Just and Holy Principles

I took this picture myself

April 13th was “Tax Freedom Day” for Utahns, meaning that in 2009 the average Utahn had to work the first 103 days of 2009 just to pay their taxes. From that day on, they can work to pay for things like food, clothing, shelter, and other essential needs, and maybe even some wants.

The good news is that Tax Freedom Day this year is eight days earlier than in 2008, mostly because of the “stimulus” package tax cuts. The bad news is that the U.S. budget deficit and debt are growing ever larger, thanks to the current and previous congresses and administrations, which will likely mean much higher taxes in future years.

So you have time to finish and mail your taxes tonight, I won’t bore you with lots of tax numbers today. Consider just one important, sad fact: according to the Deseret News,

The Tax Code now fills about 70,000 pages, and Americans combined spend more than 6 billion hours and $265 billion each year just to complete the paperwork that is due to the Internal Revenue Service today at midnight.

Now please consider this statement by Alexander Hamilton and James Madison:

It will be of little avail to the people, that the laws are made by men of their own choice, if the laws be so voluminous that they cannot be read, or so incoherent that they cannot be understood; if they be repealed or revised before they are promulgated, or undergo such incessant changes that no man, who knows what the law is to-day, can guess what it will be to-morrow. (Federalist 62, 1788)

Some taxes are necessary, but current rates are too high and the system is too complicated. My advice: simplify taxes, decrease taxes, decrease spending, eat more dry roasted peanuts.

What do you think?

High School Musical

Want to “stimulate” Utah’s economy? Perhaps convincing Hollywood to come set up shop here will do it. Then again, maybe not.

Utah Governor Jon Huntsman, Jr. wants to “put us on the map” by using $15 million in federal “stimulus” money to lure film producers to Utah. This amount would almost quadruple the $4 million currently appropriated to Utah’s Motion Picture Incentive Fund (MPIF).

How does it work?
The MPIF offers movie producers a 15% tax rebate (up to $500k) for dollars spent in Utah. To most people, this program sounds like a “win-win” scenario: producers save money by operating in Utah, and Utahns gain more jobs and increased economic activity.

The Governor’s Office of Economic Development (GOED) claims that in 2007 $1.5 million in incentives to the film industry created 744 jobs and left $17.6 million spent in Utah. This may or may not be true, but even if it is, this program has several defects.

Why is the MPIF flawed?
1. Solar stereos might sell better than movies. Why does Gov. Huntsman offer incentives only to film makers? Why not to producers of, say, soap, operas, totally dry umbrellas, solar stereos, or toilet roll hats? Simply because a business doesn’t produce films or is already located in Utah, it loses out on a generous 15% tax rebate. This gives one industry an unfair advantage over others. In a free market system, government doesn’t try to pick winners and losers.

2. Home-cooked meals usually beat ordering out. Ordering out-of-state mostly attracts businesses that are in Utah for the incentives. Should the incentives disappear, or another state make a more attractive offer, those businesses disappear from Utah. Investing in home-grown businesses that have Utah roots and hope to expand operations is far more productive. This approach is known as “economic gardening.” It treats in-state businesses as well as, or better than, out-of-state businesses, which reaps the greatest long-term economic growth.

3. Farmer Jim gets the shaft. The MPIF benefits some Utahns who work for visiting movie producers or who provide goods and services to them during their stay, but the rest get little to nothing. For example, the humble farmer in rural Utah helps pay for Hollywood-bound incentives through the tax system; and yet, he receives no benefit for his “contribution.” Farmer Jim can’t work for movie producers, he can’t sell them hamburgers and milkshakes during their lunch break, and he certainly never wants to watch High School Musical 1, 2, or 3. The program redistributes wealth from regular, hard-working Utahns to film production companies and people and businesses that interact with them.

