No, this entry is not about the bailout - as ridiculous as it might be. Nor is it about the government looking to take over 401(k)s (as criminally ridiculous as that might be). However, the basis comes from a quote regarding the possible 401(k) Argentina-style debacle. It comes courtesy of Representative George Miller (D, CA). During a hearing on 401(k)s, Rep. Miller commented on the indirect subsidy caused by the non-taxation of the retirement accounts: "We have to start to think about it in Congress...whether or not we want to continue to invest that $80 billion for a policy that's not generating what we now say it should."
Invest! It is an Advil-necessecitating concept. The Government invests when it does not tax. It is the same insane thought process that leads to the Road to Serfdom-esque concept that every dollar actually belongs to the Government, and any dollar left in your pocket is a gift.
George Miller went from San Francisco State to law school at UC-Davis. He then was a legislative assistant in the California Senate, and then into the House where he has served for over 30 years. It is truly scary that the investment line of reasoning can pervade our Government and survive there for three decades. It is no wonder that Rep. Miller is a champion of Indian gaming. I suppose it is prefereable for the public to invest their money into the slot machines and at the craps tables than into a 401(k).
Friday, November 14, 2008
Monday, November 3, 2008
The Official Modern Economic Freedom 2008 Election Scorecard
If it is a fill-in-the-blank electoral map you are looking for, you have come to the wrong place. This scorecard is not to be penciled in as states are declared each hour tomorrow night. You can expect nothing less from Modern Economic Freedom than a careful winnowing down to what really matters.
A few weeks ago, a good friend pointed out that a candidate’s position on an issue is what has been most recently stated. Fair enough. And thankfully Obama wrote about his economic plan in today’s Wall Street Journal. This is the essence of the MEF Scorecard: What will Obama actually do once elected, and what will be the effects.
The Official Modern Economic Freedom 2008 Election Scorecard
There are various Obama quotes on different topics (in italics), followed by MEF commentary. After each point, fill in what happened after the election.
Tax Cuts
I’ll give a tax break to 95% of workers and their families. If you work, pay taxes, and make less than $200,000, you’ll get a tax cut.
A few weeks ago, a good friend pointed out that a candidate’s position on an issue is what has been most recently stated. Fair enough. And thankfully Obama wrote about his economic plan in today’s Wall Street Journal. This is the essence of the MEF Scorecard: What will Obama actually do once elected, and what will be the effects.
The Official Modern Economic Freedom 2008 Election Scorecard
There are various Obama quotes on different topics (in italics), followed by MEF commentary. After each point, fill in what happened after the election.
Tax Cuts
I’ll give a tax break to 95% of workers and their families. If you work, pay taxes, and make less than $200,000, you’ll get a tax cut.
- Which is it: 95% of workers, or those who work AND pay taxes?
- What is Obama’s Clintonian definition of “cut”?
If you make more than $250,000, you’ll still pay taxes at a lower rate than in the 1990s
- Does that include his plan to raise the cap on payroll taxes?
- For most of the 1990’s the top marginal tax rate was 39.6% - so the Obama rate will presumably be lower than that.
- Presumably, if you make between $200k and $250k you will experience no change in taxes.
-and capital gains and dividend taxes one-third lower than they were under Ronald Reagan
- The rate is currently 15%. It was lowered from 28% to 20% in 1997.
- In 1981, the rate was 23.7%, from 1982-1986 it was 20% (with a 60% exclusion), and in 1987/88 it was 28%.
- Even assuming the 28% rate, one-third lower would mean a rate of 18.5%
- Obama said on April 17, 2008: I would look at raising the capital gains tax for purposes of fairness.
Job Creation
We’ll create two million new jobs by rebuilding our crumbling infrastructure and laying broadband lines that reach every corner of the country
- Is he referring to jobs that come about from the economic growth enabled by an improved infrastructure, or simply the government hiring two million people on a temporary basis?
