Saturday, July 31, 2010

The Peoples' Tax Cuts

Americans “…will not see their taxes increase by a single dime…” if they make less than $250,000 is the promise Barack Obama repeated to the American people all throughout the campaign in 2008. Although, the income threshold below which no one would see a tax increase seemed to vary from speech to speech, what is abundantly clear is that candidate Obama pledged not to increase income taxes on those who are not “wealthy.”

In 2001 and 2003, George W. Bush worked with a Republican Congress to lower taxes for nearly all Americans. The lower tax rates are set to automatically expire January 1, 2011, unless Congress acts to extend or make them permanent. And do not be fooled by the rhetoric, failure to extend these tax cuts is the equivalent of raising your taxes.

The premise of cutting tax rates is a simple one and is supported by the economic history of tax policy in the United States. If you lower tax rates, people will use the money they keep to create jobs, invest in America, purchase goods and services, and otherwise stimulate the economy. Moreover, that increased private sector activity actually results in an increase in tax revenues to the federal treasury.

Art Laffer successfully argued when Ronald Reagan was President that there is a point of diminishing marginal returns if tax rates are too high. Any economist will tell you that raising tax rates has a depressing effect on the economy, and as the Laffer Curve illustrated, if you increase tax rates beyond the point of diminishing marginal returns, tax revenues will decline.

The 2001 and 2003 tax cuts are commonly called the “Bush Tax Cuts.” I am continually amazed at the Constitutional illiteracy of the American media. Then-President Bush may have proposed the tax cuts, but as the Constitution says, all legislation regarding federal taxes must originate in the House of Representatives. It must then be passed by the Senate before the President signs it into law. So, why don’t we call it “Congress’ Tax Cuts” or better yet the “People’s Tax Cuts?” My guess is that even two years after George W. Bush left office, it is still vogue to blame anything and everything you don’t like on George W. Bush.

The strategic error in blaming this on Bush is that everybody likes a tax cut, and in the case of the Bush Tax Cuts, virtually everybody got one—not just the wealthy. Let’s take a look at what happens to the tax rates that apply to all Americans today, if the Bush Tax Cuts are allowed to expire next January.
• Taxpayers currently in the 10% bracket will pay 15%
• Taxpayers currently in the 15% bracket will pay 15%
• Taxpayers currently in the 25% bracket will pay 28%
• Taxpayers currently in the 28% bracket will pay 31%
• Taxpayers currently in the 33% bracket will pay 36%
• Taxpayers currently in the 35% bracket will pay 39.6%

First of all, look at who gets the biggest tax rate increase. It is the same people who got the biggest tax rate break under the Bush Tax Cuts. If allowed to expire, the lowest income bracket (well under $250,000) will see a 50% increase in their tax rate. The people in the highest, or wealthiest, tax bracket will only see a little over a 13% increase in their tax rate. This is where the rhetoric gets scary. The liberal policymakers think the higher income bracket should have their tax rates increased more than the lower income folks. And all you seem to hear from some Democrats is that the Bush Tax Cuts were only for the rich. Wait a doggone minute. Lowering the tax rate for the lowest income earners by 50% and reducing the rate paid by the richest Americans by 13% does not constitute a tax break only for the wealthy?

Besides, the “rich” are already paying the lion’s share of the taxes collected by the income tax. In 2007, the top 10% of income earners in America—the “rich” who don’t pay their “fair” share—paid more than 71% of the total income taxes collected. Moreover, it is the “rich” who invest in America and create more jobs and provide more growth opportunities than any Stimulus Plan ever has done. Tax the “rich” more and what do you think will happen to job creation and the unemployment rate?

Also, if the Bush Tax Cuts are allowed to expire, the estate tax rates, which have been reduced over time, will resume in 2011 at a 55% rate on estates above about $1.2 million. What do you think will happen to the average family farm when the parents die with a death tax rate of 55%? Do you like having a variety of food products available at prices that have been stable? Do you appreciate the values and beneficial impact on the economy that comes from having a viable family farm agricultural economy? Do you like having the pastoral scenes and do you want to protect open space and wildlife habitat? Do you think paying taxes all your life is enough and paying them when you die is not fair? If you answered “Yes” to any of these questions, then you should support the abolition of the estate tax once and for all.

There is a lot of talk in America today about traditional family values. People are starting to recognize that the traditional family unit means children are much more likely to be socially well-adjusted, productive citizens and much less likely to end up living in poverty or on welfare. But, if we allow the Bush Tax Cuts to expire, the so-called Marriage Tax Penalty comes back. If not extended, the standard deduction for a married couple will be one-third less than the standard deductions for two single people. Oh, yes, and if you have children, the deduction for dependents will be cut in half if the Bush Tax Cuts expire this January.

Do you hope to retire some day? Have you been putting away a little money in an IRA or a 401-K through your employer? You don’t have to be rich to want to retire and save some money for your future golden years. Or, maybe like most Americans, your home is your single largest investment. If the Bush Tax Cuts expire, the long-term capital gains tax rate on your retirement account growth goes from 15% to 20% and the tax rate on the dividends your retirement account will eventually pay to you will surge to 39.6%.

