For example, under today's tax codes, entrepreneurs are disadvantaged because they can not purchase health insurance with pre-tax dollars. A common sense and far reaching reform would be to allow all consumers to buy insurance with pre-tax dollars. However, if the Fair Tax was implemented, this reform would be moot. Also, talk of extending income tax credits to the poor to assist in purchasing insurance would no longer be applicable. How do candidates talk of extending tax credits to assist with health care reform and then talk of eliminating the income tax code and all its loop holes?

I do not claim to know the solutions. Personally, I would prefer the states take on the responsibility to come up with individual market based solutions for these issues as opposed to any universal federal program. However, in today's society, the federal government is expected to provide some assistance. An advocate for removing all federal assistance would probably be un-electable. The issue is finding a way to provide that assistance without the ability to provide income tax credits and deductions. Candidates must remember that the overall tax goal is implementing the Fair Tax.

I question the leadership of Republican candidates unwilling to appear at these types of forums and the Democratic candidates that are unwilling to debate on the Fox News network. The strategy of appealing only to your base may get you elected in today’s environment where party lines are split nearly 50/50. However, Presidents do not represent only 50 percent of the population.

I do not want my candidate wavering on his conservative principles to get the liberal vote. I want my candidate to have the courage to address audiences that may have opposing views. There is a better chance of building a conservative majority by addressing audiences that may either be uninterested in politics or hold an opposing view. You never know how many people you may convert.

If we do not spread the conservative message to the left leaning moderates or people that only rely on the mainstream media for news, they may never hear the other side of the story. Instead of being regarded as cold and unfeeling conservatives that do not want poor people to have an education or health insurance, they may come to realize that giving private markets and state/local governments more autonomy may result in better services at better prices. Or members of the NEA may come to realize that competition among teachers is not bad and that merit based pay awards those educators that provide quality services. It also results in weeding out educators that probably should not be in front of a classroom.

Mike Huckabee has stayed on message while exuding warmth, humility, strength, and reason. This is one candidate that knows you should not just preach to the choir. I hope he is able to continue to spread his message as the field of candidates shrink.

Links to recent Mike Huckabee news/appearances:

Mike Huckabee, the first Republican presidential candidate to accept NEA’s invitation to address the Representative Assembly, said he might look “as out of place as Michael Moore at the NRA convention,” but education is an issue that must cut across party lines. The presidential debates have focused heavily on national security, he said, but “there is another issue of national security, and it is the education of our children.”

http://www.nea.org/newsreleases/2007/nr070705c.html

Former Gov. Mike Huckabee, the only Republican presidential candidate to address the NEA, got a warm welcome from delegates. “I’m astonished there are not more Republican candidates here,” Huckabee said. “Do they not think education is important? Or are they just afraid of the NEA? I don’t know.”

http://www.nea.org/annualmeeting/raaction/07huckabeespeech.html

Clip of Mike Huckabee’s speech at the National Education Association forum:

http://www.youtube.com/watch?v=hO4_5XOSzKk

Interview on NPR

http://www.youtube.com/watch?v=O00OnCIlSPU&mode=related&search=

The American Dream

Achieving the American Dream through hard work, courage and determination is in danger of being replaced by the Marxist slogan “from each according to his ability, to each according to his needs.” Increased government intervention into our lives, by both political parties, makes the real American Dream more difficult to attain and decreases our motivation to even pursue it. The mindset has been slowly changed from being accountable for your pursuit of happiness to feeling entitled to happiness.

In a recent campaign speech, Hillary Clinton made some shocking admissions of her vision for the United States which I believe to be counterintuitive to the American Dream.

Excerpts from speech:
"It's also important to understand these [the Bush Administration] policies are consistent with the administration's theory about how we should manage our economy: leave it all up to the individual.

That's why they want to privatize Social Security and let individuals bear the risks. It's why their answer to the health care crisis is limited to creating health savings account, which allows the healthiest people to get the best deal, with little concern if the sickest get worse.

They call it the ownership society. But it's really the "on your own" society.

It's time for a new beginning, for an end to government of the few, by the few and for the few, time to reject the idea of an "on your own" society and to replace it with shared responsibility for shared prosperity. I prefer a "we're all in it together" society.”

What is wrong with bearing the risk for your own retirement? Charles Koch, chairman and CEO of one of the world’s largest private companies, brought up a great point in an interview on the Michael Medved show.  Mr. Koch was asked how he would apply his business principles to reforming Social Security.  He said that he would take into account that when individuals are accountable for their savings, some may make mistakes.  Mistakes are something to be learned from and other individuals can heed those lessons so that they do not make the same mistake.  However, when a big government program makes a mistake, it is catastrophic across the board.

That was a very logical observation by Mr. Koch that could be applied to all government programs.  Innovative and free market approaches can be taken to make medical insurance privatized in the same manner that auto, life, and property insurance are while allowing for subsidies for those at the poverty level.  Why is Mrs. Clinton’s American Dream to redistribute income and create entitlement programs?

Below are some quotes that capture what the American Dream once was:

President Abraham Lincoln:
"The prudent, penniless beginner in the world, labors for wages awhile, saves a surplus with which to buy tools or land, for himself; then labors on his own account another while, and at length hires another new beginner to help him. This…is free labor--the just and generous, and prosperous system, which opens the way for all."

