kids if I reported their children to the IRS. It was clearly meant to intimidate.”

This is far beyond the role of a tax agency.

How do we deal with this ?

First, donations to 501 (c) 4 organizations are NOT tax deductible for the donor. The organization benefits from the fact that its own activities are tax exempt. It cannot conduct a business that returns profits to the organization although educating members and charging for that service may be permissible.

Under this technical instruction program (pdf) the social welfare group would be allowed to engage in business as a means of financing the social welfare program. The business might consist of holding seminars on politics.

I was president of such an organization years ago. It was the Orange County Medical Association. It was tax exempt and, when we began to organize a subsidiary that would provide health care for low income persons, we made the subsidiary a for-profit company and allocated all business expenses related to the provision of health care as expenses to that subsidiary. We had no IRS trouble although Reagan was president and the IRS was not political as it is under Obama.

My suggestion is to contribute and help the Tea Party and similar organizations to organize themselves under another model. Perhaps legislation to allow educational organizations to function free of harassment would be in order although Democrats in the Senate would probably try to block it. Complaining about the IRS will only accomplish so much. The history of misuse of the IRS is long and goes back to Roosevelt

President Franklin Roosevelt used the IRS to harass newspaper publishers who were opposed to the New Deal, including William Randolph Hearst and Moses Annenberg, publisher of the Philadelphia Inquirer. Roosevelt also dropped the IRS hammer on political rivals such as the populist firebrand Huey Long and radio agitator Father Coughlin, and prominent Republicans such as former Treasury Secretary Andrew Mellon. Perhaps Roosevelt’s most pernicious tax skulduggery occurred in 1944. He spiked an IRS audit of illegal campaign contributions made by a government contractor to Congressman Lyndon Johnson, whose career might have been derailed if Texans had learned of the scandal.

Andrew Mellon, Treasury Secretary under Coolidge, was harassed by FDR until he died. After his death, Mellon was exonerated completely.

The administration of President Franklin D. Roosevelt subjected Mellon to intense investigation of his personal income tax returns. The US Justice Department empaneled a grand jury, which declined to issue an indictment. Roosevelt hated Mellon, as the embodiment of everything he thought was bad about the 1920s; Mellon vehemently denied the charges. A two-year civil action beginning in 1935, dubbed the “Mellon Tax Trial”, eventually exonerated Mellon, albeit several months after his death.

We should support the Tea Parties and get tax lawyers to construct a standard application with responses to legal and appropriate questions.

Do the rich vote Republican ?

Saturday, November 17th, 2012

The question about who the rich vote for is a serious one as we head for the “fiscal cliff” next year. The Republican Party has been defending the “top 2% of income groups” that Obama wants to exclude from the extension of current income tax rates. The argument is that this group, with incomes above $200,000 for individuals and above $250,000 per year for couples, includes small business owners who create most of the jobs in this country. This is probably true and the small business owners are a reliably Republican group of voters. What about the really rich ? The group whose taxes Obama wants to raise is really mostly the upper middle class. The inflation of the 1970s, and the coming inflation which will be the only result of Obama’s “budgets,” changes the income levels that determine the middle class.

Recently, there has been some discussion of the voting patterns of the “rich” and whether the Republicans are really defending Republican voters and what are the voting patterns of the rich. Bill Kristol recently wrote that the Republicans may be courting disaster by risking a trip over the fiscal cliff defending people who are not Republican voters. Data on this last election is still thin but there are a few bits of information available.

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The Coming Election

Thursday, January 12th, 2012

I don’t think that a more important election has occurred in 75 years than the one later this year. I am not all that enthusiastic about any of the current candidate in the primary. Mitt Romney will probably win but he has been wounded seriously by attacks from other Republican candidates which alleged that his career as a venture capitalist and management consultant was an ethical issue. One expects this sort of thing from Democrats, about 53% of whom prefer Socialism.

53% of Democrats feel positively towards it.

Romney has defended himself with some vigor, which is a positive development. Others have defended him with a more effective argument.

We are now in an election campaign that may well be centered on our country’s economic system. Is capitalism (or free market economics as preferred by some) the best way for our economy to work? History has been written by people who are not positive about capitalism. Recently, revisionist history has appeared that tries to balance the story. Academic studies have been published that suggest that the Depression was a result of Roosevelt’s policies.

