Ponderstorm My Brainstorm on Life & Politics

Jeffrey A. Miron is a senior lecturer in economics at Harvard University. He is a Libertarian and was one of 166 academic economists who signed a letter to congressional leaders last week opposing the government bailout plan. His commentary, entitled Bankruptcy, Not Bailout, is the Right Answer, was published today at CNN.com and the American Future Fund, an organization that advocates conservative, free market ideals.

The latest bailout plan that was voted down yesterday would have authorized $700 billion for the U.S. Treasury to purchase “troubled assets” from Wall Street financial institutions. Miron argues that this bailout proposal was a “terrible idea” and explains why. First, however, he explains how we got ourselves into this mess.

The current mess would never have occurred in the absence of ill-conceived federal policies. The federal government chartered Fannie Mae in 1938 and Freddie Mac in 1970; these two mortgage lending institutions are at the center of the crisis. The government implicitly promised these institutions that it would make good on their debts, so Fannie and Freddie took on huge amounts of excessive risk.

Worse, beginning in 1977 and even more in the 1990s and the early part of this century, Congress pushed mortgage lenders and Fannie/Freddie to expand subprime lending. The industry was happy to oblige, given the implicit promise of federal backing, and subprime lending soared.

This subprime lending was more than a minor relaxation of existing credit guidelines. This lending was a wholesale abandonment of reasonable lending practices in which borrowers with poor credit characteristics got mortgages they were ill-equipped to handle.

Once housing prices declined and economic conditions worsened, defaults and delinquencies soared, leaving the industry holding large amounts of severely depreciated mortgage assets.

After pinning the blame squarely on failed government policy, Miron correctly reasons that it is unwise to let government do more of the same in the name of recovery.

The fact that government bears such a huge responsibility for the current mess means any response should eliminate the conditions that created this situation in the first place, not attempt to fix bad government with more government.

Miron then builds a case for allowing financial institutions to declare Read More…

Posted under Taxes

Think about this with me for a minute if you would. The government is asking us taxpayers to hand over $700 billion more dollars on top of the $2+ trillion we already give them (or they obligate us with in the form of debt). That’s an enormous amount of money.

Today there is an Associated Press article that looks at what just how big $700 billion is compared to other spending. I quote some of the article below:

You could buy yourself a war with that kind of money - the U.S. has spent $648 billion on Iraq war operations so far.

You could match Franklin Roosevelt on his New Deal and raise him billions more.

Even in a town where billions come and go without anyone blinking, the money that could go into the Wall Street rescue is eye-popping. The House on Monday voted down a proposed $700 billion bailout package, but congressional leaders said they were committed to trying again.

What else could the government do with a $700 billion blank check? There are, well, billions of possibilities.

It could ensure universal health care coverage for six years, for example, or upgrade the country’s most deficient bridges four times over. All the work to upgrade coastal levees that’s been done since Hurricane Katrina? It’s a mere drop in the proverbial $700 billion bucket - $7 billion, or just 1 percent. You could build 1,750 bridges to nowhere.

Or run an entire country. Seven hundred billion dollars is more than twice the size of the economy of Denmark, which had a gross domestic product of $312 billion in 2007.

Seven hundred billion dollars would buy 70 Hubble-type space telescopes. Or about seven international space stations. It would finance the National Institutes of Health, the nation’s premier medical research institute, for two decades. Or pay the U.S. national intelligence budget for 15 years.

According to the Wall Street Journal, half the money FDR spent on his New Deal program to lift the country out of the Depression and banking crisis was for public works projects. For $250 billion in today’s dollars, the nation got 8,000 parks, 40,000 public buildings and 72,000 schools.

The article provides even more examples but I think you get the picture. My question for the government is simple: You created this problem so why should I trust you to fix it with more government?

Posted under Taxes

Remember this simple fact whenever a political candidate or government official tells you he or she will give you something: Government does not have anything to give that it does not first take from somebody else.

It’s an axiomatic truth that our government cannot give us anything unless it first takes it from somebody else. In order for government to own something, it has to take money (taxes) or property (via a legal provision known as eminent domain) from citizens. Once taken, it is then considered “government property.”