How is someone going to save money and reinvest it when Hillary’s programs may require 40 cents of every dollar earned to go the federal government?

James Truslow Adams: Writer and Historian (believed to be the coiner of the phrase “The American Dream”) in his book The Epic of America which was written in 1931:

"The American Dream is "that dream of a land in which life should be better and richer and fuller for everyone, with opportunity for each according to ability or achievement. It is a difficult dream for the European upper classes to interpret adequately, and too many of us ourselves have grown weary and mistrustful of it. It is not a dream of motor cars and high wages merely, but a dream of social order in which each man and each woman shall be able to attain to the fullest stature of which they are innately capable, and be recognized by others for what they are, regardless of the fortuitous circumstances of birth or position."

United States’ Declaration of Independence, our founding fathers: "…held certain truths to be self-evident, 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."

Novelist Thomas Wolfe: "…to every man, regardless of his birth, his shining, golden opportunity ….the right to live, to work, to be himself, and to become whatever thing his manhood and his vision can combine to make him."

Appropriations of public funds by Congress (or other legislative assemblies) for projects that do not serve the interests of any large portion of the country's citizenry but are nevertheless vigorously promoted by a small group of legislators because they will pump outside taxpayers' money and resources into the local districts these legislators represent. Successful promotion of such pork-barrel legislation (often through skillful logrolling) is very likely to get the legislator re-elected by his constituents. Classic examples of such pork-barrel legislation include Federal appropriations bills for dams, river and harbor improvements, bridge and highway construction, and job-training centers, as well as legislation designed to prevent closure of obsolete or unneeded military installations, prisons, VA hospitals and the like.

http://www.auburn.edu/~johnspm/gloss/pork-barrel_legislation

In other words, congressman sit in a room and trade favors in order to get funds allocated for their particular district and disregard the interest of the general public. A proposed bill may not be attractive to a congressman on its own merits, but it looks a lot better when he can insert a few million dollars for his district into the bill without worrying about it being debated on the House and Senate floors.

According to the Founding Fathers, the federal government was empowered with certain express powers, including the right to declare taxes, declare war, and regulate interstate and foreign commerce. I don’t know how apportioning money for a corporate airport in Rice Lake, WI, or a ski lift in Colorado became a federal matter.

The pork process makes me sick.  It seems to be the only way career politicians can build a coalition to pass their special interest bills.  I shudder to think of the legislative freeze that would occur if a group of legislators attempted to reduce the programs that were designed for the benefit of the few and not in the interest of all.

Check out this CCN report on pork barrel spending on the Americans for Prosperity (AFP) website.

http://www.americansforprosperity.org/index.php?id=3241

Also interesting was an AFP Foundation study showing a 148 percent increase in overall federal lobbying spending by local governments, transportation authorities, public water utilities and state governments, including public universities, between 1998 and 2006. We pay taxes to our local and state governments so they could pay professional lobbyists. What was the intended role of our state’s US Senators and Congressmen? Let them lobby on our behalf.

http://www.americansforprosperity.org/index.php?id=3205

President Franklin Pierce (1853-1857) was right when he defended his reasons for vetoing a social spending measure that did not fall in line with the powers granted to the federal government:

“[If] Congress is to make provision for [paupers], the fountains of charity will be dried up at home, and the several States, instead of bestowing their own means on the social wants of their people ... [will] become humble suppliants [beggars] for the bounty of the Federal Government, reversing their true relation to this Union.”

State and local governments are now humble beggars while federal congressmen are willing to trade principle for votes. A socialistic, inefficient, behemoth of a central government is the norm while free market "laissez-faire" advocates are considered radical. That is some shift in thinking from our nation’s founding. 

As Rudy Giuliani says about gun control, what works in New York may not work in Mississippi or Montana. Why do we not have candidates for elected office that can intelligently describe the form of government that was created by the Constitution and the roles assigned at the federal, state, and local levels? The Constitution is not that long of a document.

The reason candidates leave the role of strict constructionist to judicial nominees is because judicial appointments are for life. In order to stay in an elected office, career politicians feel they need to pander to the electorate with entitlement programs rather than taking the common sense approach of explaining that the federal government should not have been empowered to create a social security program or that the federal government should not impose its will on local school boards. Are there any candidates courageous enough to confront the special interest groups?

Why not let the States be individual laboratories of democracy? 50 different forms of social security programs could be tried at the state level. Successful state programs would be mimicked and unsuccessful programs would be scrapped. Is competition for people and businesses between the States wrong? Are we more likely to find solutions to social issues with a blanket fix at the federal level or with focused solutions at the state and local level?

To the candidates for President, remember what your oath will be should you be elected:

"I do solemnly swear that I will faithfully execute the office of President of the United States, and will to the best of my ability, preserve, protect and defend the Constitution of the United States."

To all politicians at every level, read the US Constitution and your State Constitution and use it in your campaign. If you are at the local level, it is time to promote the sovereignty of local governments to provide local solutions without federal interference. If you are at the federal level, concentrate on national defense, foreign relations, and interstate and foreign commerce. You may be surprised what straight talk and a balanced budget will get you.

