Posts Tagged ‘taxes’

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.

Government by Democrats in 2009

Monday, July 6th, 2009

We are in the midst of the worst financial crisis since 1929, being made worse in my opinion by the government’s feckless attempts at stimulus. The states have been called “laboratories of democracy” for many years and our two largest states have been governed the past 20 years by the Democratic Party. Since the Democratic Party has been in power in Washington for only the past three years, perhaps we should turn to the states to see what the future holds for us under Democrat control.

New York is a good example.

During the long years of Republican control, the all-white GOP “conference” would regularly bemoan its lack of diversity, and make extra efforts to recruit minority Senate candidates and hire minority staff.

During the first five months of this year, with the Senate under the control of its first African-American majority leader, Smith, top Democrats bemoaned the lack of minority Senate staffers.

But instead of trying to recruit new hires, they fired nearly 200 almost exclusively white workers and replaced them with a large number of minority employees, many of whom were seen by their fellow workers to be unskilled at their new jobs.

The move produced severe racial tensions, made worse by the fact that, as a high-level Democratic staffer confided, “We’ve been told to only hire minorities.”

We’ll see how much of a precedent that is over the next year. The first Supreme Court nominee by Obama is not reassuring. How does he think the future will play out ?

The Empire State — once a beacon of progressive state government to the nation — is on the brink of ruin. And it doesn’t look like anything can be done to stop it.

In two words: We’re doomed.

Well, California is the other large state with “progressive government.” How is it doing?
Things could be better

California Gov. Arnold Schwarzenegger declared a fiscal emergency and ordered state offices closed three days a month to save money as state officials began paying bills with IOUS on Thursday.

Deep budget cuts have already forced California school districts to cancel summer school programs, moves that have affected — among others — elementary and middle school students in Los Angeles, which has the country’s second largest district.

What is the solution ? Why, raise taxes, of course.

But labor and education groups, health care and social service advocates and (a bit more quietly) some Democratic lawmakers continue to insist that tax hikes should be part of California’s solution to its $24.3 billion budget deficit.
“The solution to this budget problem is not to slash and burn education but to re-evaluate our revenue policy,” Jeff Freitas, a lobbyist for the California Federation of Teachers, told a legislative budget committee last week.

“There are a plethora of options that are being ignored that must be brought to the table.”

Did anyone think the teachers union lobbyist would be in favor of cutting education spending ? What about voters ? You know, the people who pay those taxes ?

voters rejected five ballot measures on May 19 that included $16 billion more in temporary extensions of the February tax increase

Gee, I thought the ballot propositions didn’t include a tax increase ! The ballot argument didn’t mention a tax increase. Maybe voters are starting to doubt the veracity of politicians. Well, they seem to have believed Obama last fall. I wonder how long that will last ? I’m not the only one.

A nice summary of the problems of California.

Is there a state that is not in big trouble ? Yes, Texas. Here’s one reason:

Texas is home to more applications for new nuclear plants than any other state, with more than 9,000 MW of new capacity under development. These investments are a direct result of Texas’ world leading competitive electricity market, which has lead to more investment in electric generation capacity than any other state.

Smoot-Hawley II

Saturday, June 27th, 2009

UPDATE: California Congressman Tom McClintock cites an example in our state where a similar bill has deepened California’s recession.

When I was a child in school, we all learned that the Depression was made more severe, if not caused, by the Smoot-Hawley Tariff of 1930. Over a thousand economists signed a petition asking president Hoover not to sign it. Yesterday, the Waxman-Markey bill passed the House by a seven vote margin. It is as destructive of the US economy as the Smoot-Hawley Tariff was. Analysis is difficult because the bill has changed every day to accommodate lobbyists who offer support for a piece of the action. An analysis of its effect on the US economy is here by CATO Institute.

there is one policy nexus where congressional leaders are still doggedly determined to move the country left: energy and the environment. Speaker Pelosi will reportedly allow a vote on the controversial Waxman-Markey “cap-and-trade” legislation at the end of this week.

And it gets even better. Not content to tempt political fate by imposing huge carbon taxes on the American middle class, Democrats have added a provision which imposes stiff tariffs on our trading partners if they don’t adopt aggressive carbon restrictions of their own.

You heard correctly: progressives have authored a bill that earns the mortal enmity of domestic energy consumers and our most crucial trading partners at the same time. Economy-killing climate policies and a trade war — together at last!

The effect of the bill is a huge tax increase on the American public plus energy shortages for the rest of the century. The blather about “green jobs” is just that, blather.

