Don't Support the Bailout

Today I wrote an email to my Senators. I'm incline to include the bulk of it here:

"I want to make sure you're clear on where I stand on a couple of very important issues. I say this not because I feel like my view is of any particular importance or significance but because I feel like my point of view is very much in line with that of most Georgians.

I support FairTax and want to see more done to move us in that direction. Perhaps this economic slump is just what we need to put a sense of urgency to this. FairTax would certainly spur economic growth. It’s great to hear this talked about on a state level in a state that both Congressman Linder and Neal Boortz call home but I want to hear this talked about more on a national level. Georgia can’t get this passed. It’s going to be something that requires involvement of the elected officials from across the nation.

FairTax is a passion of mine because it appeals to my concept of fairness. By no stretch of the imagination am I rich, but I earn a respectable income that allows my wife to stay at home and raise our four young children. My single biggest expenditure every single month is not my car payment or my mortgage payment or anything like that. It’s my federal tax burden! I have withholdings of over 20% for federal taxes including Social Security and Medicare from every check I get. This is simply too much. By the time I figure in my mortgage and my giving to my local church, over half of my monthly income is accounted for. Over half!

I’d like to see a little bit more equality in the realm of taxation. Rather than spreading the wealth around as some have advocated recently, I’d like to see the responsibility spread around. I want to see everyone paying the same percentage of federal taxes and get rid of the progressive tax system. I’m well aware that several tax brackets exist above my income bracket and they only have higher tax rates. I’m also aware that many people that would fall into those brackets don’t derive most of their income the same way I do. Rather than coming directly from an employer on a W2 and being taxed at the published tax rates, their incomes come via dividends from stock holdings or corporations that are set up for the explicit purpose of distributing those earnings at a substantial tax savings. I’d love to do something like that for myself but having been a small business owner, I recognize the times, costs, and risks associated with that. It’s simply not something that’s feasible for someone in my position to do.

The inequities in the current system result in the lower income earners paying no taxes, the rich looking for tax shelters to avoid paying too high a percentage, and the middle class being squeezed. Middle class earners like me are being pinched between those that aren’t paying the same percentage in taxes that we are. I don’t think that meets anyone’s definition of fair. When coupled with falling home prices and increased costs of living – although the drop in gas prices recently has been a welcome sight – it’s a tough time to be middle class. While FairTax isn’t going to magically fix the situation, it would certainly help both from a financial standpoint as well as from an equality standpoint. If you felt like everyone else was pitching in and doing their part as well it wouldn’t seem like such an injustice.

Another big advantage that I see to FairTax that I hear seldom mentioned is the emphasis on savings. Like most Americans, I’ve spent more than I should at times. FairTax would be a nice, friendly, ever-present reminder to think about those unnecessary purchases. It would be a call to us all to do a better job of having a little bit of cash on hand to make it easier to weather declining home values or a layoff or whatever curveball life may throw at our pocketbook. If Americans were doing a better job at saving I’m not going to say the current financial situation could have been averted but having savings available would certainly serve as a safety net against it and hopefully make the current situation shallow and short-lived.

There’s one other thing I want to mention and that’s the proposed bailout of the automotive industry. As you may have guessed from my stated opposition to the mortgage bailout, I’m very much against another bailout. The federal government is today writing checks that I’ll be continuing to have to cash years from now along with my children and possibly my grandchildren. The answer isn’t throwing more money at a problem. It never is. The real question confronting the auto industry isn’t how to fix the current problem but how the situation existed for this long before needing to be addressed? As a corporation, how can you expect to remain viable if you’re costs are higher and your products in many instances inferior to that of your competitors? That’s the question facing the American auto industry today.

I don’t want to see a “car czar.” I don’t want to see new regulations on this industry. I want to see Detroit figure its way out of this current predicament. They certainly can. To think that they can’t do that without the help of federal money is just complete nonsense. Not only that but it’s an insult to the many hardworking and forward thinking Americans that these companies employ. The auto industry needs to be told that they’re not going to get a short cut out of the problem. They’re going to have to deal with the problems they’ve created for themselves the same way anyone else would have to deal with it. If I make poor financial decisions, the government isn’t rushing to my aid with a bailout. It’s my problem to deal with and figure out. Rewarding bad behavior (or in this case poor financial decisions) only reinforces that behavior and removes the only thing capitalism has to dissuade it and that’s the fear of failure and the financial penalties that accompany it.