Federal Grants in Aid

As described by http://www.grants.gov, a Federal Grant is:

“an award of financial assistance from a Federal agency to a recipient to carry out a public purpose of support or stimulation authorized by a law of the United States. A grant is not used to acquire property or services for the Federal government’s direct benefit. Twenty-six Federal agencies annually offer over 1,000 grant programs in various categories.”

Furthermore according to grants.gov:

“Grants are not Benefits or Entitlements.”

Grants are not entitlements because when a grant is secured, the grantee is obligated to do the federal government’s bidding. The successful applicants must spend their “winnings” in a manner that has been defined by the federal government. If you take the federal government’s money, they have the right to define the manner in which their money will be spent and the form of oversight that will be in place. This is another process that has allowed the federal government to expand its role in local matters, without directly being involved.

According to a report that was created for Congress, ”Federal Grants to State and Local Governments: A Brief History”, federal grants, before the second half of the 19th century, were largely grants for land, canals, and forts. It facilitated the westward migration of settlers.  The federal government played almost no role in providing social service grants. Below is an excerpt from the report identifying Franklin Pierce's reasoning for this lack of social spending:

"President Franklin Pierce (1853-1857) vetoed an 1854 act, supported by reformer Dorothea Dix, to allocate funds to states to help the indigent insane. Pierce contended that if:"

“Congress is to make provision for [paupers], the fountains of charity will be dried up at home, and the several States, instead of bestowing their own means on the social wants of their people ... [will] become humble suppliants for the bounty of the Federal Government, reversing their true relation to this Union.”

Pierce’s comments could be considered prophetic. Local governments, universities, etc... have dedicated staffs working for federal handouts that they “have to have” in order to carry out their programs. It sounds like they have mastered the role of the “humble suppliant” (petitioner: one praying humbly for something) to me. I wonder what programs could be successfully carried out at the local level if these grant and lobby staffs put their energy into achieving a goal other than obtaining federal money.

We have the administration of FDR to thank for creating the expectation that the federal government is responsible for our welfare.  As stated in the report:

"President Franklin Roosevelt’s Administration, prompted by the conditions of the Great Depression, accelerated the development of the grants-in-aid system as part of his New Deal program of social relief, financial reform, and economic recovery. Drawing on a broad constructionist interpretation of the Constitution that gave him flexibility in designing economic recovery programs, Roosevelt and Congress expanded federal involvement in areas where it previously had taken little action, including public housing and employment security."

Resource:

"Federal Grants to State and Local Governments: A Brief History"

Ben Canada

Analyst in American National Government

Government and Finance Division

http://usinfo.state.gov/usa/infousa/politics/states/fedgrants.pdf

Elastic Part II

The federal government has many ways to skirt the minor inconvenience of instituting programs that the Constitution did not empower it to do. I am going to concentrate on two of the ways they are able to promote their agenda. This post will expand on the elastic clause and its loose interpretation. My next post will focus on federal grants in aid and how they are used to expand the federal government’s reach.

Loose interpretation of the Elastic Clause:

Clause 18: To make all laws which shall be necessary and proper for carrying into execution the foregoing powers, and all other powers vested by this Constitution in the government of the United States, or in any department or officer thereof.

Congress’ scope of power is detailed in the 18 clauses of Article I Section 8 of the US Constitution. Clauses 1-17 list the specific expressed powers of Congress. Clause 18 gives Congress the power to make laws that are necessary and proper to carrying out their expressed powers.

This clause was critical to the Constitution because the Founding Fathers knew that without it, Congress would have its authority questioned on a regular basis (a common occurrence under the Articles of Confederation). Any document that attempted to list out all the expressed powers of Congress would be similar to our current Tax Code in size (1600+ pages) and would be weighed down with obsolescence as new technologies arose.

In an effort to persuade the State of New York to ratify the Constitution in the years 1787 and 1788, many pro-Constitution essays were printed in New York newspapers. These essays were signed with the pen name Publius. The 85 essays have been compiled and published as “The Federalist Papers”. Originally published under a pen name, it was later revealed that the authors included James Madison, Alexander Hamilton, and John Jay. Many consider James Madison to be the “Father of the Constitution”. In Federalist Paper #44, Madison writes of the 18^th Clause:

“Congress would be continually exposed, as their predecessors have been, to the alternative of construing the term "EXPRESSLY" with so much rigor, as to disarm the government of all real authority whatever, or with so much latitude as to destroy altogether the force of the restriction.” http://www.foundingfathers.info/federalistpapers/

The evidence clearly establishes that the authors of the Constitution were purposefully vague in detailing the methods for the federal government to exert its power. This illustrates the genius of the authors who at the time did not have the benefit of sampling many different forms of republican government for ideas. They successfully created a constitution that has stood the test of time, even though it was written when we were largely an agrarian society.

The issue is not a dispute of whether or not the authors of the Constitution were purposefully vague. It is a disagreement over what the intent of the Founding Fathers was and whether the Constitution should be strictly interpreted, considered a living document, or completely disregarded when proposing laws. My research has shown me that since the late 19^th Century, the federal government has branched out into areas that are beyond its intended scope with interventionist social and entitlement programs. In my opinion, individuals need to have greater freedom to pursue their own happiness and not a happiness that is determined in Washington, DC.