I’ll invest $15 billion a year over the next decade in renewable energy, creating five million new, green jobs
- Conversely, the cap gains tax could be eliminated, encouraging private enterprise to invest in renewable energy.
- The tally is seven million new jobs from these two policies (none noted from economic growth)
Health Care
My plan will make health care affordable and accessible for every American
- Health care is currently accessible to all, and affordable to few.
If you already have health insurance, the only change you’ll see under my plan is lower premiums.
- LAUGHTER
If you don’t, you’ll be able to get the same kind of plan that members of Congress get for themselves
- For free???
- Again, anyone can “get” the same kind of plan – but very few can afford it. What is Obama going to do to reduce the cost of health care?
Selected Data
Item 2008 2000 1992 1980
Dow 9,325 10,971 3,226 924
CPI 4.9% 3.5% 3.0% 12.6%
10-yr US Treasury 4.0% 5.8% 6.8% 12.5%
Unemployment 6.1% 3.9% 7.6% 7.5%
Barrel of Oil $68 $33 $21
Friday, October 31, 2008
Unions, Workers Should Favor Repeal of MA Income Tax
(Vote Yes on Question 1)
Massachusetts voters have the opportunity to repeal the state income tax in the upcoming election. In the simplest of terms, it is a choice between sending tax dollars to Beacon Hill to spend, or to keep them in a taxpayer’s pocket. More broadly, lowering income taxes by definition increases take-home wages, spurs economic growth, and creates jobs. The loudest opponent of Question 1 is the unions. This vehement opposition could be the most puzzling aspect of the 2008 election. Unions and workers should actually be firmly in favor of Question 1, and eliminating the state income tax.
The basic goal of a union is to maximize the compensation of its members. A union provides a means of collective bargaining to enhance the ability of workers to increase their wages and benefits. The mistaken logic in the decision of union leaders to oppose Question 1 is that by limiting the pool of resources of the state government, the amount of money available for compensation will be lower, and jobs will be scarcer. This line of thinking is counter to simple economics.
First, and easiest to understand, is the direct increase in compensation which results from eliminating the state income tax. Massachusetts currently taxes income at 5.3%. By eliminating this tax, a worker will receive a raise of more than 5.3%. This is a permanent raise (well, as long as the income tax is not subsequently re-enacted). Most negotiators would be pleased to walk away from the table locking in that level of a permanent raise. Especially given the current economic difficulties, this kind of an increase to take home pay is significant, and cannot be dismissed.
Nor can the impact on the state economy be ignored. Massachusetts has lagged the rest of the country in growth and job creation. The unemployment rate is only dampened down by the fact that we have seen an out-migration of population (as in, those without jobs simply leave the state). A lower income tax, empirically and logically, leads to economic growth. Economic growth is what leads to job creation. Economic growth and job creation lead to higher compensation and a higher standard of living. With one ballot issue, unions and workers will have not only directly given themselves a raise of over 5%, but also enabled an economic environment that promotes growth and job creation and thus further increases in wages.
However, the argument is made that by denying funds to the state government, jobs for teachers, fire fighters, and policemen will become scarcer. Again, this line of reasoning ignores basic economic principles. Efficiency is created when spending is sourced from the lowest common denominator. In other words, hiring for local jobs is best done at the local level. The current system sends tax dollars to Beacon Hill, which then in turn disperses it to municipalities. Yet this occurs only through a filter of mandates, restrictions, guidelines, and of course special and powerful interests. Waste, by definition, clogs the system. Yes, local taxes (generally in the form of property) will go up. Yet given the inefficiencies of the current system, they will go up by less than the reduction in income taxes. Jobs that are based at the local level and that are also funded at the local level are more secure jobs, and are thus more effectively compensated jobs. With a lower income tax burden, local residents will be more open to increased local expenditures. Further, with the increased economic growth that results from eliminating the state income tax, other sources of revenue will increase at both the state and local level (more spending will lead to more sales tax revenue while higher demand for housing and commerce will increase property tax revenue).