And just for the sake of discussion, exactly how much global warming will be prevented by this assurance of future trade turmoil? Well, let’s use the federal government’s own model which — we are not making this up — is called MAGGIC (Model for the Assessment of Greenhouse-gas Induced Climate Change). It comes from the National Center for Atmospheric Research in Boulder, Colorado.

Let’s compare the effects of Waxman-Markey to the United Nations’ “business-as-usual” emissions scenario that’s in their big 2007 climate change compendium. If the U.S. only adopts Waxman-Markey, global warming would be reduced by a grand total of 0.2ºF by 2100. This is too small to even detect, because global temperatures bounce around by about this amount every year. For those who like to think more near-term, the amount of warming prevented by 2050 would be 0.07 of a degree.

According to the UN, without Waxman-Markey the warming from 1990 to 2050 would be 2.8ºF, and 5.3º by 2100. (Of course, observed warming since 1990 is running about 40 percent below the expected rate, largely because there hasn’t been any net warming since the very warm year of 1998.)

Now, let’s be completely unrealistic and assume that every nation that has “obligations” under the (failed) Kyoto Protocol cuts emissions as much as we do. Then the saved warming balloons all the way to 0.14ºF by 2050 and 0.4º by 2100, or 5 and 7 percent, respectively, of the “business-as-usual” total.

The legislation will wreck the US economy and start a trade war as Obama plans to raise tariffs on imports from countries that don’t adopt similar policies (China anyone ?). Fortunately, a wiser Congress can undo much of the damage as the Democrats have cleverly written the bill so none of the provisions, except the spending, take effect until after the 2012 elections.

The bill barely passed and would have been defeated except for eight Republicans. Their names are:

Bono Mack (CA)
Castle (DE)
Kirk (IL)
Lance (NJ)
LoBiondo (NJ)
McHugh (NY)
Reichert (WA)
Smith (NJ)

Without just 4 of these votes, the energy tax would have gone down and months of scheming by Henry Waxman and Speaker Pelosi would have been for naught. Two of them have hopes of a Senate run, I note. Twitter users are already calling them the #capntr8tors…

I think we can do without these people in the next Congress. If you want to understand just how ludicrous this act of Congress is, consider that there is no existing copy of the bill as passed. Not only didn’t they read it, it doesn’t exist. This is how banana republics are governed.

What the Tea Parties are about

Wednesday, April 15th, 2009

I see a lot of discussion about what the “Tea Party” activists are concerned about. It isn’t really taxes. As others, including David Frum, have pointed out, taxes are not the issue right now. The rates are still fairly low by historical standards. This is what we are concerned about:

There are lots of complaints about Bush’s spending and I was unhappy with it. Still, the graph shows the difference. We have never seen anything like this before in our history. There is no way this debt can be repaid without either huge tax hikes or runaway inflation. We were already worried about paying for the Boomer generation retirement benefits in Social Security and Medicare. This will make that impossible. Obama said he wanted to change the country. That is certain unless he is stopped. That is what the tea parties are about.

The Obama economy

Saturday, February 21st, 2009

A better picture of Obama’s, and the Democrats’, economic plans is emerging. First, he is announcing plans to raise taxes in a recession.

Obama plans to unveil his goals for scaling back record deficits and rebuilding the nation’s costly and inefficient health care system Monday, when he addresses more than 100 lawmakers and budget experts at a White House summit on restoring “fiscal responsibility” to Washington.

In his weekly radio and Internet address today, Obama expressed determination to “get exploding deficits under control” and described his budget request as “sober in its assessments, honest in its accounting, and lays out in detail my strategy for investing in what we need, cutting what we don’t, and restoring fiscal discipline.”

Reducing the deficit, he said, is critical to the nation’s future: “We can’t generate sustained growth without getting our deficits under control.”

How is he going to get the deficits under control, considering that he just signed a bill that adds over a trillion dollars to them?

Obama proposes to dramatically reduce those numbers by the end of his first term, cutting the deficit he inherited in half, said administration officials, speaking on condition of anonymity because the budget has yet to be released. His budget plan would keep the deficit hovering near $1 trillion in 2010 and 2011, but shows it dropping to $533 billion in 2013 — still high in dollar terms, but a more manageable 3 percent of the overall economy.

To get there, Obama proposes to cut spending and raise taxes. The savings would come primarily from “winding down the war” in Iraq, a senior administration official said. The budget assumes that the nation will continue to spend money on “overseas military contingency operations” throughout Obama’s presidency, the official said, but that number is significantly lower than the nearly $190 billion the nation budgeted for Iraq and Afghanistan last year.