I turn to James Madison again for an explanation of the intended scope of the federal government.

Excerpt from Federalist #45:

“The powers delegated by the proposed Constitution to the federal government are few and defined. Those which are to remain in the State governments are numerous and indefinite. The former will be exercised principally on external objects, as war, peace, negotiation, and foreign commerce; with which last the power of taxation will, for the most part, be connected. The powers reserved to the several States will extend to all the objects which, in the ordinary course of affairs, concern the lives, liberties, and properties of the people, and the internal order, improvement, and prosperity of the State.”

Unfortunately, judicial activists in the Supreme Court have had a different interpretation of the Constitution. The New Deal and Great Society instituted interventionist federal programs and created the expectation that the government is meant to be your champion rather than relying on personal accountability. Some of the programs instituted in the New Deal were deemed unconstitutional, but many withstood the challenges. This has turned the federal government into the bloated and wasteful mess it is today.

In the next post we will see how the federal government uses grants in aid to promote their agenda.

My next posts will highlight federal programs and departments that clearly fall outside of the realm of the express, and even the implied, powers of Congress listed in Section 1 of the Constitution.  First we need to take a look at the US Constitution and the parameters it set, as well as a Supreme Court decision that opened the floodgates for big government.

Like a student running for class president on a platform of longer recesses, many members of Congress promote bills that make them more electable (profits their home district and/or sounds like a noble/popular cause) without the foresight to weigh the negative financial and societal impacts of their legislation or even consider whether the bill falls inside the intended scope of the federal government. Class presidents do not have the power to extend recess, however Congress has gotten away with over-legislating the American people.

Article I, Section 8 of the Constitution defines the scope of Legislative power. It consists of eighteen clauses. Clauses 1-17 itemize the specific (express) powers of Congress. The 18^th clause empowers Congress to make any laws that are necessary and proper to carry out its power. It has provided pro-government growth advocates with a legal loophole, known as implied powers, for their legislative agendas.

Pro-growth advocates use clause 18, often called the “elastic clause” or “necessary and proper clause”, to initiate policies that are not specifically authorized in the Constitution but are considered implied powers. The Supreme Court provided the precedence for invoking the elastic clause in the court case McCULLOCH v. STATE, 17 U.S. 316 (1819). This case ultimately decided the constitutionality of the federal government to create a federal bank even if it was not expressly listed as being part of Congress’ scope of power.

“There is nothing in the Constitution of the United States similar to the Articles of Confederation, which exclude incidental or implied powers.”

http://www.law.cornell.edu/supct/html/historics/USSC_CR_0017_0316_ZS.html

Chief Justice John Marshall’s majority opinion argued that the framers of the constitution were purposefully vague in their description of federal power in order to avoid the pitfalls caused by the weak Articles of Confederation. I find the decision in this case to be agreeable. Although creating a federal bank is not an expressed power of Congress, it was empowered to coin and regulate the value of money, borrow money on the credit of the United States, and regulate interstate commerce.  A federal bank can be considered necessary and proper to executing Congress’ power. However, we shall see that the 18^th clause’s elasticity has been stretched to the max.

Additional Info:

According to Ray Notgrass in the book “Exploring Government”:

"The Constitution gave only specific, enumerated, delegated powers to the national government. The Constitution was not an open invitation for the Federal government to take over and do whatever Congress or the President wanted. The Federal government was not to go beyond its enumerated powers, and the states retained the powers not expressly given to the Federal government."

Article I, Section 8.
http://www.law.cornell.edu/constitution/constitution.overview.html

1. The Congress shall have power to lay and collect taxes, duties, imposts and excises, to pay the debts and provide for the common defense and general welfare of the United States; but all duties, imposts and excises shall be uniform throughout the United States;

2. To borrow money on the credit of the United States;

3. To regulate commerce with foreign nations, and among the several states, and with the Indian tribes;

4. To establish a uniform rule of naturalization, and uniform laws on the subject of bankruptcies throughout the United States;

5. To coin money, regulate the value thereof, and of foreign coin, and fix the standard of weights and measures;

6. To provide for the punishment of counterfeiting the securities and current coin of the United States;

7. To establish post offices and post roads;

8. To promote the progress of science and useful arts, by securing for limited times to authors and inventors the exclusive right to their respective writings and discoveries;

9. To constitute tribunals inferior to the Supreme Court;

10. To define and punish piracies and felonies committed on the high seas, and offenses against the law of nations;

11. To declare war, grant letters of marque and reprisal, and make rules concerning captures on land and water;

12. To raise and support armies, but no appropriation of money to that use shall be for a longer term than two years;

13. To provide and maintain a navy;

14. To make rules for the government and regulation of the land and naval forces;

15. To provide for calling forth the militia to execute the laws of the union, suppress insurrections and repel invasions;

16. To provide for organizing, arming, and disciplining, the militia, and for governing such part of them as may be employed in the service of the United States, reserving to the states respectively, the appointment of the officers, and the authority of training the militia according to the discipline prescribed by Congress;

17. To exercise exclusive legislation in all cases whatsoever, over such District (not exceeding ten miles square) as may, by cession of particular states, and the acceptance of Congress, become the seat of the government of the United States, and to exercise like authority over all places purchased by the consent of the legislature of the state in which the same shall be, for the building of forts, magazines, arsenals, dockyards, and other needful buildings;--And

18. To make all laws which shall be necessary and proper for carrying into execution the foregoing powers, and all other powers vested by this Constitution in the government of the United States, or in any department or officer thereof.