Union members and workers need to carefully consider their position on eliminating the state income tax. A yes vote on question 1 is, by definition, in complete lock-step with the goal of a union: to maximize the compensation of workers. Eliminating the state income tax will cause a direct increase of after-tax income by more than 5%, at a time when it is especially needed. It will promote economic growth and thus job creation and higher wages. It will force more efficiency and shift hiring to the local level, eliminating the waste that comes from bureaucratic decision-making. Eliminating the state income tax will be an enormous benefit to union members and workers in the state of Massachusetts for a long, long time.
Massachusetts voters have the opportunity to repeal the state income tax in the upcoming election. In the simplest of terms, it is a choice between sending tax dollars to Beacon Hill to spend, or to keep them in a taxpayer’s pocket. More broadly, lowering income taxes by definition increases take-home wages, spurs economic growth, and creates jobs. The loudest opponent of Question 1 is the unions. This vehement opposition could be the most puzzling aspect of the 2008 election. Unions and workers should actually be firmly in favor of Question 1, and eliminating the state income tax.
The basic goal of a union is to maximize the compensation of its members. A union provides a means of collective bargaining to enhance the ability of workers to increase their wages and benefits. The mistaken logic in the decision of union leaders to oppose Question 1 is that by limiting the pool of resources of the state government, the amount of money available for compensation will be lower, and jobs will be scarcer. This line of thinking is counter to simple economics.
First, and easiest to understand, is the direct increase in compensation which results from eliminating the state income tax. Massachusetts currently taxes income at 5.3%. By eliminating this tax, a worker will receive a raise of more than 5.3%. This is a permanent raise (well, as long as the income tax is not subsequently re-enacted). Most negotiators would be pleased to walk away from the table locking in that level of a permanent raise. Especially given the current economic difficulties, this kind of an increase to take home pay is significant, and cannot be dismissed.
Nor can the impact on the state economy be ignored. Massachusetts has lagged the rest of the country in growth and job creation. The unemployment rate is only dampened down by the fact that we have seen an out-migration of population (as in, those without jobs simply leave the state). A lower income tax, empirically and logically, leads to economic growth. Economic growth is what leads to job creation. Economic growth and job creation lead to higher compensation and a higher standard of living. With one ballot issue, unions and workers will have not only directly given themselves a raise of over 5%, but also enabled an economic environment that promotes growth and job creation and thus further increases in wages.
However, the argument is made that by denying funds to the state government, jobs for teachers, fire fighters, and policemen will become scarcer. Again, this line of reasoning ignores basic economic principles. Efficiency is created when spending is sourced from the lowest common denominator. In other words, hiring for local jobs is best done at the local level. The current system sends tax dollars to Beacon Hill, which then in turn disperses it to municipalities. Yet this occurs only through a filter of mandates, restrictions, guidelines, and of course special and powerful interests. Waste, by definition, clogs the system. Yes, local taxes (generally in the form of property) will go up. Yet given the inefficiencies of the current system, they will go up by less than the reduction in income taxes. Jobs that are based at the local level and that are also funded at the local level are more secure jobs, and are thus more effectively compensated jobs. With a lower income tax burden, local residents will be more open to increased local expenditures. Further, with the increased economic growth that results from eliminating the state income tax, other sources of revenue will increase at both the state and local level (more spending will lead to more sales tax revenue while higher demand for housing and commerce will increase property tax revenue).
Union members and workers need to carefully consider their position on eliminating the state income tax. A yes vote on question 1 is, by definition, in complete lock-step with the goal of a union: to maximize the compensation of workers. Eliminating the state income tax will cause a direct increase of after-tax income by more than 5%, at a time when it is especially needed. It will promote economic growth and thus job creation and higher wages. It will force more efficiency and shift hiring to the local level, eliminating the waste that comes from bureaucratic decision-making. Eliminating the state income tax will be an enormous benefit to union members and workers in the state of Massachusetts for a long, long time.