If President Obama wants to keep his promise to the American people, he should encourage Congress to extend the Bush Tax Cuts. He could even call them the Obama Tax Cuts. If the President and the Congress are serious about stimulating the economy, seeing future tax revenues increase, and preserving the family farm and family values, then they should support making the Bush Tax Cuts permanent. It is after all the people’s money; let’s support the People’s Tax Cuts.

Saturday, July 17, 2010

From Sibling Rivalry to Socialism

Ever notice how the partisan squabbles in Washington, DC, and even the political divisions within our country, have many of the same characteristics as a sibling rivalry. There are struggles for control, a deep desire to be appreciated, attempts to make sure everyone is treated fairly, disparate perceptions of the same event, distrust of others, and distinct people with different ideas and motivations. Sibling rivalries are considered unhealthy and most parental units spend an inordinate amount of time trying to eliminate, or at least, mitigate the rivalry between siblings.

The Bible says, “Blessed are the peace makers,” but does that mean everyone must come to agreement, or can we sometimes just agree to disagree? And does the peace maker necessarily have to take a side to fulfill their responsibility? Is peace possible in every circumstance? Doesn’t the Bible also say that, “Steel sharpens steel.” Could it be that some level of disagreement is actually healthy for siblings and a nation?

In most cases when a sibling rivalry has gone bad, one can usually find a parent or parents who went out of their way to try to treat both siblings equally. The parents wrongly believe that equality will lead to peace. This approach almost always fails because of parental failure to recognize the individual and unique strengths and weaknesses of each child and to appreciate their diversity. The best approach parents can take with competing siblings is to ensure that each child has the opportunity and environment in which they can maximize the benefits of their unique strengths.

Viva la difference! At a dining table in Paris several years ago, one of the French guests commented to my wife that “America has no culture.” The French are intensely proud of their culture and indeed much of the world enjoys the benefits of French architecture, art, cooking, and wine. Over the past few decades, the government of France has gone to great lengths to protect that culture by outlawing the use of non-French words—how do you say iPod in French?—and more recently by banning the wearing of head dresses and veils worn mostly by Muslims.

My wife bristled at first, but then calmly stated, “That America has a very strong culture and that culture is deeply rooted in our diversity.” And it is true. Diversity is our greatest strength and Americans can be uniquely proud of how our diversity has helped this nation to become the economic and social powerhouse of the world.

Owing to its liberal immigration policies and low birth rates among the native French, France is now a much more culturally diverse country. But, unlike America, which was founded on the principle of accepting and embracing diversity, the French are fighting it all the way.

During the first 200 years, the United States of America was known as the melting pot of the world. People emigrated from every continent, religious freedom and tolerance was the norm, and in that environment, people were assimilated. Nobody needed Affirmative Action, income redistribution was not necessary, and social welfare programs did not exist. There were, however, expectations. You learned English, your loyalty was to America, and you became an active participant in our citizen-led form of government. Notice the difference? No laws outlawing the use of your native language. Nothing prohibiting you from sharing your homeland’s culture thus American cuisine includes Chinese, Italian, and Mexican, even French cooking, to name a few. Our government did not take it upon itself to equalize the different people groups; we just provided them a place to flourish and maximize their individual strengths.

America grew to be the envy of the world in it first 200 years because we stuck to the principles outlined in the Declaration of Independence. The first among these is that we cherished liberty over life itself as when Patrick Henry said, “Give me liberty or give me death!” But, then there is that principle of equality wherein the Declaration says, “…that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness.”

So, where did we go wrong? Why shouldn’t our parents and our government work to make sure we are all treated equally—that the playing field is leveled, so to speak? The difference is that the Declaration of Independence says we are all “created equal.” It does not say we will all become equal or are all to be equalized. What the Founding Fathers were trying to say is that we all enjoy the same inalienable rights, that we all start with the same opportunities, and that we are free—enjoying the freedom to succeed and to fail. To believe that we are all born with the same strength, mind, and heart, and therefore, we should all end up equal is the utopian delusion of egalitarianism and it just does not exist in the real world. Europeans have fixated for decades on egalitarian principles and this has led them down the path of socialism. We are now witnessing the end result of these unsustainable economic policies as European governments collapse under the burden of their national debts. How long will it be before we will wake up here in the United States?

Family dynamics are like a microcosm of our society. As parents, we would do well to recognize that trying to level the playing field for our children and micromanaging their lives to try to achieve an egalitarian outcome exacerbates sibling rivalry and often results in the break down of the family. On the macro level, forcing equality where it does not exist and manipulating the economy to achieve an egalitarian society will lead to our economic failure and the break down of our society.

Let us instead return to the principles articulated by our Founding Fathers. We should recognize that we are all created equal, share the same inalienable rights, of which the chief among them are life, liberty, and the pursuit of happiness. Let us return to a government that protects our individual rights and liberties and fosters opportunity, but does not try to micromanage the outcome.

Thursday, July 1, 2010

Chicken Little the Sky is Falling

Chicken Little is a children’s story that chronicles the tendency of humans to blow out of proportion the effect of events, or in the worst case, completely invent a disaster where none exists.