I know a lot of people will be affected if the auto industry fails. I know a lot of people could lose their jobs and on and on and on. I understand that it’s a trickle down affect that impacts suppliers, parts makers, tire dealers, and so very many people. But look for a moment at how many people are affected by not addressing the problem? Everyone is affected by higher taxes. Higher taxes for many means they can’t buy the new car they had in mind. Selling fewer cars given the current state of auto sales could mean the very same things for the auto industry. At best all this bailout does is delay fixing the core problems within the industry until the next economic bump in the road. Then we’re faced with making yet another bailout or finally letting the industry struggle to deal with their own problems at a time when the impact will be far deeper and more widespread than it is now.

Please show some responsibility, show some restraint, show some fiscal conservatism and let these industry problems remain industry problems rather than making them all of our problems by getting the government more involved in the situation. Ronald Reagan once said that “Government is never more dangerous than when our desire to have it help us blinds us to its great power to harm us.” That I fear is the situation that we’re currently faced with. Please don’t be blinded by the power we’ve entrusted you with.

Thank you and God bless."

Deduct This

The purpose of taxes, as I've said before, is the influence behavior and buy votes. This is just the latest example. This guy (or girl?) wants to deduct $25,000 for a sex change operation. Seriously. The IRS has denied the deduction but the IRS is being sued as a result. The allegation is that it's discriminatory.

On one hand it seems completely ridiculious that you and I could have to pay for this guy's sex change operation. And yes, I said we have to pay. If his taxes are lower then mine are higher. That's because we're helping him pay for the operation. On the other hand I kinda hope he wins. If he wins maybe people will see how silly this whole aspect of allowing taxes to influence behavior is and we can change the system.

FairTax anyone?

Giuliani Just Lost My Vote

I like Giuliani. I really do. He's got his share of problems, from a messy personal life to views that I don't agree with on abortion and things like that. In my mind a lot of that was offset by the fact that he was such a strong and commanding leader. The man has charisma. He doesn't have my vote, though. The top two priorities in my mind are the security of our nation (read - in no particular order - Iraq, Afghanistan, Iran, North Korea, terrorism, and open borders) and our increasing dependence as a society on government (read welfare, taxation, lack of personal accountability, etc.).

Uncollected Revenues

Critics of FairTax often cite the their concern as stemming from the difficulty they perceive with collecting the tax. Basically, they fear that the system is easy to cheat. I'm in a store, I want to buy something for $100. I tell the store owner something like, "you know, I don't have $100 but I do want to buy your item. I do have $70. Why don't I buy it for $70 and you don't charge me tax on the item?"

Cheating the system is definitely a fair point of discussion. And the above scenario not only can happen but inevitably will happen. But let's face it: there are problems with the income tax system as it exists today. A report out today says income taxes in 2001 cost the government (you and me) $345 billion in lost revenues. $345 billion! Apparently it's not that difficult to cheat the current system.

The question is not is either system foolproof. The question is, which system will result in less cheating? One big difference between the current system and FairTax is that today I can fill out an incorrect earned income (whether by accident or on purpose) and send it away. Until it's evaluated by the government, there is no other check. With FairTax, someone has to be willing to cheat with you. I can't buy something without paying taxes if the store is not willing to sell it to me without charging taxes. By the same token, the store can't easily charge me taxes without me realizing that I'm not being charged taxes.

Certainly these scenarios will occur. I just don't think it'll be very common. Under FairTax, two people have to be involved in order to cheat a system. Under the current system, only one. It sounds much more likely that a store would rightfully charge someone tax and then keep the tax for themself and not pay it to the government. But that's possible under the current system. Once again, I think the advantage goes to FairTax over the current system.

The good news (other than FairTax is coming :)) is that the government does hope to collect an additional $55 billion or so of that unpaid debt. I wonder how much those attorney and collection fees will cut into that.

The Purpose of Taxes

I was thinking tonight at dinner about my dream from a couple of weeks ago. The dream where I was the governor of Georgia. What would I do as governor? Well, to start with, a governor can't do much. The governor doesn't make laws. The governor does have nice platform on a state level and even occasionally on the national level - especially if your last name happens to be Schwarzenegger - to force the agenda that he wants to see. This started me thinking about my agenda.