Will Utahns stand on principle?
Utah legislators will likely soon pass S.B. 14, which would increase the tax rebate to 20% and could add $7 million more to the fund. This bill and the governor’s proposal should be rejected, and the MPIF itself should be dissolved. These efforts to gain a little more economic activity and tax revenue in the present will only retard future growth and create a more unfair business environment.

Finally, Utah government officials’ obsession with catering to Hollywood*, enhancing Utah’s image to outsiders, and increasing tourism, all at the expense of people who actually live and work in Utah, is troubling. They sacrifice principle — a level playing field for all businesses and individuals — for popularity and wealth.

What do you think?

* As evidence, I recently witnessed a member of Utah’s Legislature almost shed tears while thanking the director of GOED for allowing her children to tour the set of High School Musical and meet members of its cast. Such experiences should not affect her decisions in shaping public policy, but I’d be very surprised if they do not.

“We the People of the United States, in Order to form a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common defence, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity, do ordain and establish this Constitution for the United States of America.” Preamble to the Constitution

Our liberty, and especially the liberty of our posterity, is in jeopardy. In general, Americans are becoming increasingly individualistic and short-sighted. Our concerns focus mostly on ourselves and less on our neighbors and on future generations. Our worthy pursuits of happiness for ourselves and for our families can quickly morph into selfish pursuits that bring unhappiness to others.

Putting today above tomorrow
Sometimes, we feel that our “entitlement” to certain rights or circumstances outweighs our responsibility to others in our community and to our posterity. Women want the right to have an abortion without regard to the rights of the person developing inside of them. Individuals want the right to marry a person of either gender and to adopt children without regard to children’s familial and social rights and needs.

We spew pollution into our air and water without regard to those who will someday inhabit the same land. We incur debt — personal and public — and other financial obligations without regard to who will pay for them.

For instance, 2.3 million American home loans foreclosed in 2008 because people borrowed more than they could afford. People buy cars, boats, vacations, huge flat-screen TV’s, and other goods they can’t afford. When they go bankrupt, taxpayers end up paying for their excess through government. This propensity for spending beyond one’s means extends to government.

“An unsustainable fiscal path”
Most state governments have massive debt. The national debt is currently $10.8 trillion. The U.S. Treasury has said that the federal government is on “an unsustainable fiscal path.” Because of entitlement obligations (Medicare, Medicaid, Social Security) and spending trends, the Treasury projects that the federal debt could reach as much as 170 percent of gross domestic product (GDP) by 2040 and as much as 600 percent of GDP by 2080. We’re committing future generations (without their consent) to pay for these obligations, and if they cannot, to deal with the repercussions of not being able to do so.

Yesterday, President Obama signed a bill that will cost taxpayers $787 billion. This amount is equal to $2,600 for every American, 1.3 times the cost of the Iraq War so far, and 1.7 times the largest federal deficit in history ($455 B in 2008) (read more).

Nobody seems to know how we will pay for this “stimulus.” And nobody can know if it will actually improve the economy. In my view, the “stimulus” might help the economy in the short-run but will probably harm it in the long-run. This new $787 billion debt, and the regulatory strings attached to it, added to the obligations we’ve already incurred, will stifle economic activity and bind down future generations, perhaps beyond their ability to set themselves free.

The spending must stop
Government is necessary. It is ordained of God. But the great expansion of government that has taken place under the leadership of both political parties, and that will likely accelerate under Mr. Obama, will destroy “the blessings of liberty” that our posterity deserves. Even the Constitution, “the most wonderful work ever struck off at a given time by the brain and purpose of man”, cannot save us from our spending spree. Our short-sightedness, craving for constant security, and fear of failure will make the future bleak for us and for our posterity.

I hope this doesn’t sound too pessimistic. I believe things can “change.” But we must decide as individuals, communities, states, and a nation to restrain our passion for spending beyond our means. We must make decisions that take into account more than just ourselves; otherwise, the blessings of liberty that we still enjoy will be foreign to our posterity.

What do you think?