For decades now we have been told by environmentalists that we are killing the earth and each ecological disaster is described in cataclysmic terms of doom and despair. But, the historical record tells a different story and there is mounting scientific evidence of the earth’s incredible capacity for recuperation and the restoration of its ecosystems after even the most violently destructive events. Moreover, natural disasters of many varieties have demonstrated destructive powers that eclipse human-caused ecological disasters.

Take, for example, the eruption of Mt. St. Helens in Washington State on May 18, 1980. Within a three minute time span, one cubic mile of earth was blown off the side of the mountain in a pyroclastic explosion that leveled 230 square miles of old growth forest. 300 mph winds with temperatures approaching 1200 degrees melted glaciers creating volcanic debris flows called lahars that dumped as much as 400 feet of hot mud over the landscape for miles. Spirit Lake rose 200 feet in a matter of minutes and the heat depleted the entire lake of oxygen and all life in the lake died. This catastrophic event literally destroyed an entire ecosystem in a matter of minutes. Immediately, we were inundated with the reports from scientists who said the area would never be the same again and that biological recovery was unlikely within our life times.

Now, 30 years later, our scientific understanding of ecological recovery has been turned upside down. Scientist documented elk, bears, and other critters returning to Mt. St. Helens within days of the blast. On the newly formed Pumice Plain that was covered with 250 feet of 1200 degree sterile volcanic pumice, prairie lupine was found growing within weeks. This was soon followed by insects, then other plants, and soon after that, other animals. Frogs thought to only be able to live in the shade of old growth forests thrived because the tadpoles flourished in the sun-drenched ponds and lakes. Virtually, every prevailing pre-1980 theory about ecological disaster recovery was debunked by the events that took place in the Mt. St. Helens ecosystem within the first ten years following the eruption.

There are countless places in the United States that were once considered to be permanently scarred by human activities such as market hunting, grazing, mining, and timbering. Many of these places assumed to be ruined forever now actually qualify to be Congressionally designated wilderness areas “…where the earth and its community of life are untrammeled by man, where man himself is a visitor who does not remain.” (Wilderness Act of 1964)

As the Deepwater Horizon oil spill continues unabated in the Gulf of Mexico, let us consider the historic impact of oil spills on similar ecosystems. And let us also consider the fact that oil seeps naturally into the ocean and often times at amounts much greater than man-made spills. A 2009 study by the University of California at Santa Barbara concludes that natural oil seepage off the coast of Santa Barbara alone has been occurring at a rate of 20-25 tons per day for hundreds of thousands of years. There is abundant evidence that natural oil seepage into the oceans worldwide each day exceeds all the oil spilled by man.

But somehow society has been trained to think that natural disasters are okay; it is only man-caused disasters that harm the environment. The fact is that ecosystem damage or alteration is independent of the cause of the change.

I happened across a story the other day in the Washington Post (In gulf oil spill’s long reach, ecological damage could last decades, June 6, 2010) about an oil spill in Gulf of Mexico and what scientists had learned from it. What amazed me the most is that the Ixtoc 1 oil spill is the largest oil spill on record and it happened in 1979. I had never heard of it, have you? The Ixtoc 1 well was in Mexican waters in the southern Gulf of Mexico and was the result of a blowout in 150 feet of water. The Mexican national oil company, Pemex, tried to plug the well with drilling mud and then steel and lead balls. They then tried to contain the spill with a cap dubbed “The Sombrero.” Only, after 290 days of spillage, were they able to complete the drilling of a relief hole and cement in the well to stop the spill, but not until 138 million gallons of oil flowed into the gulf. According to, “Although it is one of the largest known oil spills, it had a low environmental impact.”

The Washington Post story went on to say, “Ecosystems can survive and eventually recover from very large oil spills, even ones that are Ixtoc-sized. In most spills, the volatile compounds evaporate. The sun breaks down others. Some compounds are dissolved in water. Microbes consume the simpler, "straight chain" hydrocarbons -- and the warmer it is, the more they eat. The gulf spill has climate in its favor. Scientists agree: Horrible as the spill may be, it's not going to turn the Gulf of Mexico into another Dead Sea.”

Clearly, the Deepwater Horizon spill will significantly alter the ecosystem and damage some life forms and life styles for decades to come. Other critters will only be impacted for the short term. More importantly, we have learned from historical spills and clean up efforts. We know that the marshes of Louisiana are much more sensitive to damage from oil than beaches. We also know that after the Cadiz spill off the coast of France in 1978, it was a mistake to scrape off the oil infested top of the marches. They never recovered. As the Post article says of the Louisiana marshes, “Although many scientists and officials have warned that the marshes are in danger, one scientist who has studied oil spills in Louisiana marshes said that these wetlands are generally able to recover if human intervention doesn't make the situation worse.”

Americans are not a patient lot and we tend to worry most about only those things that affect us directly. The Ixtoc 1 disaster did not affect us; the Deepwater Horizon spill does impact us. The similarities between the two events from a technological and ecological stand point are striking. And, there is much to be learned from that experience and others. If we take a longer view of the event, maybe we can all agree that much work remains to be done, but the sky is not falling.