Friday, October 24, 2008
Markets (and Economy) Tanking Is Now On Obama
The Director of Common Sense has finally acquiesced and allowed the release of important statistical information: Since Obama entered the race, there is nearly a 90% negative correlation between the S&P Total Return Index and Obama Presidential Contracts (on InTrade). This means that as Obama rises, the market tanks.
That information was withheld until now because in the Director's words the argument is "specious". However, two issues compelled the release. First, Obama's lead is now dominant. He is trading above 80 (predicting a near-certain victory), and he has a substantial lead in the important state-by-state polls. Second, markets are forward looking. They are not mired in the blame game of Bush, Fannie/Freddie, CRA, Barney Frank, sub-prime, Greenspan, etc. They have moved past that. They are, as they have always been, the net present value of expected future cash flows.
And therein lies the rub. The expectations are for malaise, and the brand of economic woes that come hand in hand with socialistic, anti-growth, high tax, more government policies (please excuse the redundancies). As the stock market opening bell approaches, the futures are calling for a substantial decline - that on top of already being down roughly 20% this month (and potentially making October 2008 the worst month on record for the S&P). Now it is firmly on Obama.
It is on Obama because the argument has been settled by history and logic. Again, the markets care not about how we got here. They tell a story about where we are going. The path that Obama plans to lead us down is one of economic disaster. Amazingly, that path has been gone down before. Periods of government control via taxation and spending and programs lead to economic downturns (see 1930's, 1970s). Periods of government reduction lead to economic growth and job creation (see 1960s, 1980s).
The future course is clear to see, and the markets are showing the way. Obama wins the election and Democrats strengthen their majority. Income tax rates go up. Taxes on investment go up (capital gains, dividends, interest). Wealth is redistributed. Less people actually pay any taxes at all, thus making it more difficult to fix the problem. Social security transforms further into welfare. Health care is socialized. The economy suffers. There is no growth. No job creation. And then there is no more wealth to redistribute.
At that point, which is quite possibly a decade into the future (if history is any indication), we might restore rationality.
Instead of suffering, why not simply reject Obamanomics?
That information was withheld until now because in the Director's words the argument is "specious". However, two issues compelled the release. First, Obama's lead is now dominant. He is trading above 80 (predicting a near-certain victory), and he has a substantial lead in the important state-by-state polls. Second, markets are forward looking. They are not mired in the blame game of Bush, Fannie/Freddie, CRA, Barney Frank, sub-prime, Greenspan, etc. They have moved past that. They are, as they have always been, the net present value of expected future cash flows.
And therein lies the rub. The expectations are for malaise, and the brand of economic woes that come hand in hand with socialistic, anti-growth, high tax, more government policies (please excuse the redundancies). As the stock market opening bell approaches, the futures are calling for a substantial decline - that on top of already being down roughly 20% this month (and potentially making October 2008 the worst month on record for the S&P). Now it is firmly on Obama.
It is on Obama because the argument has been settled by history and logic. Again, the markets care not about how we got here. They tell a story about where we are going. The path that Obama plans to lead us down is one of economic disaster. Amazingly, that path has been gone down before. Periods of government control via taxation and spending and programs lead to economic downturns (see 1930's, 1970s). Periods of government reduction lead to economic growth and job creation (see 1960s, 1980s).
The future course is clear to see, and the markets are showing the way. Obama wins the election and Democrats strengthen their majority. Income tax rates go up. Taxes on investment go up (capital gains, dividends, interest). Wealth is redistributed. Less people actually pay any taxes at all, thus making it more difficult to fix the problem. Social security transforms further into welfare. Health care is socialized. The economy suffers. There is no growth. No job creation. And then there is no more wealth to redistribute.
At that point, which is quite possibly a decade into the future (if history is any indication), we might restore rationality.
Instead of suffering, why not simply reject Obamanomics?
Friday, October 17, 2008
Spreading the Wealth IS Good
Hold on to your hats loyal Modern Economic Freedom readers, this post might perplex at first.