My first priority is tax reform. There are 2 elements to the current tax system. There's the amount of money that the government collects from us all and then generally turns around and spends and there's the processes that we as taxpayers have to go through to feel reasonably safe that we've paid the government what we legally owe and aren't going to be subject to any sort of an audit. I think any reasonable person would agree that the amount of money that the government spends is certainly something that can be curbed. That's not going to be easy to do, though. People are accustomed to certain programs and expenditures being available and there would be a lot of resistance , even if only very vocal resistance by a few people who were affected by program X. Because of that, I think the process would be the easiest thing to change.

I think you'd be had pressed to find any reasonable person that believes that the current tax process is a good idea. I'm personally a big fan of at least the basic premise of FairTax (read my review of The FairTax Book or buy your own copy). I think implementing something similar at a state level would not only be a great thing for the state but would also be a great thing in that it would be another example that the federal government could draw upon to prove the concept. I say another example because there are numerous states that do something that is in some respects very similar. The largest and most notable are Florida and Texas. Neither state has a state income tax and instead collects the majority of its revenues through sales and other taxes. I digress, though.

The best thing in my mind about a program similar to FairTax is that it removes the temptation from taxation. Taxation is a temptation for politicians, I believe. In my last post I talked about the different temptations that politicians undoubtedly face. Taxation may be the largest. Originally I think taxation was pure. The earliest revenues were used for building a federal infrastructure with legislative buildings and courthouses and beginning to assemble what is today the greatest national defense that the world has ever known. Some of our tax revenues still go to reasonable causes but so much doesn't anymore.

Today there are two main reasons that tax laws are passed. I don't remember if this came from The FairTax Book or another source or if I happened to assemble this. Regardless of the source, I've long believed this to be the case. The main reasons tax laws are passed today are to influence behavior and to buy votes. Think about that for a few minutes. Think of the different tax laws that you're familiar with. Homeowner's deduction. You save money on your taxes if you own a home. It's meant to encourage home ownership. Investerwords.com says, "The deduction is intended to encourage renters to become homeowners, under the belief that home ownership encourages upstanding citizenship and reduces crime." How about another one. Your 401k. 401kFocus.com says, "In order to encourage savings, the government created special tax advantages for 401k participants." Non-profit deductions are meant to encourage giving to charitable organizations. Student loans and interest deductibility are meant to encourage education. Get the picture? The government gives you a small financial reward for doing what it wants you to do.

The second reason, buying votes, is a little bit harder to get your arms around. Lets start with a relatively easy one: prescription drug coverage for seniors. This is not about whether it's a good idea or whether or not some seniors could use help paying for prescription drugs. God knows if my grandmother were still alive and needed help paying for prescription drugs I'd be working a second job now instead of writing this blog entry to help her pay for them. But take a step back for a second and remember - this is not about whether or not prescription drug coverage for seniors is a good idea. This is about whether or not it's an attempt by the government to buy votes. Now lets think this through. The basic way this program works is that a smaller amount of money is taken from every tax payer (roughly 280 million Americans that should be paying taxes) and redistributed to a much smaller number of seniors that are eligible for prescription drug coverage (less than 12 million enrolled as of 1/1/2006). If the government takes $50 each year from each person, most people aren't going to miss $50 over the course of a year. Especially not when it's automatically withheld from your paycheck and there's no clear easy way to see how much you paid or understand where it's going. That's another story, though. That $50 from 280 million people turns into almost $100 every month for 12 million seniors seeking prescription drug coverage. That extra $100 makes 12 million people very happy and therefore very eager to vote for you. 12 million people may or may not sound like a big number when you're talking about buying votes but the last 3 Presidential elections combined were decided by less than 12 million votes! 12 million is a HUGE number of votes.

Vote buying happens in other ways as well. The entire aspect of a progressive tax is meant to buy votes. The tax system that we have is called a progressive system. The more money you make - the higher the tax rate you pay. Your rate, in addition to the amount of taxes you pay, gets progressively higher. Think about it. The higher the annual income level, the fewer people who make it. More people make at least $10/hour than $15. More people make at least $15 than make at least $20. More people make at least $50 than make $100. The higher the income level of the people you raise taxes on the fewer people you affect. And raising taxes on fewer people gives you more money to spend on more people.

A concept like FairTax removes a politician from these temptations and as I've described previously, these have to be some very strong temptations. Any effort to reform and cleanup government would have to start with something like this. Remove from the equation not just all the headaches associated with the current process but also the temptations that the process places upon the politicians. Don't tempt them to influence your behavior or buy your vote.