Obama also seeks to increase tax collections, primarily by making good on his promise to eliminate the temporary tax cuts enacted in 2001 and 2003 for wealthy taxpayers, whom Obama defined during the campaign as those earning more than $250,000 a year. Those tax breaks would be permitted to expire on schedule for the 2011 tax year, when the top tax rate would rise from 35 percent to more than 39 percent.

OK so we raise tax rates in a recession and that increases revenue ? Democrats seem to think that people will not alter behavior when incentives change.

Even some non-partisan observers question the wisdom of announcing a plan to raise taxes in the midst of a recession. But senior White House adviser David Axelrod said in an interview that the tax proposals reflect the ideas that won the election last fall.

“This is consistent with what the president talked about throughout the campaign,” and “restores some balance to the tax code in a way that protects the middle class,” Axelrod said. “Most Americans will come out very well here.”

How high could those rates go ? Here’s what a Democrat Congressman told his constitutents last week.

Congressman Jerry McNerney (D-Pleasanton) hosted “Congress at your Corner” from 9:30 to 10:30 this morning. The meetings are “part of McNerney’s effort to reach out to and hear from citizens in the 11th District.” I have never gone to anything like this before, but decided to go to express my displeasure about the stimulus package. Keep in mind that this is NORTHERN CALIFORNIA. The meeting was held in a local bagel cafe, and I was happy to see that the place was packed with probably about 50-75 people. The vast majority of them were extremely angry about the stimulus package. It started out with him taking questions from the crowd, but then they started a line for people to talk to him privately because things were getting “out of control”. Several people then asked if he would consider having a town hall style meeting with microphones, etc. We’ll see if that happens. I’m not betting on it.

The writer finally got to talk to the Congressman.

When I got my time with him, I explained to him that even people who make $150k in Northern Cal. are not “rich” and should not be taxed as if they were. (A 1400 sq ft, 40 year old home here goes for over half a million, even after the housing slump. Then you add in real estate taxes, state income taxes, 10% sales tax, gas prices, utility costs, etc.) I also expressed my concern that about half the people in the country now pay no income taxes, so there is overwhelming incentive for them to keep voting for democrats and therefore higher taxes for the rest of us. He told me that he thought tax rates should go up for the very rich and that the top marginal tax rate should be 90%. I couldn’t believe what I was hearing, so I asked in a voice that many in the room could hear if he really meant 90%, and he said yes. Several people asked me after my turn was over if they heard correctly what he said, and were amazed when I said yes.

Here is a Congressman who thinks that the rich will sit still and let the government take 90% of their income with taxes. How did that work out for Herbert Hoover ?

There actually is some history of revenue changes with tax rate changes. I doubt that Congressman has read any of this, any more than he read the “stimulus bill” he voted for. In fact, Obama told Charlie Gibson, in the most revealing answer of the primary debates, that he would raise capital gains tax rates even if it lost money !

Welcome to Obamanomics.

Oh Oh Here we go

Friday, December 5th, 2008

The Smoot-Hawley Tariff has been given considerable “credit” for the Great Depression in history books going back to the 1940s.

One of the most hotly debated causes of the crash is the Smoot-Hawley tariff. Protectionists like Alfred Eckes and Pat Buchanan argue that it could not have affected the market because the law was not passed until 1930, long after the crash. Although this is true, much of the legislative activity took place in 1929. As economist Alan Reynolds convincingly demonstrated in National Review (November 9, 1979), actions favoring passage of the tariff bill correlate quite well with declines in the stock market during 1929, culminating on October 29.

The reason why the market crashed well in advance of the tariff becoming law is because markets are forward-looking, and quickly capitalize any policy that will impact on future profits.

President-elect Obama has made quite a bit of noise about protectionism, and at one point, an advisor, Austan Goolsbee, was sent to Canada to reassure them that it was just campaign talk. This resulted in a major flap and Goolsbee was shipped off to campaign Siberia.

Well, Obama is elected now and what is the situation?

Well, for one thing, Smoot-Hawley is being resurrected by Obama supporting economists.

How much of a boost to economic activity will a fiscal stimulus provide? For those who believe that we have entered a Keynesian world of shortage of aggregate demand–me included–the answer depends on the Keynesian multiplier.

Democrats are all Keynesians, of course. Republicans became supply siders under Reagan. The difference ? Keynes advocated spending and politicians like spending. That way they get to determine where the money goes.