A few days ago, Obama said, "When you spread the wealth around, it's good for everybody."
So here's the shocker: He was absolutely correct.
Yes, you are at the correct site. There has been no fundamental shift to socialism here.
The key word in the statement is "YOU". Of course, Obama meant the big G (government). But what we all know is that "you" means "you the people". If Joe the Plumber, with his knew found fame, spreads the wealth around, of his own volition, it is good for everyone.
Spreading the wealth is simply the backbone of any economy. In many ways, it actually defines an economy. It is the exchange of goods and services amongst a population. Spreading the wealth is a necessity. It is the prerequisite for economic growth, and thus job creation and rising incomes.
Again, that is based on the incredibly important assumption that "you" means "you the people". There are numerous ways that wealth can be spread around. One person can buy something from another person. One person might also hire another person to perform a service. That would be "you the people" spreading the wealth and helping the economy.
The big G that Obama meant can also spread the wealth. That is when government taxes one person and distributes it to another person. Certainly there are some cases where this is desirable. But those aren't the cases that are "good for everybody" - those are the cases where necessity compels collective action, and we aspire for those to be rare.
Of course, there is a good way that the big G can spread the wealth. Since it already accounts for a major portion of the wealth of the country, it can actually give it back to the people to do the spreading. Clearly spreading the wealth by "you the people" is the best way to spur economic growth. If government feels the need to get involved and assist the process, the one time-tested method that is empirically and logically proven to work is the reduction of taxes on income and investment. Now THAT would be good for everybody.
A few days ago, Obama said, "When you spread the wealth around, it's good for everybody."
So here's the shocker: He was absolutely correct.
Yes, you are at the correct site. There has been no fundamental shift to socialism here.
The key word in the statement is "YOU". Of course, Obama meant the big G (government). But what we all know is that "you" means "you the people". If Joe the Plumber, with his knew found fame, spreads the wealth around, of his own volition, it is good for everyone.
Spreading the wealth is simply the backbone of any economy. In many ways, it actually defines an economy. It is the exchange of goods and services amongst a population. Spreading the wealth is a necessity. It is the prerequisite for economic growth, and thus job creation and rising incomes.
Again, that is based on the incredibly important assumption that "you" means "you the people". There are numerous ways that wealth can be spread around. One person can buy something from another person. One person might also hire another person to perform a service. That would be "you the people" spreading the wealth and helping the economy.
The big G that Obama meant can also spread the wealth. That is when government taxes one person and distributes it to another person. Certainly there are some cases where this is desirable. But those aren't the cases that are "good for everybody" - those are the cases where necessity compels collective action, and we aspire for those to be rare.
Of course, there is a good way that the big G can spread the wealth. Since it already accounts for a major portion of the wealth of the country, it can actually give it back to the people to do the spreading. Clearly spreading the wealth by "you the people" is the best way to spur economic growth. If government feels the need to get involved and assist the process, the one time-tested method that is empirically and logically proven to work is the reduction of taxes on income and investment. Now THAT would be good for everybody.
Monday, September 29, 2008
Ferberize the Markets
Fittingly, the second blog entry on the (defeated?) bailout continues the parenting allusion. The markets, of course, are the children. They are youth replete with raw emotion in need of parental guidance. And oh the painful decisions of parenthood. How to train a child up so you will not be training for life?
Many parents are familiar with Dr. Ferber's famous book on solving sleeping problems. The issue is well known: A young child cries out in the night. Instinct tells the parent to rush in and solve whatever ails. But all that really does is stop the crying - temporarily. Everybody wakes in the night, and several times at that. People simply learn to fall back asleep. They learn it so well that most of the time they do not even realize they have woken up at all. Young children need to be Ferberized.
Ferber's method is generally referred to as letting the child "cry it out", though it is not as cruel as that sounds. It involves a series of gradually increasing wait times before entering a child's room and giving gentle reassurances that everything is okay, thus allowing a return to normal sleep. Over time, and usually it is a matter of days as opposed to weeks or months, the child has learned to go back to sleep solo.