10^th Amendment to the US Constitution

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.

Excerpt of John Marshall’s majority opinion in McCulloch vs. State

(http://caselaw.lp.findlaw.com/scripts/getcase.pl?court=US&vol=17&invol=316)

“Among the enumerated powers, we do not find that of establishing a bank or creating a corporation. But there is no phrase in the instrument which, like the articles of confederation, excludes incidental or implied powers; and which requires that everything granted shall be expressly and minutely described. Even the 10th amendment, which was framed for the purpose of quieting the excessive jealousies which had been excited, omits the word 'expressly,' and declares only, that the powers 'not delegated to the United States, nor prohibited to the states, are reserved to the states or to the people;' thus leaving the question, whether the particular power which may become the subject of contest, has been delegated to the one government, or prohibited to the other, to depend on a fair construction of the whole instrument. The men who drew and adopted this amendment had experienced the embarrassments resulting from the insertion of this word in the articles [17 U.S. 316, 407] of confederation, and probably omitted it, to avoid those embarrassments. A constitution, to contain an accurate detail of all the subdivisions of which its great powers will admit, and of all the means by which they may be carried into execution, would partake of the prolixity of a legal code, and could scarcely be embraced by the human mind.”

Part V on the Income Tax:

The progressive tax is a tax that progressively increases based on your income. The lowest paid people pay the lowest tax rate and high income earner’s pay tax rates that increase incrementally.

Below is an example of one form of a progressive tax:

From $0 - $25,000: 15% tax rate
From $25,001 - $50,000: 20% tax rate
From $50,001 - $100,000: 25% tax rate
From $100,001 up: 30% tax rate

A $75,000 income earner would not pay a flat 25% tax. From $0 to $25,000, he would pay at 15%. From $25,001 to $50,000, he would pay at 20%. From $50,001 to $75,000, he would pay at 25%.

This is a fair method in an entitlement society. As you work your way up the income ladder, a higher percentage of your income is taken.

Robert Shapiro explains the following in his article "Why Fairness Matters: Progressive Versus Flat Taxes"
(http://www.ppionline.org/ppi_ci.cfm?knlgAreaID=125&subsecID=163&contentID=1398):

"liberals generally believe that progressive taxes protect individuals better than a flat tax, by curbing concentrations of economic power that threaten the opportunity of others, and by providing poor families with the resources they need to live independently. From this vantage, people's incomes reflect not only their own efforts but also a universe of circumstances they cannot affect; therefore the market's distribution of income is not the final word on economic justice. True equality of opportunity becomes a social achievement, one that tax progressivity advances by changing the market's distribution of income. This provides the fundamental measure of a progressive tax system: After paying their taxes, those at the top are left with a smaller share of all national income than before, and those at the bottom a larger share than before."

I am opposed to this model of taxation. The reasons include the tremendous amount of waste of taxpayer’s dollars and the entitlement society we create. Why should high earners pay a higher rate in taxes rather than using their money to invest in the economy, charity, and programs for the common good?

1. The Federal Government wastes tax dollars:

Tax increases are proposed as a way to keep up with federal spending. The US Government has branched out into providing so many services that are beyond the intended scope of the federal government (see 10^th Amendment) that it needs additional tax revenues to keep up. Raising the tax rates of the poor and middle class is not popular with the electorate. However, hiking up the tax rate for the wealthy is popular with the masses.

I might have been convinced that taxing the rich at a higher rate was a noble cause if the federal government did not have such a track record of waste and duplication.

According to Chris Edwards’ policy analysis “Downsizing the Federal Government” (http://www.cato.org/pubs/pas/pa515.pdf):

"Federal programs often have overlapping objectives. The GAO (Government Accountability Office) reports that there are 50 different programs for the homeless in eight different federal agencies, 23 programs for housing aid in four agencies, 26 programs for food and nutrition aid in six agencies, and 44 programs for employment and training services in nine agencies."

"The Senate Committee on Government Affairs also examined federal duplication. It found 27 different programs for teen pregnancy, 130 programs for at-risk youth, 19 programs for substance abuse prevention, 25 programs for rural development, 17 agencies that monitor international trade agreements, 10 agencies that are involved in export promotion, and 342 programs for economic development."

When the government proves itself to be an efficient machine, I will not complain about taxes.

2. Progressive taxation promotes an entitlement society:

Interestingly enough, Karl Marx’s Communist Manifesto states that in the most advanced countries, a heavy progressive or graduated income tax will apply (http://www.hartford-hwp.com/archives/26/manifesto/176-2.html#21). Now not all proponents of a progressive tax are communists (my name is not McCarthy), but I would assume that many proponents of the progressive tax also favor income redistribution for anti-poverty and social programs. In my view, many of these programs are beyond the intended scope of the federal government.