Now suppose that we had a way to raise the multiplier by more than half, from 1.8 to 2.8. The same fiscal stimulus would now produce an increase in GDP of $2.8 trillion–quite a difference. Nice deal if you can get it.

In fact you can. It is pretty easy to increase the multiplier; just raise import tariffs by enough so that the marginal propensity to import out of income is reduced substantially (to zero if you want the multiplier to go all the way to 2.8). Yes, yes, import protection is inefficient and not a very neighborly thing to do–but should we really care if the alternative is significantly lower growth and higher unemployment? More to the point, will Obama and his advisers care?

Spoken like Mr. Smoot and Mr. Hawley.

Protectionism will prevent US citizens, who get government handouts, from spending the money outside the country, for Japanese cars or Chinese toys, for example. A century ago, they called this “Mercantilism.” Mercantilism was an economic theory that advocated maximizing exports and minimizing imports. Carried to its extreme, the mercantilist country would keep accumulating money by beggaring its trade partners. China does this in part.

Megan McArdle doesn’t like it, but that may not be enough. People who think they can plan an economy are not easily convinced they are wrong. Witness the current consequences with Fannie Mae and Freddie Mac. The politicians and Obama have not accepted any blame for that fiasco yet.

The alternative to all this stimulus money being handed out is a tax cut. Why not cut the corporation and capital gains tax rates to zero for a couple of years ? The only problem I see with that is that it allows the people who pay taxes to determine what to do with the money. Politicians don’t like that.

UPDATE: Here is some sober comment on the zero interest t-bill auction this week. If people are buying t-bills at zero interest, the stock market may not be as much of a bargain as some people are saying. I expect it to go lower, a lot lower.

Obama’s tax plan explained.

Friday, October 24th, 2008

The Wall Street Journal today explains the Obama tax plan. We have all been saying it is not a tax cut if the recipient has no income tax obligation. Obama has also talked about lifting the income maximum on FICA deductions. Social Security was enacted by Roosevelt as a self funded retirement plan. He specifically insisted that workers contribute to the program in order to receive a pension after age 65. Wikipedia has a pretty good summary of the history. Congress kept expanding the pool of beneficiaries since the trust fund had surpluses in the early years. Nobody ever accused Congress of being concerned with the future beyond the next election.

The income subject to FICA tax was capped, just as benefits were capped. I collect Social Security and the amount I receive is about 10% of my after tax income when I was working. The amount of tax I paid was also much smaller than the income tax I paid so I have no complaint. Now that will all change.

Barack Obama proposes a Social Security payroll tax cut for low earners. Workers earning up to $8,000 per year would receive back the full 6.2% employee share of the 12.4% total payroll tax, up to $500 per year. Workers earning over $8,000 would receive $500 each, with this credit phasing out for individuals earning between $75,000 and $85,000.

Low wage earners would pay no FICA if they earn less than $8,000 per year. They would have to file a tax return. At about $80,000 per year, the full FICA would be paid by each person. The employer’s share would be paid for all, even those who do not pay the employee contribution. When Obama advisors try to explain this plan, they have trouble because it doesn’t add up.

Austan Goolsbee, the University of Chicago economic professor who serves as one of Sen. Obama’s top advisers, discussed these issues during a recent appearance on Fox News. There he stated that the answer to the first question is that these Americans are getting an income tax rebate. And the answer to the second is that the money would not actually come out of Social Security.

“You can’t just cut the payroll tax because that’s what funds Social Security,” Mr. Goolsbee told Fox’s Shepard Smith. “So if you tried to do that, you would undermine the Social Security Trust Fund.”

Now, if you have been following this so far, you have learned that people who pay no income tax will get an income tax refund. You have also learned that this check will represent relief for the payroll taxes these people do pay. And you have been assured that this rebate check won’t actually come out of payroll taxes, lest we harm Social Security.

You have to admire the audacity

Well, audacity is what he is selling.

This tax cut would make an already progressive Social Security program even more redistributive. Under current law, a very low earner receives an inflation-adjusted return on his Social Security taxes of around 4%. That’s a good return, given that government bonds are projected to return less than 3% above inflation. A high-earning worker, on the other hand, receives only around a 1.5% rate of return. Under Sen. Obama’s proposal, returns for very low earners would rise to around 6% above inflation — about the same return as on stocks, except with none of the risk. Compounded over a lifetime’s contributions, the difference in the “deal” offered to workers of different earnings levels would be extreme.

This would change Social Security from self-funding to a welfare program funded by high income earners. It would also add to the deficit that is looming for the program due to the Baby Boom Generation retirement.

