Looks Like Starving The [California] Beast Works After All

Who knew?

On Thursday a small group of Senate and Assembly members will hold the first of what's expected to be a slew of daily public sessions to wrangle over the details of the budget.

Schwarzenegger has called for cuts that would hit every corner of the state. He announced plans to lay off 5,000 of the state's 235,000 workers and has proposed slashing education by up to $5 billion, selling state properties, borrowing $2 billion from local governments and potentially reducing eligibility for healthcare programs.

There is only one way to control spending: Cut taxes.

Sure, California has been able to borrow and whatnot until now. But their attempt to securitize future lotto proceeds failed. Thus far their pleas for a bailout from the Feds have failed too. I'm sure they'll give that at least one more go.

Even in one of the more liberal states in the country, higher taxes couldn't get a majority. Let this be a lesson to Congress: Eventually all your borrowing & spending is going to lead to higher taxes. When you do, you will get tossed. And whoever replaces you will cut your beloved nanny-state programs & the taxes that fund them.

At least, that's my "hope of the day."

(via Ace)

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My Kind Of Bailout

Jonah Goldberg:

The latest number, which includes the Citigroup rescue, is $7.7 trillion. That’s roughly half of America’s GDP.

[...]

[A]ny way you slice it, we are talking about really, really large amounts of money here. Barry Ritholtz, a financial blogger and Wall Street analyst, offers some perspective. Adjusting for inflation, the Marshall Plan cost $115.3 billion. The Louisiana Purchase: $217 billion. The race to the moon: $237 billion. The New Deal: $500 billion (estimated). The Korean War: $454 billion. The Iraq war: $597 billion.

You can add all of these things together and still not come close to what taxpayers are on the hook for already. You could even throw in the Savings and Loan bailout ($256 billion), the Vietnam War ($698 billion) and all of NASA ($851 billion) and still come up short.

[...]

Obama says he doesn’t want spending as usual when it comes to formulating his impending mother of all stimulus packages. (Estimates vary from $500 billion to $700 billion, but who knows how high that number will go?)

So far, all we know for sure is that he wants massive increases in infrastructure “investment.” That’s fine with me, so long as it’s the infrastructure we need (though history shows such expenditures usually come on-line well after a recession is already over).

But rather than blow money on a lavish reenactment of the New Deal, or continue bailing out undeserving corporations, why not really think outside the box? Rep. Louie Gohmert (R., Texas) suggests an across-the-board reprieve on paying 2008 income taxes. This would leave an extra $1.2 trillion in the hands of Americans, who are the best stewards of their own money. Nobel Prize-winning economist Robert Mundell proposes a one-year moratorium on corporate income taxes in order to stimulate investment, job creation and the like. That wouldn’t be as popular, for understandable reasons.

The details can be negotiated, but this sort of approach would certainly create more jobs and spur more consumer demand than paying for a lot of asphalt. It would buy a lot more prosperity than any corporate bailout. Politically, it could buy Obama and Congress a year to formulate a serious tax-reform proposal. And — here’s the amazing part — it would be much cheaper than what we’ve spent already.

Really? You think everything they've done so far is just hunky dory?

How about we follow the advice of both Mundell & Ghomert and not collect corporate or personal income taxes?

Is that something you might be interested in?


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Family Policy

Image link

Buroboi asks, and we deliver. This post is about government policy that could be used to help families in America. Lest we be accused of plagiarizing the ideas, let us say up front: we've read most if not all of these somewhere else. That said, we've been unable to locate exactly where we read everything first so as to give proper credit. We're pretty sure some of it came from the pens of Ramesh Ponnuru and Jim Manzi.

And again, our caveat: these policy ideas should not be confused for a complete solution. We reaffirm our general agreement with buroboi and Decker by saying that there needs to be a cultural sea change with respect to marriage. We maintain that, however difficult, a legal prong to our family pitchfork is necessary. If we can get Constitutional protection of marriage, we'll take it.

- Child Tax Credit: As it stands, families can receive up to $1000 per child in tax credit. This is limited by income and marital status. We would do two things: at least double the tax credit to $2000 and raise the limit from $110,000 to at least $200,000. Our goal, simply put, is to subsidize the production of children. If that sounds overly economic, so be it. We want to reduce the financial costs of bearing and raising children.

- Eliminate the marriage penalty: Because of our progressive tax scheme, married couples filing together often occasion higher taxes than if they were single, filing separately. Our goal should be to eliminate any financial incentive that encourages people to remain unmarried. At a minimum, we should create tax policy that is neutral with respect to marriage.

