I wish I knew who to credit with the following idea but I do not. It is, however, so simple and yet so profound that I wanted to share it with everyone. Friends, this is something we should do. I quote:

Like most folks in this country, I have a job. I work, they pay me. I pay my taxes and the government distributes my taxes as it sees fit. In order to get that paycheck in my case, I am required to pass a random urine test (with which I have no problem). What I do have a problem with is the distribution of my taxes to people who don’t have to pass a urine test.

So, here is my Question: Shouldn’t one have to pass a urine test to get a welfare check because I have to pass one to earn it for them?

Please understand, I have no problem with helping people get back on their feet. I do, on the other hand, have a problem with helping someone sitting on their a** — doing drugs, while I work. . . . Can you imagine how much money each state would save if people had to pass a urine test to get a public assistance check?

I guess we could title that program, ‘Urine or You’re Out’.

Now that’s some good thinking and would save far more than it costs! What do you think?

I read where another guy expanded this concept a bit and proposed that all college students receiving government aid should likewise be required to take a random urine tests if they received public money. Hey, let’s expand it further and say that all financial executives getting bailout money should also have to pass random urine tests. Oh, and don’t forget — let’s urine test the guys in Washington who are handing out our money! They really must be high on something to think we can borrow our way out of the mess they created.

Now that I’m more focused on preparing my own income taxes, some of the latest tax evasion scandals in the Obama Administration are even more frustrating. I think the two political cartoons below put the sins of Tom Daschle and Tim Geithner into a more proper perspective. It does seem that those with political connections are held to a lower standard than “the rest of us” who make the country work. What think you?

(Click images to enlarge)

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 bankruptcy which would mean their creditors would own the remaining assets.

Bankruptcy does not mean the company disappears; it is just owned by someone new (as has occurred with several airlines). Bankruptcy punishes those who took excessive risks while preserving those aspects of a businesses that remain profitable.

He argues that bankrupcy is superior to a government bailout because it punishes foolishness and protects taxpayers.

In contrast, a bailout transfers enormous wealth from taxpayers to those who knowingly engaged in risky subprime lending. Thus, the bailout encourages companies to take large, imprudent risks and count on getting bailed out by government. This “moral hazard” generates enormous distortions in an economy’s allocation of its financial resources.

Miron admits that this process would be ugly and could make the credit situation worse before we would see improvement. However, he argues that “talk of Armageddon” is “ridiculous scare-mongering. If financial institutions cannot make productive loans, a profit opportunity exists for someone else. This might not happen instantly, but it will happen.”

Miron also suggests that the current credit freeze conditions we’re seeing is “likely due to Wall Street’s hope of a bailout; bankers will not sell their lousy assets for 20 cents on the dollar if the government might pay 30, 50, or 80 cents.” I agree that good market-based alternatives are probably being overlooked in the hopes of a more favorable (in the short run, at least) government rescue.

So that’s the problem. Now for the solution. What should government do? Miron writes:

Eliminate those policies that generated the current mess. This means, at a general level, abandoning the goal of home ownership independent of ability to pay. This means, in particular, getting rid of Fannie Mae and Freddie Mac, along with policies like the Community Reinvestment Act that pressure banks into subprime lending.

Miron concludes that someone will have to pay for these mistakes but it does not have to be the U.S. taxpayer. I couldn’t agree more.

I don’t trust the government to fix this mess when their non-market-based policies were what created the problem. Undoubtedly any bailout plan would be filled with unnecessary spending and loaded with benefits for special interests. No big government, no bailout!

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?

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.

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: If almost 1/3 of Americans don’t pay personal income taxes to the federal government, then how is Barack Obama going to give 95% of Americans a tax cut as he promised?  How do you reduce nothing?  Can you tax somebody less next year if they are paying no taxes now?  How can 95% of Americans get a tax cut when only about 65% pay taxes?

It simply doesn’t make sense and that concerns me because it suggests something very damaging to our economy and personal freedoms could occur in the name of a “tax cut.” We’ve already seen small “refund” payments made to zero liability tax return filers in the name of tax cuts or rebates. Could Obama be planning to expand on this redistribution scheme in the name of “tax cuts”?

Let’s go over this again: zero minus something equals a negative number. The only way to deal with a negative number and balance the tax books is for the government to pay those whose tax rates are negative with money taken from those whose tax rates are positive.  Does that mean that Obama is going to take money from the “rich” and give it to the “poor” so they can get their promised “tax cut”? If that’s the case then Obama’s “Robin Hood” tax plan would result in a massive and damaging redistribution of wealth.

I say Robin Hood because as the medieval Robin Hood story suggests, Robin Hood took from the rich to give to the poor who were being oppressed (overtaxed) by a corrupt and rich king. If I am right about Obama’s plan, it would actually turn the Robin Hood story on its head with the rich being overtaxed by a corrupt government to pay the poor. Correct me if I’m wrong but wouldn’t such an economic redistribution scheme amount to pure communism?

Note: For an interesting case against the Obama tax plan from a small business perspective see “An Argument Against Obama’s Tax Plan” by Grover G. Norquist (7/11/08, Politico.com).