Moreover, this payroll tax cut plan would reduce Social Security’s tax revenues by around $710 billion over the next 10 years. If made permanent, the Obama tax cut would increase Social Security’s long-term deficit by almost 60% and push the program into insolvency in 2034, versus 2041 under current projections.

To fill the hole in Social Security’s finances, Mr. Obama would increase income taxes on high earners and pour that money into Social Security. This would be the first time that income tax revenues have been used to finance Social Security, which has always relied on its own dedicated payroll tax to differentiate itself from other government programs. Filling the gap with higher taxes on high earners would further increase Social Security’s progressivity, pushing it closer toward a welfare-program approach.

This means high taxes for anyone over the $85,000 income level. It also means that FICA, which is charged to pre-income tax income, will become a much greater burden for the self-employed, who pay both halves. Joe the plumber again.

This will be a job killer and discourage a lot of people who might otherwise start small businesses. I wonder if he plans to lift the cap on benefits, as well. Don’t bet on it.

An Obama win and its consequences

Saturday, October 11th, 2008

I think this editorial says it best:

The freeze-up of the financial system — and government’s seeming inability to thaw it out — are a main concern, no doubt. But more people are also starting to look across the valley, as they say, at what’s in store once this crisis passes.
And right now it looks like the U.S., which built the mightiest, most prosperous economy the world has ever known, is about to turn its back on the free-enterprise system that made it all possible.
It isn’t only that the most anti-capitalist politician ever nominated by a major party is favored to take the White House. It’s that he’ll also have a filibuster-proof Congress led by politicians who are almost as liberal.
Throw in a media establishment dedicated to the implementation of a liberal agenda, and the smothering of dissent wherever it arises, and it’s no wonder panic has set in.

The federal bailout bill has flooded the markets with money but it doesn’t seem to be working. Why ?

It starts with a tax system right out of Marx: A massive redistribution of income — from each according to his ability, to each according to his need — all in the name of “neighborliness,” “patriotism,” “fairness” and “justice.”
It continues with a call for a new world order that turns its back on free trade, has no problem with government controlling the means of production, imposes global taxes to support continents where our interests are negligible, signs on to climate treaties that will sap billions more in U.S. productivity and wealth, and institutes an authoritarian health care system that will strip Americans’ freedoms and run up costs.
All the while, it ensures that nothing — absolutely nothing — will be done to secure a sufficient, terror-proof supply of our economic lifeblood — oil — a resource we’ll need much more of in the years ahead.
The businesses that create jobs and generate wealth are already discounting the future based on what they know about Obama’s plans to raise income, capital gains, dividend and payroll taxes, and his various other economy-crippling policies. Which helps explain why world stock markets have been so topsy-turvy.

And that doesn’t even mention the assault on freedom of speech that is planned by the people who ensure that You Tube videos critical of Obama and his friends disappear in an hour.

We do have the advantage of a preview of Democrat government in charge in California.

The Golden State’s finances are a mess. California’s general obligation debt has tripled in the past six years and is now almost equal to the state’s $145 billion annual budget. Even without any new loans, in three years the state will spend a record 6.1% of its budget just to service the debt it already has. What’s more, with the economic slowdown, the state is now expecting a deficit larger than $1.1 billion for the first three months of this fiscal year. The state’s rainy-day fund is running dry, which has hurt its credit rating.

Would that cause a retrenchment in spending ? Not with Democrats (and a RINO governor).

California Gov. Arnold Schwarzenegger sent an extraordinary letter to Treasury Secretary Henry Paulson asking for $7 billion. Although the governor has since withdrawn that request, it testifies to the dire state of his budget. Yet days before penning his note, the governor told an audience at the Commonwealth Club of California not to worry about the state’s budget crunch and to approve $9.95 billion in new debt on the November ballot to build a bullet train to connect Los Angeles to San Francisco: “Just because we have a problem with the budget does not mean people should vote ‘no’ on high-speed rail.”

The bullet train is a fantasy that will never pay for itself, let alone add thousands of new net jobs. The Democratic Party used to be just as conservative on spending as the Republicans. The difference was in emphasis on working men and women vs businessmen. Now, rich businessmen donate most money to Democrats and fiscal prudence is not a feature of Democrat rule. It isn’t just limited to the state, either as cities and counties are also insolvent.

God help us all.