- Marriage Tax Credit: There are obvious rule of law problems with this one. Some people can't or won't get married and thus, will never qualify for this tax credit. But families are a net benefit to society and it is in society's and our government's interest to promote them. Some sort of tax credit for married couples would accomplish this.

- Family Insurance Tax Credit: Our final suggestion is part of John McCain's health insurance proposal. We've written about health care before, here & here. Currently, because government taxes wages, but not health care provided by employers, they are essentially subsidizing the HMO's everyone hates. This is also why wages haven't risen the way everyone thought they should: your wages are being paid out in increased health care costs.

John McCain and his team of policy experts have proposed, and we endorse, eliminating the tax exception on company health benefits and providing each individual and family a large tax credit so that they can purchase their own insurance independent of their employer. If we remember correctly, he proposed $5000 per couple.

We understand that rising health care costs put stress on families. We aren't unsympathetic to these problems. We just disagree with Obama and HillaryCare. To employ a little demagoguery, we don't want the DMZ administering universal health care.

Separating insurance from employment would give families greater choice, not only in selecting their insurance, but in picking a job. With no fear of losing insurance, working family members would be free to take the job for which they are best suited and best compensated--regardless of "benefits." This would reduce or eliminate one more family stressor.

- Conclusion: This is by no means a finished (or, as you can tell, polished) product. As Mark Steyn concluded in a column on the family last October:

In the space of 40 years, the middle class abolished “living in sin” and embraced “long-term partners,” and the working class stopped worrying about “broken homes” and accepted the sociological designation of “alternative families.” And reversing it will take a lot more than targeted tax breaks and entitlements: It’s the stupidity, economists.

These policy recommendations are simply the easiest solutions to suggest and the easiest to quantify. There must be legal and cultural prongs to our American Gothic family pitchfork.

*UPDATE 4 April 12:13pm MST: For more on expanding the child tax credit, see this now-found article by Ramesh Ponnuru. Really, really good stuff.


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John McCain on Super Tuesday

Had a few thoughts about John McCain we wanted to get down before the start of Super Tuesday. In no specific order....

- We disagree with those who say that John McCain is too old to be President. We value the wisdom and experience that comes with age. Also, McCain seems to be in good health, so dying in office does not seem to be a legitimate threat. We're much more worried by the youth and inexperience of Barack Obama than the age, wisdom and experience of John McCain. Don't vote for Mitt Romney or Mike Huckabee or Ron Paul because John McCain is too old; vote for someone else because you disagree with his politics.

- Speaking of his politics, the thing that bothers us most about John McCain is his reputation for compromise. When Republicans were in power, he "crossed the aisle" to co-author McCain-Feingold--one of the worst, 1st Amendment limiting pieces of legislation in history. He voted against tax cuts. He voted against drilling in ANWR. He did all of these things when its conceivable his leadership could have taken the country in a more conservative direction.

What will he do with his party in the minority? If John McCain, "maverick" (Top Gun?) was willing to "compromise" with his party in the majority, what will he do as President when Democrats are running Congress? We think it will start with comprehensive immigration reform, but where will it end? Universal health care?

If Dems control Congress, we need a President who is poised to use his veto pen and hold the Conservative line. We don't need John McCain crossing the the aisle, again.

- On the war, John McCain is solid and has proven his principled leadership--even when it was very unpopular--and we've given him credit for his stand. We were especially impressed with a speech he gave on 11 April 2007 to the graduating class at VMI. Click here to read the text and here to view a short video clip. We admire John McCain for this. But this is only one of our oft-stated, highest order priorities (War on Terror, Courts, Taxes).

- Until recently, we were confident McCain would nominate a good, conservative Justice to the Supreme Court. But then, there was this column from the Wall Street Journal's John Fund: Winging It. In it, McCain expresses misgivings about Supreme Court Associate Justice Samuel Alito whom we have named, along with John Roberts, Antonin Scalia and Clarence Thomas as being a model Supreme Court Justice. Would McCain compromise with Dems on a Supreme Court nominee? For us, this would be completely unacceptable.

- On taxes, John McCain is not solid. Not solid? He's not even mushy. He opposed the Bush tax cuts and opposed eliminating the death tax. Attempting to re-write history, McCain said his opposition was based on fiscal responsibility--he wanted to cut spending, not taxes. Or at least, he wanted to cut spending equal to the cut in taxes. But we're not so new to the game that we don't remember McCain's rhetoric of the day: he employed the same class-warfare rhetoric the Democrats trot out, not only against the Bush tax cuts, but ad nauseam.