The writings of John Maynard Keynes have been quoted in support of leftist economic policies. The problem is that his policies have never been tried. He advocated countercyclical programs which ran deficits in times of economic slowdowns and recessions but surpluses in good economic time. The net result was zero deficits, a marked contrast with policies followed since 1960.

In fact, politicians of both parties have never been willing to run the surpluses that Keynes advocated. In good times, spending rose whether taxes were raised or not. Jimmy Carter said he would balance the budget with higher taxes. Instead, his compatriots (not allies) in Congress spent even more, leading to an inflation and stagnation crisis.

Ronald Reagan reinvigorated the economy with a large tax cut in 1980. The beneficial effect was delayed to 1982 when Bob Dole, the Senate Majority Leader, succeed in delaying the tax cut. The result was a predictable delay in economic activity as taxpayers waited for the lower rates, and the loss of the Senate majority in 1982.

Bill Clinton raised taxes in 1994 (His wife, Hillary, avoided the higher tax rates by taking her bonus prior to January 1, 1993, when the higher rates took effect. The result showed her prudence but also suggested hypocrisy in the Democrats’ enthusiasm for higher taxes.

George Bush I raised taxes in 1992 in spite of a promise not to do so. He lost the 1992 election, mainly because of Ross Perot’s candidacy splitting natural Republican voters. I was interested in Perot at the time but he started acting strangely before the election and I voted for Bush with reservations. Had he not raised taxes, I think he would have been re-elected. I have had some suspicion in spite of denials, ever since that the Democrats extracted a promise to raise taxes in return for voting for the first Gulf War. It is well known that All Gore required concessions in return for his vote for the war.

The Left and its delusions.

Monday, August 23rd, 2010

I skim the Washington Monthly blog as a window on the thinking of the far left. They are more civil (except in comments) than the DailyKos but the mentality is the same. Today is a reasonable example. The topic is taxes.

Roll Call noted this morning that the Senate is moving towards “an epic election-year battle over Bush-era tax cuts.” That sounds about right.

The dispute helps capture exactly what the two parties prioritize right now — Dems want to keep lower rates for the middle class, while reducing the deficit by letting the rich go back to the rates they paid when the economy was healthy. Republicans want to hold the Dem proposal hostage, fighting tooth and nail for breaks for millionaires and billionaires, and adding $680 billion to the deficit the GOP pretended to care about for a while.

The “middle class” is a very elastic concept for them with the top income range going all the way down to $150,000 per year. Secondly, the group with incomes of $250,000 or more, the target class, consists of mainly small business people who are not incorporated and who file all income with a personal return.

There is also no concept here of who pays the taxes. Shouldn’t “tax cuts” be distributed to those who pay taxes ? Otherwise, it is just one more government handout to those who are nonproductive. Here is a look. The top 1% of income pays 40% of the income taxes. Hmmm That’s also about $410,000 per year, not $2 million.

The top 5% pays 60.63% of the income taxes. The threshold for the top 5% is $160,000. Well, what do you know ?

Billionaires need little help from Republicans but they do invest and are the source of most new jobs. The concern for “the deficit” on the part of Democrats may be translated as the left side of the entire argument about spending versus taxing. Republicans want to talk about cutting spending, especially tea party Republicans. I even have a compromise: Let the tax rates go back to the Clinton administration rates but let’s also go back to the number of government employees of the Clinton period.

[W]here would this $680 billion go? Nearly all of it would go to the richest 1 percent of Americans, people with incomes of more than $500,000 a year. But that’s the least of it: the policy center’s estimates say that the majority of the tax cuts would go to the richest one-tenth of 1 percent. Take a group of 1,000 randomly selected Americans, and pick the one with the highest income; he’s going to get the majority of that group’s tax break. And the average tax break for those lucky few — the poorest members of the group have annual incomes of more than $2 million, and the average member makes more than $7 million a year — would be $3 million over the course of the next decade. […]

Notice how the “richest” become those with incomes over $2 million when we are talking about one aspect of the issue but, when it is time to actually impose the taxes, the incomes shrink back down to $250,000 or, in some cases, it shriveles all the way down to $150,000 per year.

Midwestern centrists such as Sens. Kent Conrad (D-N.D.) and Evan Bayh (D-Ind.) have called for an extension of all of Bush’s tax cuts, including those benefiting individuals earning more than $200,000 and families earning over $250,000 annually.