Simply put, government extracts resources from producers (ex: income tax, corporate taxes) and spenders (ex: sales tax) to fill the public treasury. That is necessary and proper for legitimate government functions authorized by the Constitution and provided for by law. However, some political candidates and government officials have the audacity to go beyond that and say they’re going to give us something out of the public treasury. That’s such a lie! It’s not theirs to give. Even a tax cut is not giving us something — it’s simply taking less of something that was ours to start with.

The bottom line: It’s our money that they’re spending in Washington! The same is true for our state capitol, city hall, county courthouse, school district or whatever level of government. Think about this next time you vote.

Posted under 60 Seconds, Taxes

The National Taxpayers Union and the National Taxpayers Union Foundation prepared some easy-to-read tables entitled “Who Pays Income Taxes?” for tax years 1999-2006 using Internal Revenue Service data. According to them, the top 1% of income earners in 2006 paid 39.89% of all personal income taxes while the bottom 50% of income earners paid just 2.99% of all personal income taxes. Let me restate the obvious for 2006: 1% of Americans paid 40% of all personal income taxes while the bottom half of income earners paid just 3% of all personal income taxes. Put another way, the top half of all income earners paid 97% of all personal income taxes in 2006.

This same group analyzed “Who Doesn’t Pay Taxes” and reported the numbers for tax years 2003-2005 using Internal Revenue Service data. In 2005, there were 134.4 million tax returns filed. Of them, 90.6 million were “paying returns” and 43.8 million “non-paying returns.” The percentage of tax returns where no taxes were paid was 32.6% of all returns. That means nearly 1/3 of all Americans didn’t pay any personal federal income taxes in 2005. That figure doesn’t mean they didn’t owe additional taxes, it means they didn’t owe ANY personal income taxes at all that year.  Their federal income tax liability was zero. If they had taxes withheld, they were due a refund.

The Tax Foundation’s Fiscal Fact No. 27 reports a similar finding on the number of Americans who are “outside the income tax system” and have “zero tax liability.” In other words, they pay no personal income taxes.  The latest figures on this report show that the number of people paying no personal income taxes grew under the Bush Presidency – 31.8% of Americans paid no personal income taxes in 2003 (which was up from 25.2% in 2000 under the Clinton tax increase code). In 2003, that was equal to more than 41 million tax returns with no tax liability whatsoever.

[Note that during the Clinton years about 1/4 of all Americans paid no income taxes. Contrast that with the Bush years when even more paid no taxes -- about 1/3 of all Americans paid no income taxes. The Bush tax cuts actually increased the number of Americans who paid no personal federal income taxes and shifted a greater portion of the overall tax burden on higher income earners.]

My question is this: Read More…

Posted under Barack Obama, Campaign, Taxes

A liberal friend asked me to read an article entitled “Insanity” by DarkSyde at The Daily Kos and pointed out that he thinks it pretty much sums up how most liberals feel about the past 8 years and what this election is about.  I found the article cleverly written and coming from an unusual angle.  It made me stop and think because on a foundational level I actually agree with a some of the broad assessments made in this article even though many of them are grossly exaggerated.

Republicans are often blamed for all the nation’s problems of the past 8 years. I concur that the GOP has been part of the problem for 4 of the past 8 years; however, remember, the Senate was evenly divided when Bush was elected and then 1 GOP member switched to Independent and caucassed with the Democrats so the GOP didn’t control both houses until 2003 and then lost in 2007 after the 2006 election cycle. In fairness to Republicans though, during the 4 years of complete GOP control, Democrats have blocked and/or watered-down virtually all Republican proposed solutions to the problems this article blames them for.

However, in spite of the problems, the overall issue is bigger than simply who controls Washington. The underlying problem in Washington, as I see it, is systemic and part of human nature. It’s something our Founding Fathers were aware of and repeatedly divided government in an attempt to mitigate. It’s simply this: Power corrupts. It doesn’t take a rocket scientists to see that both parties are now corrupt. That doesn’t mean that all members in both parties are corrupt but that the system is corrupt with power. There’s a creeping loss of individual rights and personal liberty every year regardless of which party is in power.

So that brings me to my next point. Since both parties are corrupt and there’s no third party that stands a chance at winning this election cycle, what am I to do as a voter?  I feel I must take the path of less damage and that’s why I am going with the Read More…

Posted under Politics, Taxes