Hey, John, if you really wanted to cut government spending, wouldn't it be best to cut government funding? Just a thought.

- Props to McCain for his free-trading ways.

We had to end with something positive, right?


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Tax Cuts for the Rich: In favor

Do you believe liberal propaganda about President Bush's "tax cuts for the rich?" (or any other conservative-proposed tax cuts) We understand. Tax math is complicated. We submit, therefore, this very simple tax parable to help you, dear reader, understand Democratic demagoguery and see it for what it is--rubbish.

Hat tip: Matt Lybbert

Suppose that every day, ten men go out for beer and the bill for all ten comes to $100. If they paid their bill the way we pay our taxes, it would go something like this:

The first four men (the poorest) would pay nothing.
The fifth would pay $1.
The sixth would pay $3.
The seventh would pay $7.
The eighth would pay $12.
The ninth would pay $18.
The tenth man (the richest) would pay $59.
So, that's what they decided to do.

The ten men drank in the bar every day and seemed quite happy with the arrangement, until one day, the owner threw them a curve. "Since you are all such good customers," he said, "I'm going to reduce the cost of your daily beer by $20." Drinks for the ten now cost just $80.

The group still wanted to pay their bill the way we pay our taxes so the first four men were unaffected. They would still drink for free. But what about the other six men - the paying customers? How could they divide the $20 windfall so that everyone would get his 'fair share?' They realized that $20 divided by six is $3.33. But if they subtracted that from everybody's share, then the fifth man and the sixth man would each end up being paid to drink his beer. So, the bar owner suggested that it would be fair to reduce each man's bill by roughly the same amount, and he proceeded to work out the amounts each should pay. And so:

The fifth man, like the first four, now paid nothing (100% savings).
The sixth now paid $2 instead of $3 (33%savings).
The seventh now pay $5 instead of $7 (28%savings).
The eighth now paid $9 instead of $12 (25% savings).
The ninth now paid $14 instead of $18 (22% savings).
The tenth now paid $49 instead of $59 (16% savings).

Each of the six was better off than before. And the first four continued to drink for free. But once outside the restaurant, the men began to compare their savings.

"I only got a dollar out of the $20," declared the sixth man. He pointed to the tenth man," but he got $10!"

"Yeah, that's right," exclaimed the fifth man. "I only saved a dollar, too. It's unfair that he got ten times more than I!"

"That's true!" shouted the seventh man. "Why should he get $10 back when I got only two? The wealthy get all the breaks!"

"Wait a minute," yelled the first four men in unison. "We didn't get anything at all. The system exploits the poor!"

The nine men surrounded the tenth and beat him up.

The next night the tenth man didn't show up for drinks, so the nine sat down and had beers without him. But when it came time to pay the bill, they discovered something important. They didn't have enough money between all of them for even half of the bill!

And that, boys and girls, journalists and college professors, is how our tax system works. The people who pay the highest taxes get the most benefit from a tax reduction. Tax them too much, attack them for being wealthy, and they just may not show up anymore. In fact, they might start drinking overseas where the atmosphere is somewhat friendlier.

Next time you read the NYT, or hear your socialist friend spouting off about the oppression of the common man by the rich of America, well, you'll know better, and be able to set her straight.


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Milton Friedman, R.I.P.

Milton Friedman, world renowned economist and champion of political and economic freedom passed away this afternoon. He will be missed.

We never met Mr. Friedman, but we took an economics course from one of his former students while at Brigham Young University. His course was heavily influenced by the Chicago School of economic thought and many of his ideas about markets influence the editorial opinion of this blog. We are incredibly grateful to our econ professor and Mr. Friedman.

In light of the debates about redistribution of wealth we thought it would be worthwhile to reproduce selections from some of Mr. Friedman's influential contributions to economics. (hat tip: WSJ)

**Update: Scroll to the end for video footage of Milton Friedman teaching economics, and more.

_____

Capitalism and Freedom

[A free economy] gives people what they want instead of what a particular group thinks they ought to want. Underlying most arguments against the free market is a lack of belief in freedom itself.

The existence of a free market does not of course eliminate the need for government. On the contrary, government is essential both as a forum for determining the "rules of the game" and as an umpire to interpret and enforce the rules decided on. What the market does is to reduce greatly the range of issues that must be decided through political means, and thereby to minimize the extent to which government need participate directly in the game. The characteristic feature of action through political channels is that it tends to require or enforce substantial conformity. The great advantage of the market, on the other hand, is that it permits wide diversity. It is, in political terms, a system of proportional representation. Each man can vote, as it were, for the color of tie he wants and get it; he does not have to see what color-the majority wants and then, if he is in the minority, submit.