Other Democrats say they would consider raising taxes on individuals and families earning below those thresholds, despite President Obama’s promise that middle-class families would not see their taxes increase.

Some liberals balk at the notion that families earning $250,000 or more belong in the middle class.

“Two hundred and fifty thousand dollars? Is that the top 1 percent of Americans, or half a percent? Come on!” said Sen. Tom Harkin (D-Iowa).

Harkin said he would be willing to extend the tax cuts for families earning $150,000 or less annually.

See how elastic that number is ? Families with a combined income of $150,000 are “rich.” We went from $2 million per year to $150,000 per year just like that!

Or we’re told that it’s about helping the economy recover. But it’s hard to think of a less cost-effective way to help the economy than giving money to people who already have plenty, and aren’t likely to spend a windfall.

Did you notice that one ? Tax cuts “give” money to people who have “plenty.” Just keep repeating to yourself; it’s not your money. It’s the government’s money and they are “giving you some of it.” They used to call that “To each according to his needs.”

No, this has nothing to do with sound economic policy. Instead, as I said, it’s about a dysfunctional and corrupt political culture, in which Congress won’t take action to revive the economy, pleads poverty when it comes to protecting the jobs of schoolteachers and firefighters, but declares cost no object when it comes to sparing the already wealthy even the slightest financial inconvenience.

Once again, a translation. Schoolteachers “need” the money. Firefighters is just a cover. The “wealthy” (Those with over $150,000 per year income) don’t “need” the money.

Note, there is no concept of a private economy here. Nobody invests; nobody starts a business. The story of the 2001 tax cuts that Democrats want to repeal is here in more detail.

This is what socialism looks like in practice.

The left and economics

Tuesday, January 26th, 2010

Today Washington Monthly has another clueless post on economics which misrepresents the Reagan record on deficits and tax cuts. First, they post this graphic.

If someone believed this nonsense, the solution to unemployment would be obvious. Raise taxes ! Keep raising them until everybody has a job ! Of course, to believe it , you would have to be a left winger who doesn’t know anything about the economy.

There is one fact ignored by Benen and Krugman (who knows better). When the Reagan tax cuts passed, the “root canal” Republicans like Bob Dole included a provision that the tax cuts would not take effect until 1982. That guaranteed what we see. Anyone with a bit of sense would postpone economic activity until 1982 when the tax cuts would have taken effect.

Conservatives believe Obama’s stimulus didn’t work, and as proof, they point to the unemployment numbers 11 months after the policy became law. But if that’s the appropriate measure, wouldn’t Republicans also have to believe that Reagan’s 1981 tax-cut plan also failed, since unemployment went even higher the year after it passed?

They might if they believed Benen and ignored the fact that the tax cuts were postponed until the next year when passed.

On the contrary, the Obama tax increases will take effect in 11 months and will be a disaster, unlike young Mr Benen’s delusion.

But when the huge tax-increase agenda arrives a year from now, the economy will begin to decline, and will be some 3% to 4% smaller than it otherwise would have been. The artificially high growth in 2010 followed by artificially low growth in 2011 would “represent a larger collapse than occurred in 2008 and early 2009,” Mr. Laffer writes.

Hang on, rough water ahead.

Manufacturing and the Democrats

Thursday, November 12th, 2009

We have been hearing about the loss of manufacturing jobs in this country for years. Ross Perot talked about a “great sucking sound” in Mexico. That may apply for unskilled jobs but the real manufacturing job is one requiring skill. Not everyone can be a packer or a assembler. A lot of that can be automated. Why is manufacturing leaving our shores ? There are some theories being talked about now. An interview of an executive a couple of weeks ago started another round.

Nov. 11 (Bloomberg) — Emerson Electric Co. Chief Executive Officer David Farr said the U.S. government is hurting manufacturers with regulation and taxes and his company will continue to focus on growth overseas.

“Washington is doing everything in their manpower, capability, to destroy U.S. manufacturing,” Farr said today in Chicago at a Baird Industrial Outlook conference. “Cap and trade, medical reform, labor rules.”

Emerson is a big company and has been expanding in other countries for a while. Still, he struck a chord as the administration produced a response from a spokesman for Gary Locke, who is the Secretary of Commerce but has no business experience.