A classic argument between liberals and conservatives are the benefits of private versus public programs (charity, education, retirement, insurance, etc…). In my opinion, government programs are necessary to provide for those truly in need. However, many federal programs are not intended solely for those poor people requiring aid. Elected officials must keep in mind that there is a delicate balance between providing necessary aid and creating a general sense of entitlement.

Social Security is an example of a program that the federal government implemented because it has concluded that it knows what is best for its citizens. It has created the sense that the government should help provide for you in retirement rather than putting the responsibility on individuals. Current employer options, like the 401k, allow you to make retirement investments with pre-tax dollars. Why can’t citizens opt out of Social Security and use pre-tax money to make their own decisions? Those that want the government to make their decisions can stick with the program and those that want freedom can take what life gives them.

A progressive tax system provides the image of protecting poor and middle class families from bearing a higher burden than the wealthy. However, with the current waste and duplication in federal government programs, I believe it would be more beneficial to the economy not to punish high income earners. Some of the wealthy will horde their money, but lower taxes will also promote investment in growth (i.e. jobs), charity, and programs for the common good. Interestingly enough, with President Bush’s tax cuts in effect, tax revenues for 2005 were outstanding.

Part IV on the Income Tax:

Opponents and proponents of the consumption tax argue over several points. Black markets, catastrophic transitions, and the difficulty in repealing the 16^th Amendment are a few of the common issues cited when discussing the FairTax plan.

1. Black Market:

Some will argue that instituting a national retail sales tax would create a large underground market that would avoid the taxes that would be applied at the cash register. There currently is a large black market for tobacco, drugs, and other illegal items. Also, many people cheat on their tax returns or don’t even file. However, under the FairTax plan, when the profiteers of illegal activity use their money to purchase luxuries like cars, jewelry, etc…, they would be required to pay the sales tax.

Also, according to a letter from Norman Cooper to Congressman Lamar Smith on FairTax.org (http://fairtax.org/pdf/Lamar_Smith_rebuttal_letter1-11-07.pdf), the elimination of tax returns would free up enforcement officials to target those not in compliance:

Today, the estimated 18 million wage-earning Americans that have dropped out of the income tax system entirely as “non-filers” will pay the FairTax, as will illegal aliens who are paid “under the table” today. And because of the dramatic 90 percent reduction in the number of tax filers, tax evaders will be more easily monitored and caught under the FairTax system. Today, taxpayers can cheat in the privacy of their homes and bury their cheating on 227 million tax returns in the unnavigable 7,000 code sections with plausible deniability that they even understood the law. Contrast the current system with the FairTax, where individuals would no longer need to file returns, and retailers would be provided a credit compensating them for the costs of sales tax compliance. Even if all approximately 25 million business establishments in the U.S. were retailers, the number of returns filed would decline 86 percent.

The FairTax makes it so that far fewer taxpayers will have much less incentive to cheat and much greater chance of getting caught if they do.

The basic gist is that there are cheats in all systems. Resourceful cheats will get away with it and the boneheads will get caught.

2. The Economic Costs of Transition:

What would happen to the economy during the transition to a national retail sales tax? I know there is one group strongly opposed to any transition.

According to the National Retail Federation Senior Vice President for Government Relations Steve Pfister, (article link: http://retailindustry.about.com/b/a/152273.htm)

"A National Retail Sales Tax or VAT would devastate the nation's economy for years before economic gains -- if any -- would be seen."

"Under the proposed national sales tax rate of 30 percent at the cash register, consumers would simply stop spending on anything but the barest necessities for a prolonged period of time," Pfister said. "This would have a ripple effect throughout the economy with an impact far beyond the retail industry. Even at lower rates, the psychological effect on consumer spending would be profound."

"Our research shows that during the transition period from the current system to a consumption tax, the economy, employment and consumer spending would all decline significantly. The price is too great to pay for any modest growth that might come in the long-term. Many retailers and the companies behind the products they sell -- especially the small businesses of America already struggling to succeed -- would be out of business before they could benefit from that growth."

The members of FairTax.org would strongly disagree with the National Retail Federation findings. Below is an excerpt of a letter from a Mr. Evans to Congressman Goodlatte on the FairTax.org website (http://fairtax.org/pdf/GoodlatteFinal-posted070110.pdf):

Finally, you state that a tax system of this nature poses problems of transition, “require[ing] many sectors of the [economy] to be forced to make sweeping changes in the way they do business.” Yes, Americans will have to get used to nearly $280 billion in compliance cost savings. They will have to get used to not paying income or payroll taxes or any taxes before they have decided whether to invest that income (which is not taxed), pay for tuition (which is not taxed), buy a used home (which is not taxed), give to charity (which is not taxed) or consume it for themselves. Corporations will have to get used to paying no income or payroll taxes as well. Foreign producers will have to get used to competing on a level playing field with U.S. producers since they have long been given a free ride on taxation by the current system exempting foreign producers.

The FairTax plan is in fact the only plan that does not “dismiss these difficulties” as you assert it does. FairTax.org has spent considerable resources meeting with industries to seek to reduce transition costs. One of the largest transition rules is a delay between the date of enactment and the effective date. On the other hand, the flat tax, which you seem to prefer, totally ignores transition rules. For example, a business which buys inventory one day before enactment of the flat tax and sells it one day after enactment gets no deduction but must include the entire gross receipts in income for purposes of the flat tax (VAT).