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 Republican Party.  Most everything listed in the “Insanity” article would have occurred regardless of who was in power — 9/11, the mortgage crisis, a weak economy, Wall Street corruption, etc.; however, each party responds to these problems differently. While both parties continue to pass legislation that reduces my individual liberties and erodes my rights, I feel the Democrats are more restrictive and erode them faster.  For example, I’m a business owner and employer. Democrats want to tell me how to hire and fire and what kind of pay and benefits I have to offer my employees. Republicans restrict my ownership rights in these areas also but not as much. Democrats go so far as to try to require faith-based organizations like churches to hire people who hold beliefs contrary to the positions the church espouses (imagine being forced to hire an atheist for a church outreach program).

Both parties take huge amounts of taxes, but Democrats are more greedy with my money than Republicans.  Both parties create ridiculous “entitlement” programs but Democrats create more and bigger ones.  And on issues of national security, do you really think the defense-cutting Democrats would do a better job protecting us from the “fundamentalist Sunni Monarchs and the communist Chinese” as the “Insanity” article blames Republicans for turning our national economic future over to? (I have an answer for dealing with the Sunni Monarchs: Drill Here! Drill Now! but that’s for another article.)

The shipping of jobs oversees has been going on for decades and didn’t slow down under Democratic Presidents Carter or Clinton.  If the Democrats succeed in taxing corporations for “excessive profits” that will force them to leave our borders — it’s like killing the goose who lays the golden egg. The result would be reduced overall tax revenues and a weaker economy as more jobs are lost.

The article concludes with “Conservatives are worried that Democrats might do the same astonishingly lousy job Republicans have done for the last eight years.”  Actually, I’m concerned that the Democrats’ overall job performance would be far worse than the poor one performed by recent Republicans. This constant concern is one reason why I actually have some excitement about the McCain/Palin ticket since both have proven records of taking on corrupt government and private interests including ones in their own party.  Can the Obama/Biden ticket demonstrate taking on their own party ever for anything?

I think there will be less government growth under a McCain administration than an Obama administration. We don’t need more and bigger government and so I will vote against its expansion whenever I can.

Note: In this post I’m ignoring a host of social issues that also put me more in line with the Republican Party. That’s for another article and another day.

In this latest election cycle I’ve been frustrated by the lack of talk about core principles.  It seems that window dressing is king right now and a few buzzwords about change are shaping the political debate.  That’s bad news for people who think critically — especially for those of us who know that change for the sake of change is not necessarily a good thing. We could change from bad to worse, for example, so I want to know why we need change and where (and how) the change agent wants to change things.

While mulling over these notions, they triggered some thinking about my own core principles. I felt it was wise to put my core beliefs about government in writing (even if in a rough format) and provide some basic application of them regarding the federal government.  I am a strong believer in federalism, separation of powers, and checks and balances. As such, I feel the Constitution clearly restricts the federal government from action — particularly in domestic issues.  Similarly, in the areas where federal action is authorized, it is often severely limited. In fact, the Tenth Amendment is very specific about this:

The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people.

In a nutshell, this means the federal government is severely limited to a few (primarily national and interstate commerce) powers with the remainder left to the States and the people.  Thus, I advocate a very limited role for the federal government and argue against many social and spending programs currently found at the federal level. However, please note that I am not against all government social programs. While opposing federal programs, I will argue for more involvement at the state and local levels of governments. At these levels of government there are not the same Constitutional prohibitions. Similarly, I firmly believe that social programs are more effective from a practical and service-oriented point of view when administered at the lowest level of government possible (state, county, city, special district, etc.).

So, understanding the above, I will embark on drafting my “Key Principles of Government” as they relate to the federal government specifically, and to all governments in general. Please note that this is a work in progress — thus the short sentences, bullet format and limited explanation/supportive details.

1. Government exists to protect life and liberty and maintain an orderly society.

Government protects but does not create rights. Our government is a representative democracy (not a direct democracy). Minority rights are safeguarded from the “tyranny of the majority.” The federal government exists primarily to:

• provide national defense (foreign and domestic)
• promote national interests
• administer interstate commerce and conflicts

2. Government should be limited and restrained.

Power begins with the people and authority comes from God. Just because a problem exists doesn’t mean the government should try to solve it. A government that governs least tends to governs best. When possible, local solutions are preferred over national or state ones. The Constitution should be followed explicitly. If additional federal involvement is deemed needed then the Constitution should be amended to authorize such action.

3. Economic markets should be free.

The free enterprise system powers personal prosperity. Because government intervention disrupts the “invisible hand” (see Adam Smith) of the economy and encroaches on personal freedom, it should be rare. Also, to avoid creating special advantages and unintended consequences, government should limit its involvement in the economy as much as possible.

4. Taxes should be low.

It’s not the government’s money. Anything the government possesses it has had to first take from somebody.

5. Simple solutions are preferred over more complex alternatives.

The simplest working solution is usually the best one. The more complicated something is the more parts there are to break. Long-term costs and benefits should be considered above short-term impacts.

What do you think? Did I leave anything out? I invite your comments and suggestions.