“This attack isn’t supported by the facts,” Kevin Griffis, a spokesman for U.S. Commerce Secretary Gary Locke, said today in an e-mail from Singapore, where they are attending the Asia-Pacific Economic Cooperation meetings.

“This administration has made a significant commitment to U.S. manufacturing, including reforming the country’s health insurance system to bring down costs and make American companies more competitive globally,” Griffis said.

If Locke thinks that health care bill will bring down costs, he hasn’t read it. Of course, no one else has either.

Here is a response, to the Obama Secretary of Commerce and his flunky.

Well, yes it is Kevin. There is a great article in today’s Wall Street Journal that you and Gary ought to read on global warming before they rush off and saddle American manufacturing with Cap and Trade. And rather than slam the manufacturing community represented by the US Chamber of Commerce because they have ideas on health care that are different from the government take-over scheme your boss urges, you ought to shut up and listen. And even the Democrats who control the Senate won’t support your ridiculous Card Check scheme to try to bring labor unions back from the dead. You set up a labor lawyer as the manufacturing czar and a certifiable nut case on the NLRB. You have attacked manufacturing at every turn since taking office.

The Wall Street Journal article on Global Warming closes with:

But from our first column on this subject, we have been convinced that the scientific questions are interesting and irrelevant, since it was never in the cards that Western societies (or Brazil or India or China) would sacrifice economic growth for the uncertain benefits of fighting climate change. Unable to do anything meaningful about climate change, policy would therefore default to satisfying the demand of organized interests for climate pork.

That is no way to run a railroad. Cap & Trade will kill off the rest of manufacturing. I remember when a lot of the fiberglass boat building industry was in Orange County, a half hour or less from my home. The Clean Air Act drove most of it out of business, along with the oil crisis of the 70s as petroleum products quadrupled in price. OIl came back down but the EPA was still there so most of southern California manufacturing moved to Mexico where the Mexican liked jobs more than clean air. In fact, the air was pretty clean in Newport Beach all along.

What else is Obama doing to help industry?

Well, the new hand-picked CEO of AIG, e insurance giant bailed out by the administration last spring wants to resign after 3 months on the job. Why ?

“The executive is chafing under constraints imposed by AIG’s government overseers, particularly a recent compensation review by the Obama administration’s pay czar, Kenneth Feinberg,” WSJ said citing people close to the development.

AIG, which is 80 per cent government owned since its rescue last year, is one of the companies under Feinberg’s purview.

That’s not manufacturing but one thing executives have in common is the desire to make money. Then, of course, there are the new taxes. These are enormous increases in marginal tax rates and they are not indexed for inflation.

In order to raise enough money to make their plan look like it won’t add to the deficit, House Democrats have deliberately not indexed two main tax features of their plan: the $500,000 threshold for the 5.4-percentage-point income tax surcharge; and the payroll level at which small businesses must pay a new 8% tax penalty for not offering health insurance.

This is a sneaky way for politicians to pry more money out of workers every year without having to legislate tax increases. The negative effects of failing to index compound over time, yielding a revenue windfall for government as the years go on. The House tax surcharge is estimated to raise $460.5 billion over 10 years, but only $30.9 billion in 2011, rising to $68.4 billion in 2019, according to the Joint Tax Committee.

Then there is the stimulus which takes the taxes and throws them away.

Taxing the rich hits small business very hard as many file personal returns and many of these new taxes are not subject deductible expenses, just like the AMT.

Americans of a certain age have seen this movie before. In 1960, only 3% of tax filers paid a 30% or higher marginal tax rate. By 1980, after the inflation of the 1970s, the share was closer to 33%, according to a Heritage Foundation analysis of tax returns.

These stealth tax increases—forcing ever more Americans to pay higher tax rates on phantom gains in income—were widely seen to be unjust. And in 1981 as part of the Reagan tax cuts, a bipartisan coalition voted to index the tax brackets for inflation.

We also know what has happened with the Alternative Minimum Tax. Passed to hit only 1% of all Americans in 1969, the AMT wasn’t indexed for inflation at the time and neither was Bill Clinton’s AMT rate increase in 1993. The number of families hit by this shadow tax more than tripled over the next decade. Today, families with incomes as low as $75,000 a year can be hit by the AMT unless Congress passes an annual “patch.”