3. Feasibility of Repealing the 16^th Amendment:

Under the current tax system, special interest groups lobby members of Congress for additional tax laws that are favorable to their specific interest. Unfortunately, Congress has a long track record of passing laws that are designed for the benefit of the few and are not in the interest of all.

A constitutional amendment would be required to repeal the 16^th Amendment. There are two ways to propose an amendment:

1. Two thirds of the members of each House (US Senate and US House of Representatives) can propose an amendment to the Constitution

2. Two thirds of the State legislatures can call a Convention for proposing amendments.

Would two thirds of the members of each House (US Senate and US House of Representatives) have the courage to propose an amendment to repeal the 16^th Amendment? What would that do to their campaign contributions? Would they be willing to gamble that support of such an amendment would ingratiate themselves to their constituency? (The 2^nd method identified above for proposal of an amendment has never happened in our history.)

Now suppose that an amendment to repeal the 16^th Amendment was successfully proposed. The effort would not stop there because three fourths of the States would need to approve it by the state legislatures or by a state convention.

The path to repeal is difficult. It was designed that way by the Founders so that our way of government could not be changed overnight. However, in order to reap the full benefits of the FairTax plan, the 16^th Amendment must be repealed. By failing to repeal and leaving the income tax option available, Congress would have the option of reinstituting the income tax on top of the consumption tax. In my humble point of view, that would not be ideal.

My next post will cover the progressive tax.

Part III on the Income Tax:

The consumption tax can be levied in multiple ways. The two most described ways are the Value Added Tax (VAT) and a National Retail Sales Tax. The main difference between the two is that the VAT taxes each stage of production and the National Sales Tax taxes the sale of the finished product. In the interest of brevity and due to my initial impression of the VAT, I will concentrate on the National Sales Tax. (My first impression of the VAT is that consumers would be taken to the cleaners if every stage of production is taxed because business would have to pass on those costs. Also, taxing production seems like a penalty for productivity.)

The fair tax plan sponsored by FairTax.org (http://fairtax.org) provides an easy to understand explanation of a national retail sales tax model that could replace our existing tax laws. According to FairTax.org:

The FairTax plan is a comprehensive proposal that replaces all federal income and payroll taxes with an integrated approach including a progressive national retail sales tax, a rebate to ensure no American pays federal taxes up to the poverty level, dollar-for-dollar revenue neutrality, and the repeal of the 16th Amendment.

This nonpartisan legislation (HR 25/S 25) abolishes all federal personal, gift, estate, capital gains, alternative minimum, Social Security, Medicare, self-employment, and corporate taxes and replaces them all with one simple, visible, federal retail sales tax – collected by existing state sales tax authorities.

The FairTax:

· Abolishes the IRS

· Closes all loopholes and brings fairness to taxation

· Ensures Social Security and Medicare funding

· Brings transparency and accountability to tax policy

· Allows American products to compete fairly

· Reimburses the tax on purchases of basic necessities

· Enables retirees to keep their entire pension

· Enables workers to keep their entire paycheck

http://fairtax.org/fairtax/about.htm

On paper, this model sounds great. My next post will take a look at some of the key arguments for and against a national sales tax being adopted.

Amendment 16 to the US Constitution: The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.

The 16^th Amendment was ratified on February 3, 1913. Prior to ratification of this amendment, the Supreme Court had reached contradictory decisions in multiple cases on the constitutionality of a direct tax based on individual income. The Constitution gave Congress the power to impose taxes that were divided up based on population (an indirect tax), but not the ability to directly tax individual income. However, from the time of the Civil War, Congress attempted (and sometimes succeeded) to impose taxes based on income. A Supreme Court decision in 1895 that deemed a direct income tax unconstitutional led to Congress’ need for the ratification of the 16^th Amendment.

(source: http://caselaw.lp.findlaw.com/data/constitution/amendment16/01.html#2)

I am sure that most people agree that the 16^th Amendment will not be repealed anytime soon. On the same note, most people would agree that the current tax code is a maze of complicated laws and loopholes. (For $89.50 you can purchase Title 26, the Internal Revenue Code 2000 Edition. I am sure that is 1,675 pages of good reading. (http://bookstore.gpo.gov/actions/GetPublication?stocknumber=052-001-00478-7) Personally, I think this is the result of too many lawyers holding elected positions, but I digress. Let’s look at some of our options for simplification.

Flat Tax:

In black and white, this may be the most fair tax option available. Under a true flat tax, every citizen would be taxed the same fixed percentage of their income. Loopholes would be eliminated and the code would be simplified. Also, individuals would not be penalized for increasing their wealth. However, the true flat tax has its limitations. The limitations include, the poor and middle class would bear more of a personal burden than the wealthy, the tax would favor employees over small businesses, and the definition of income would need to be agreed upon.

1. Unfair Burden:

Liberals would argue that a true flat tax allows the rich to bear less of a personal burden than the poor and middle class. This is because taking 15% from a high income earner is less of a burden than taking 15% from a lower middle class family.

Example:

· $1 million dollar earner would be taxed $150k using a federal 15% flat tax, leaving $850k for state and local taxes and other expenses.