The future of California

Friday, September 12th, 2008

I have lived in California since 1956. When I arrived as a freshman college student, California had the best infrastructure in the nation, the University of California was the best public university and the state had a balanced budget and a part-time legislature. In fact, the last items were connected because, once the state legislature became a full-time career for politicians, the growth in state spending followed rapidly. Now we have the highest state taxes in the country, some of the worst infrastructure and people are leaving. Not everyone is leaving. Illegal aliens are streaming into the state. Legal, tax paying residents are leaving.

Including me.

Now, 56 year later, we have come to this.

California has the highest state income tax rate in the country (10.3%), while New York State also has a high income tax rate (6.85%), with the combined state and city rate rising to 10.5% in New York City. Their overall government spending totals also happen to top the national charts. And, what do you know, California is $15 billion in the red this year while New York is trying to close a $6.4 billion 2009 budget hole, which budget expert E.J. McMahon of the Manhattan Institute expects to grow to $26 billion over three years.

California hasn’t even passed a budget yet, many weeks into the fiscal year. The Democrats in Sacramento have proposed a series of new taxes on businesses and individuals with incomes above $1 million. Their plan would raise the top income tax rate to 12%, which would be the highest in the nation. They would also repeal a tax law allowing businesses to carry forward losses against future profits.

In August, Governor Arnold Schwarzenegger abandoned his promise not to raise taxes and proposed a hike in the sales tax — by one percentage point for three years, which would bring the rate in many cities to as high as 9%. California taxpayers are fortunate that state law requires a two-thirds majority to pass a budget, which gives Republicans in the legislature leverage to block these tax hikes. They realize that these budget showdowns are the only chance they have to force even modest spending restraint.

So what is happening ?

As for California, its spending soared to $145 billion in 2008 from $104 billion in 2004. Every time the politicians raise taxes, they merely lift their spending by as much or more, and then plead poverty and demand another tax hike during the next economic slowdown.

The “progressives” who dominate politics in these states target the rich on grounds that they have the ability to pay. They also have the ability to leave. From 1997-2006, New York State lost 409,000 people (not counting foreign immigrants). For every two people who move into the state, three flee. Maybe the problem for New York is merely bad weather, not high taxes.

Except that sunny California is experiencing a similar exodus. Over the past decade 1.32 million more native-born Americans left the Golden State than moved in — despite beaches, mountains and 70-degree weather. Mostly the people who have fled are the successful, the talented and the rich.

Why do you think Las Vegas has a million people ? Who in the world would live there if the income tax was not zero ? The sales tax is also zero. Tucson now has a sales tax. Twenty years ago, Arizona had no sales tax but they have a Democrat governor now.

We see the same phenomenon in New Hampshire. Democrats move to New Hampshire to escape the taxes of Massachusetts. Then they vote Democrats into office in their new home state. Pretty soon the taxes rise.

No wonder Arizona residents hate Californians. I have to change that license plate on Annie’s car.

President Obama ?

Friday, January 4th, 2008

The results of the Iowa Caucuses last night bring the real possibility of a President Obama. This would also involve a Democrat Congress. What would be the result? Would we see political correctness arresting bloggers ? The British Labour Party has adopted “hate crime” laws so comprehensive as to make free speech a memory. The Democratic party is the party of hate speech laws.

What about taxes ? The Obama web site advocates raising taxes.  “Obama will protect tax cuts for poor and middle class families, but he will reverse most of the Bush tax cuts for the wealthiest taxpayers.” This, of course, is nonsense. The wealthy pay far more than half the total income tax revenues and they are the only group with the discretion to shift income or wait out the current administration by deferring income. This has happened before.

What about such major issues as global warming ? “Well, I don’t believe that climate change is just an issue that’s convenient to bring up during a campaign. I believe it’s one of the greatest moral challenges of our generation. ” I doubt he is interested in the Russians’ theories.

The latest data, obtained by Habibullah Abdusamatov, head of the Pulkovo Observatory space research laboratory, say that Earth has passed the peak of its warmer period, and a fairly cold spell will set in quite soon, by 2012. Real cold will come when solar activity reaches its minimum, by 2041, and will last for 50-60 years or even longer.

Foreign policy, of course, will be his weak spot. I don’t think he will be interested in Bill Roggio’s summary of global jihad. He’s probably not interested in Waziristan. If he even knows about this attack,  he probably considers it a coincidence. I don’t think President Obama wants to know much about the threats we face.

I am visiting friends in Britain. So far, the election has not come up as a topic of conversation. I know most of them don’t like Bush and would probably be thrilled to see a black US President. Beyond that, I doubt they consider how it might affect their lives. Interesting times we live in.