The Pelosi-Obama health tax surcharge will have a similar effect. The tax would begin in 2011 on income above $500,000 for singles and $1 million for joint filers. Assuming a 4% annual inflation rate over the next decade, that $500,000 for an individual tax filer would hit families with the inflation-adjusted equivalent of an income of about $335,000 by 2020. After 20 years without indexing, the surcharge threshold would be roughly $250,000.

This is a job killer. So is card check.

And on we go toward the fate of Argentina.

Tea Parties and NY 23

Saturday, October 24th, 2009

UPDATE #4: What is the world record for breaking campaign promises ? Answer: one hour.

Amazing. Next year should be interesting in NY 23. Of course the district is destined to be broken up after the next census so that makes it OK to play the voters for rubes.

UPDATE #3: Newt, give it up.

UPDATE #2: It now seems that Newt Gingrich, who has opposed Hoffman has been passing along misinformation and may have been lied to.

UPDATE: More from NRO on the debate within the party.

I’ve been interested in the tea party movement since last March. We had a tea party demonstration in Mission Viejo on April 15 and I posted about it. My impression all along has been that this is a libertarian movement and the social conservatives who attend are mostly there about taxes and deficits.

I have also been very interested in Sarah Palin, although I was disappointed by her weaknesses in interviews last year. Some of that was poor preparation and some was the suddenness of her ascent to the national stage. I have read a good deal about Margaret Thatcher and learned that, once she became part of Ted Heath’s government, she embarked on a crash course of coaching on issues. She was not the Iron Lady immediately. I’ve also been interested in some tendencies on the part of Sarah Palin toward libertarian positions on issues. She was demonized by the media last year as a fundamentalist but some of her actions as governor were misrepresented.

Now, we have a stark challenge to the Republican establishment. The old guard party moguls chose a candidate in the New York 23rd Congressional district who embodies most of the concerns we have had about the deterioration of the Republican Party. Michelle Malkin can certainly be over the top but the issues she raises are real.

Scozzafava is an abortion rights advocate who favors gay marriage.

These are not the hot button issues for me that they are for Michelle. Still, most Republicans are on the other side.

It would be one thing if Scozzafava balanced that social liberalism with fiscal conservatism. But as a state assemblywoman, she voted for massive tax increases, Democratic budgets and a $180 million state bank bailout. She also supported the trillion-dollar federal stimulus package — which every House Republican voted against.

This is more serious. The House Republicans were unanimous. Would she have been the symbolic yes vote for Obama ?

More troubling, Scozzafava in past elections has embraced the ballot line of the Working Families Party — a socialist outfit whose political DNA is intertwined with scandal-ridden ACORN. ACORN and the WFP have shared office space in New York City, Arkansas and Illinois.

ACORN head Bertha Lewis, a close Scozzafava friend and political supporter, wears a second hat as vice chairman of the WFP. The WFP has been listed in ACORN documents dating back to 2000 as an “affiliate.”

This is a lot more serious. ACORN and WFP are socialist organizations riddled with fraud and foot soldiers of the Democratic party. Others have pointed out that the NY Republican Party is different, as in far to the left of the national party. Still, why should we have Republicans like this to confuse the message to the voters?

Scozzafava isn’t even a very good candidate.

Scozzafava’s problems as a candidate aren’t limited to ideology. She simply rubs people the wrong way. The Siena poll reported that–by a 16-point margin–voters who had seen her commercials found that the ads made “them less likely to support her.” “Let me tell you something,” Scozzafava says at the conclusion of her seven-minute speech at the Elks Lodge. “The best revenge in all of this–because it’s been ugly and nasty, my family has been personally attacked, I’ve been attacked, there’s been lies–that the best revenge in the end is to win.”

I experienced firsthand Scozza-fava’s politics of personal revenge at the Elks Lodge event. After I persisted in asking her questions about card-check, taxpayer-funding of abortion, and whether her pledge not to raise taxes meant she’d vote against any health care bill that raised taxes, her husband–a local union boss–called the police.

Then something startling happened. A guy named Doug Hoffman appeared and got the nomination of the NY Conservative Party. The Conservative Party has been the statewide reaction to the left of center GOP in New York for years. They even elected a Senator, James Buckley, brother of William F. Hoffman began to attract support. I sent an e-mail to Instapundit suggesting this was not a bad thing. He posted it. What I said was:

Glenn, the Republicans are upset at the tea partiers in NY 23 for backing Hoffman but that will be a nice test. The election is only for one year so little is lost if the Democrat wins a split race. But, if Hoffman wins, they will have to start to take the movement seriously instead of trying to co-opt them. First, I think the tea parties are libertarian, not “right wing.” That’s what I’ve seen in Mission Viejo, where we have turned out 500+ on each occasion.