· $30k earner would be taxed $4,500 using a 15% flat tax, leaving $25,500 for state and local taxes and other expenses.

Conservatives would argue that taking 15% of a wealthy individual’s income would increase the tax revenue tenfold over a low earner’s tax bill and people should not be penalized for their success.

2. Problems for the Entrepreneur:

Under a true flat tax, employees would be favored over entrepreneurs. By incorporating a flat tax on income with no loopholes, small business owners would not be able to deduct the expenses that are required to make a business profitable. The employee that made $30k a year would have $25,500 after federal taxes for personal expenses. A small business owner that made $30k would also have $25,500 after taxes. However, they would still need to use a portion of that money to invest in the necessities of business (business assets, marketing, employee benefits, etc…).

3. What is Income:

The question, “What is income?” would need to be clearly defined. Will the income tax be based solely on salaries for employees and revenue for small businesses? Would capital gains and interest earnings be considered income? What deductions and credits would still be available? If the income tax was based solely on salary, the wealthy could in theory have no income because they could live off of interest from their bank accounts or sales of investments.

The true flat tax is attractive for its simplicity. I could imagine the day where the 1040 form instructions would fit on an index card. However, no matter how clearly economists show that tax revenues would not be negatively impacted or even increase by transitioning to a flat tax, the opposition against it may be too powerful. The wealthy are an easy target for more taxes, even from other wealthy lawmakers. (See John Edwards in his 6 million dollar mansion talking about Two Americas, one for the wealthy and one for the common folk.)

The good news is that the personal income tax code could be reformed separately from the corporate income tax code. Corporate income is a much more complicated issue that I am not going to touch. (This is a perfect example on how special interest groups are formed.  I am not a corporation so I will target legislation that serves me.  Of course, I will argue that this is in the interest of all and not for the benefit of the few.) 

Future postings will examine the consumption tax and progressive tax.

One thing I do know is that I am not a multi-billion dollar corporation or a wealthy individual that can have their CPAs and tax lawyers massaging numbers and interpreting the tax code to reduce my tax bill. These practices allow many wealthy tax payers the opportunity to pay less of a percentage in taxes on their “income” than a middle class working family using tax preparation software. Income is italicized because the amount is based on the tax preparers’ interpretation of the existing tax laws and use of loopholes rather than their actual earnings.

This complicated system has led me to research many different options that have been proposed to close loopholes and simplify the tax code. There is the flat tax, the consumption tax, the progressive tax, and the let’s add more pages to the existing tax code tax. I have found redeeming qualities in each of these taxes, along with some glaring weaknesses.

I will have future postings examining each of these tax options.

I will end with the definition for each of these taxes as defined in the Financial Dictionary on The Free Dictionary.com (http://financial-dictionary.thefreedictionary.com)

Flat Tax: A system that taxes everyone at the same rate, regardless of their income bracket.

Consumption Taxes:

1. Value Added Tax: Tax added onto a product during each step of production, from raw material to finished good.
2. National Retail Sales Tax: A comprehensive proposal that replaces all federal income and payroll taxes with an integrated approach including a progressive national retail sales tax, a rebate to ensure no American pays federal taxes up to the poverty level, dollar-for-dollar revenue neutrality, and the repeal of the 16th Amendment.

Progressive Tax: A tax that takes a larger percentage from the income of high-income people than it does from low-income people.

Adding more pages to the existing tax code Tax: (Surprisingly, there was no definition found in the dictionary)  However, I would have to assume that many special interests and lobbyists push for this version because the more complex the code gets, the more areas there are to take advantage of.  For example, my family vacation (hmm I mean business trip) costs are deductible because I drove my electric car that has my company logo pasted on it, stayed at a green hotel, and brought my work cell phone with me on which I made one business call to check my office voice mail.  Mickey and Minnie were potential clients that just did not work out.

4. Stop the leaks of highly classified national security secrets. Why does the press have the ability and freedom to leak classified information with impunity? There are certain things the American people, myself included, do not need to know. Penalize the media that releases highly classified information and use them to determine the leaks. Some members of the media forget or deny that they are first and foremost citizens of the United States of America.

5. Apply common sense to laws and follow the moral code. There are cities that forbid children from playing tag at school, doctors practice medicine defensively, and there are so many safety regulations that many employers are probably breaking the law without knowing it. Why should a school district have to worry about a lawsuit for a child falling in play when there was no intention on their part for the child to be injured? The argument for gross neglect would fly if the school allowed the children to play tag on the roof of the school, but not when the children are engaged in normal play.

6. Provide and enforce a deterrent to the lawyers that bring forth frivolous lawsuits. When a countersuit is brought against a frivolous plaintiff, have their lawyer(s) listed as co-defendants. I am in favor of a 3 strike and your out rule (the lawyer is disbarred after 3 offenses). The lack of accountability in this culture sickens me. I can’t say it is worse than it was in the old days, because I don’t know. I am only 30. However, I do know that if I spill something hot on myself or eat McDonalds everyday, I am responsible for the outcome. In the current climate, I wonder how many corporations have a paid staff that has to think of warning labels for each of their products. Vending machine companies actually put stickers on their machines that tipping them over may cause death.  Did you need a sticker to tell you that?