There is no doubt the markets are crying out right now. But like a homeowner in an unaffordable house, coddling is not the answer (especially in the form of $700b of taxpayer cash). The House is seemingly taking a stand for what is right - regardless of the middle of the night wailing.
Many parents are familiar with Dr. Ferber's famous book on solving sleeping problems. The issue is well known: A young child cries out in the night. Instinct tells the parent to rush in and solve whatever ails. But all that really does is stop the crying - temporarily. Everybody wakes in the night, and several times at that. People simply learn to fall back asleep. They learn it so well that most of the time they do not even realize they have woken up at all. Young children need to be Ferberized.
Ferber's method is generally referred to as letting the child "cry it out", though it is not as cruel as that sounds. It involves a series of gradually increasing wait times before entering a child's room and giving gentle reassurances that everything is okay, thus allowing a return to normal sleep. Over time, and usually it is a matter of days as opposed to weeks or months, the child has learned to go back to sleep solo.
There is no doubt the markets are crying out right now. But like a homeowner in an unaffordable house, coddling is not the answer (especially in the form of $700b of taxpayer cash). The House is seemingly taking a stand for what is right - regardless of the middle of the night wailing.
Tuesday, September 23, 2008
Homeowners Will be Hurt by Bailout
Assume for a brief moment that politicians in Washington genuinely care about homeowners. Is the best way to show affection to lavish cash?
It is a conundrum for the parents out there. You want the best for your child - but at what cost? Most parents try to avoid spoiling their children. In one sense of the term, it is to imbue an appreciation for what they have, possibly with a dash of the concept that hard work is a requirement for rewards. But a more literal definition of "spoil" is to ruin - to flaw. A child that is given too often does not appreciate how to get, and over time becomes impaired.
So it is with the mortgage market and homeownership. It is simply harmful to assist in the retention of an unaffordable home. The result is squeezing more money out of those who can ill afford it to prolong the unsustainable. At it's core, this credit crisis is about a housing boom in which people bought more house than they could afford based on the twin siren songs of a bubbling market and near-zero interest rates. Important pillars of a stable housing market had gone, most notably buying based on monthly income relative to monthly payments.
Housing had simply become unaffordable. The rate of price increase had far outpaced that of income, creating a massive distortion. Instead of allowing this important relationship to normalize, the government proposes to exacerbate the problem. Bailing out a homeowner who simply bought more house than they could afford will end up harming them - in addition to the negative impact on the public in general who is footing the bill.
For all those politicians who are falling over themselves trying to help out, there is one simple method, time-tested and near guaranteed for success: lower taxes.
It is a conundrum for the parents out there. You want the best for your child - but at what cost? Most parents try to avoid spoiling their children. In one sense of the term, it is to imbue an appreciation for what they have, possibly with a dash of the concept that hard work is a requirement for rewards. But a more literal definition of "spoil" is to ruin - to flaw. A child that is given too often does not appreciate how to get, and over time becomes impaired.
So it is with the mortgage market and homeownership. It is simply harmful to assist in the retention of an unaffordable home. The result is squeezing more money out of those who can ill afford it to prolong the unsustainable. At it's core, this credit crisis is about a housing boom in which people bought more house than they could afford based on the twin siren songs of a bubbling market and near-zero interest rates. Important pillars of a stable housing market had gone, most notably buying based on monthly income relative to monthly payments.
Housing had simply become unaffordable. The rate of price increase had far outpaced that of income, creating a massive distortion. Instead of allowing this important relationship to normalize, the government proposes to exacerbate the problem. Bailing out a homeowner who simply bought more house than they could afford will end up harming them - in addition to the negative impact on the public in general who is footing the bill.
For all those politicians who are falling over themselves trying to help out, there is one simple method, time-tested and near guaranteed for success: lower taxes.
Subscribe to:
Posts (Atom)
Posts