This will be a very important race, more so than Virginia or New Jersey which are old line pols running on both sides.

I do wish Hoffman’s donation software was better. I tried to give him money and couldn’t.

I was able to donate later on a second try. Now, what is happening ?

Sarah Palin endorsed him.

Uh oh.

Minnesota governor and potential GOP presidential candidate Pawlenty seems to be dithering. That won’t help.

He says he will “probably” endorse Hoffman. Governor, we don’t need more presidential dithering. Personally, I think Hoffman will win. What does that mean ?

I think it means that the tea party movement is not a Republican phenomenon. Republicans can join but they have to adopt some principles, a rare event in the past decade. We probably don’t have a worse political class now than in past eras. The difference is that Congress has far more power over our economy than ever before, with the exception of war time.

When asked about this confrontation with the GOP, Dana remarked that Tea Partiers were not going to be co-opt by the Republican Party, but were rather in the process of taking it over. Bill Hennessy praised Ed Martin (R), who is running to unseat Russ Carnahan (D-MO) in MO-03, for taking a stand in support of Doug Hoffman. Bill called on other Missouri Republicans to do the same. Paul Curtman, who is running for state rep in Missouri’s 105th, was there to support conservatism and Doug Hoffman.

Which is the tail and which is the dog? I am convinced the tea party movement is a resurgence of the Perot phenomenon of 1992. I’m not the only one.

In 1992, the incumbent president, George H.W. Bush, was a disappointment to his party’s base and a pariah to the Democrats. Government seemed to have lost its grip. The deficit became a massive issue, a symbol of out-of-control government. The hangover of Cold War sacrifices, the S&L bailout, runaway crime, huge trade deficits, the long-term trend of manufacturing decline and, of course, the recession contributed to the sense that America desperately needed to get its house in order.
Ross Perot, a quirky Texas billionaire, tapped into that anxiety perfectly. Western, pro-business, no-nonsense, pro-choice and pro-gun, culturally conservative but with little interest in culture-war issues, he managed to thread the needle between both parties. He also benefited enormously from the fact that his independent bid for the presidency was seen by the press as an indictment of both the incumbent Republican and the “Reagan deficits” that Democrats and the media had been denouncing for years. At one point, Perot led in the polls, and if he hadn’t dropped out and then rejoined, he might have done even better than his historic 19 percent of the popular vote.

I was ready to vote for Perot until he imploded in a series of weird complaints about threats to his family.

The tea-party protesters are in large part the heirs of Perotism, and they are being subjected to the same insults. Liberal commentators are deaf to the tea partyers’ disdain for both political parties, preferring to cast the protesters as a deranged band of birthers and racists or hired guns of a Republican “AstroTurf” campaign.

Meanwhile, as National Review’s Ramesh Ponnuru has argued, the Democrats have convinced themselves that the moral of Clinton’s failed health care push is not that he was wrong to try, but that he was wrong not to cram it through against popular opposition.

President Obama promised a “new era of fiscal responsibility,” but he’s governing as if exploding the size of government is what Americans want, polls be damned. The Democrats’ budget games and giveaways amount to poking the angry Perotista beast with a stick.

If the GOP can convincingly align with and exploit the growing Perotista discontent, it very well might ride to victory on a tsunami the Democrats can’t even see.

Yes, but can the party that nominated Dede Scozzafava figure that out ? Minnesota seemed to figure it out with Michelle Bachman.

Top 10 cities for political activity.

Monday, September 28th, 2009

US News and World Report has Mission Viejo as one of the top 10 cities for political activity in the nation. The article also notes that it is the safest city in America. Coincidence ?

Other important factors that play into political participation are the quality of education in a community and the level of incomes. Cities on this list tend to be more educated and well off than nearby cities or the country as a whole. They also tend to be residential suburbs of cities with service-based economies. Those characteristics lead to greater political interest not only because wealthier people with children tend to care more about public affairs. Such interest also stems from the fact that prosperous, tight-knit communities are natural breeding grounds for political activity.