It is this feature of the market that we refer to when we say that the market provides economic freedom. But this characteristic also has implications that go far beyond the narrowly economic. Political freedom means the absence of coercion of a man by his fellow men. The fundamental threat to freedom is power to coerce, be it in the hands of a monarch, a dictator, an oligarchy, or a momentary majority. The preservation of freedom requires the elimination of such concentration of power to the fullest possible extent and the dispersal and distribution of whatever power cannot be eliminated -- a system of checks and balances. By removing the organization of economic activity from the control of political authority, the market eliminates this source of coercive power. It enables economic strength to be a check to political power rather than a reinforcement.

_____

Free to Choose
(and from the PBS series)

The two ideas of human freedom and economic freedom working together came to their greatest fruition in the United States. Those ideas are still very much with us. We are all of us imbued with them. They are part of the very fabric of our being. But we have been straying from them. We have been forgetting the basic truth that the greatest threat to human freedom is the concentration of power, whether in the hands of government or anyone else. We have persuaded ourselves that it is safe to grant power, provided it is for good reasons…

We have persuaded ourselves that it is safe to grant power, provided it is for good reasons. Fortunately, we are waking up. We are again recognizing the dangers of an overgoverned society, coming to understand that good objectives can be perverted by bad means, that reliance on the freedom of people to control their own lives in accordance with their own values is the surest way to achieve the full potential of a great society…

When the law contradicts what most people regard as moral and proper, they will break the law -- whether the law is enacted in the name of a noble ideal ... or in the naked interest of one group at the expense of another. Only fear of punishment, not a sense of justice and morality, will lead people to obey the law. When people start to break one set of laws, the lack of respect for the law inevitably spreads to all laws, even those that everyone regards as moral and proper - laws against violence, theft, and vandalism…

Self-interest is not myopic selfishness. It is whatever it is that interests the participants, whatever they value, whatever goals they pursue. The scientist seeking to advance the frontiers of his discipline, the missionary seeking to convert infidels to the true faith, the philanthropist seeking to bring comfort to the needy -- all are pursuing their interests, as they see them, as they judge them by their own values.

_____

On the Bush Tax Cuts
(subscription required)

The tax cuts did favor the rich because the top 1% of taxpayers pay a disproportionate amount of taxes. You can't give tax relief to those who don't pay a lot of tax. This is not a bad thing. What in fact do the rich do with their money? They can only consume a limited amount. In practice they end up either investing it or giving it away.

Some people say that those in the middle and low tax brackets are more likely to spend any tax relief they get, giving the economy a stimulus.

Well, that's a different argument and I do not accept it. It's very dubious. The tax cut may lead people to spend more, but that is offset by those who have less to spend because they buy the bonds to finance the deficit. In my opinion, we had a mild recession not because of the tax cuts but because of the Fed. Its expansionary monetary policy is the primary reason for the shallow recession. I do not believe that fiscal policy played a big role.

My support for tax cuts is not only on the supply side. I think the real problem is government spending… Where did you get the Clinton surpluses? They were the result of less legislation and less spending. When that gridlock was broken, many items had accumulated on the agenda and were put through.

_____

Free Lunch

I have sometimes been associated with the aphorism "There's no such thing as a free lunch," which I did not invent. I wish more attention were paid to one that I did invent, and that I think is particularly appropriate in this city [Washington], "Nobody spends somebody else's money as carefully as he spends his own." But all aphorisms are half-truths. One of our favorite family pursuits on long drives is to try to find the opposite of aphorisms. For example, "History never repeats itself," but "There's nothing new under the sun." Or "look before you leap," but "He who hesitates is lost." The opposite of "There's no such thing as a free lunch" is clearly "The best things in life are free."

And in the real economic world, there is a free lunch, an extraordinary free lunch, and that free lunch is free markets and private property. Why is it that on one side of an arbitrary line there was East Germany and on the other side there was West Germany with such a different level of prosperity? It was because West Germany had a system of largely free, private markets - a free lunch. The same free lunch explains the difference between Hong Kong and mainland China, and the prosperity of the United States and Great Britain.

**Update: A few video links of Mr. Friedman explaining economic principles. (hat tip: Mary Katharine Ham)

Power of the Market: Parable of the Pencil
Four Ways to Spend Money

"the best case for limited government ever made" (hat tip: Allahpundit)

And finally, a link to the Milton Friedman Choir (hat tip: The American Mind)


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