One other factor, mentioned by one of the community activists of Mission Viejo, is to have a “dysfunctional city council.” Yes, that does help. The comments on this local blog expand a bit on the city council’s role in stimulating political activism. I got interested in 2000 when I became aware of some very nasty campaign stunts funded by city vendors who were in cahoots with the then council majority. We had seen some questionable spending decisions, such as a very expensive city hall and a city library that was a showplace. The city council seemed to be under the impression that this was Beverly Hills. A couple of years later, they were outside, looking in.

Unfortunately, we all learned that Lord Acton knew what he was talking about when he said “Power Corrupts.” The new council members we had worked so hard to elect became almost as corrupt as the old group. Community activism took a nosedive for a while. The Tea Parties seem to be bringing it back to life.

Taxes and the Depression

Tuesday, September 22nd, 2009

Arthur Laffer, author of supply side economics in the Kemp-Roth tax cuts proposed in the late 70s and finally passed in 1981, has a column today on the origins of the Great Depression. Books have been written on the subject and recent books have revised much history. Today Laffer points out that tax policy had a powerful effect on the collapse. We all know the theories of Keynes, about how falling demand led to the contraction. We have read (many of us have, anyway) Amity Schlaes book and realized that regulation and the effort to keep wages high contributed. Schoolchildren of my generation knew about the Smoot-Hawley tariff and how it led to trade wars and decreased world trade. Laffer now contributes another factor. Taxes.

While Fed policy was undoubtedly important, it was not the primary cause of the Great Depression or the economy’s relapse in 1937. The Smoot-Hawley tariff of June 1930 was the catalyst that got the whole process going. It was the largest single increase in taxes on trade during peacetime and precipitated massive retaliation by foreign governments on U.S. products. Huge federal and state tax increases in 1932 followed the initial decline in the economy thus doubling down on the impact of Smoot-Hawley. There were additional large tax increases in 1936 and 1937 that were the proximate cause of the economy’s relapse in 1937.

I had not previously thought of Smoot-Hawley as a tax but, of course, it was. Until the 16th Amendment, tariffs were the government’s principle source of revenue.

In 1930-31, during the Hoover administration and in the midst of an economic collapse, there was a very slight increase in tax rates on personal income at both the lowest and highest brackets. The corporate tax rate was also slightly increased to 12% from 11%. But beginning in 1932 the lowest personal income tax rate was raised to 4% from less than one-half of 1% while the highest rate was raised to 63% from 25%. (That’s not a misprint!) The corporate rate was raised to 13.75% from 12%. All sorts of Federal excise taxes too numerous to list were raised as well. The highest inheritance tax rate was also raised in 1932 to 45% from 20% and the gift tax was reinstituted with the highest rate set at 33.5%.

Raising taxes in a recession is not only an illogical idea, Keynes says government should run a deficit in recessions, but is a proven cause of the Depression. Roosevelt, as in so many other areas, followed Hoover’s lead.

In 1934, during the Roosevelt administration, the highest estate tax rate was raised to 60% from 45% and raised again to 70% in 1935. The highest gift tax rate was raised to 45% in 1934 from 33.5% in 1933 and raised again to 52.5% in 1935. The highest corporate tax rate was raised to 15% in 1936 with a surtax on undistributed profits up to 27%. In 1936 the highest personal income tax rate was raised yet again to 79% from 63%—a stifling 216% increase in four years. Finally, in 1937 a 1% employer and a 1% employee tax was placed on all wages up to $3,000.

It has been written that Roosevelt took great delight in those high tax rates on his fellow members of the inherited wealth class. He was widely hated in return but the hate seems to have gone both ways.

The states also made their contribution to the collapse.

In 1929, state and local taxes were 7.2% of GDP and then rose to 8.5%, 9.7% and 12.3% for the years 1930, ’31 and ’32 respectively.

If there were one warning I’d give to all who will listen, it is that U.S. federal and state tax policies are on an economic crash trajectory today just as they were in the 1930s. Net legislated state-tax increases as a percentage of previous year tax receipts are at 3.1%, their highest level since 1991; the Bush tax cuts are set to expire in 2011; and additional taxes to pay for health-care and the proposed cap-and-trade scheme are on the horizon.

I believe that the only way this warning will be heard is if the Republicans take Congress next year. Hopefully, they have learned their lesson from the early years of this decade.