“Freedom is a fragile thing and is never more than one generation away from extinction. It is not ours by inheritance; it must be fought for and defended constantly by each generation, for it comes only once to a people. Those who have known freedom and then lost it have never known it again.” Ronald Reagan, 1967

Photo: Tim Bartel

The Standard-Examiner (Ogden, UT) published an op-ed I wrote about the federal “stimulus” money soon to come from Congress. I challenge Utahns to reject the money, and the regulations that come with it, in order to remain independent from the feds. Please read the article at the link below and make comments either here or on their site.

http://www.standard.net/live/editorial/nationalcommentary/163374/

What do you think?

Today is a time for choosing–not only what to have for dinner, but also, much more importantly, how much government influence we want in our lives. We are amidst difficult economic times. We have a new president who is promising “hope” and “change.” The decisions we make as a nation during the next few years could shape our relationship with government for decades to come.

Our first opportunity to choose has already presented itself. President Barack Obama is pressing Congress to approve an $825 billion economic recovery package. His plan includes tax cuts, and spending on things like infrastructure (roads, airports, etc.), renewable energy, education, and welfare. Thus far, nobody has identified from where the $825 billion will come.

Mr. Obama has said that with the money will come “strict, independent oversight that will allow the American people to hold Washington accountable for how and where their tax dollars are spent.” I applaud the president for his efforts to seek transparency and accountability. And yet, I fear that his statement is code for “regulation.” Federal dollars almost always come with regulatory strings attached, which, in this case, will dictate things like how our schools are run and what type of fuel our cars must use.

The recent bailout, this “stimulus” package, and more “help” sure to come, could turn into the greatest expansion of government influence in our lives since the “Great Society” in the 1960’s. Before we pursue this course, we would do well to remember that growing government is much easier than cutting it back once it’s in place.

During hard times, we’re tempted to ask government to step in to save us. Ironically, more government usually means less prosperity. Government may be able to “stimulate” the economy a bit in the short-run, but in the long-run we’ll be worse off.

This is a time for choosing. Will we cave in to our current fears and call for Big Brother? Or will we choose to stand for principles like limited government, self-reliance, and personal responsibility that have made and kept America free and prosperous?

In conclusion, President Obama is a good speaker, but there was another president who, in my opinion, was even better. Watch this speech given by Ronald Reagan in 1964 that launched his political career. It contains many words of wisdom that apply to our situation today.

What do you think?

Ronald Reagan, “A Time for Choosing,” Oct. 27, 1964

What do you think?

The stock market is down 39.4% from a year ago today and is at its lowest point since May 2003. Call me insane or delusional if you’d like, but I think this financial crisis is good for America. First, I’ll explain what effect the crisis is having on our economy and then why it’s good.

Effects of the crisis
Many of our largest investment and commercial banks have failed because of “toxic” mortgages, which means that credit is tightening. Since banks are losing money on their investments, they have less money to lend to individuals and businesses. People are having a harder time getting loans for cars, houses, and education. Small and large business owners are having a harder time getting loans to buy land, buildings, equipment, and other things needed to run and grow their businesses. This means lower profits for businesses and therefore fewer jobs and higher prices for their products. This will probably continue to happen despite the government bailout. I think this is good for the U.S. economy.

Why this is good
Free markets are like the human body. When there’s something toxic like a virus in your stomach, you naturally react by vomiting to get it out. Right now, the financial markets have a bad virus in them–unpaid mortgages and risky lending practices. The markets are trying to get the toxins out by vomiting, but government is trying to keep them down.

One of the most important aspects of a free market economy is that it allows failure and awards good decisions. Businesses that fail–whether they produce bad products, charge prices higher than people want to pay, are not efficient enough to make a profit, engage in dishonest practices, or anything else–do so because consumers and investors decide not to support them. Markets weed out bad companies (kind of like a challenging Calculus class weeds out some students aspiring to be math majors), whereas better companies survive and grow stronger. This process of refinement strengthens the economy by forcing companies to be as efficient and beneficial to society as possible or else face extinction. All this happens with little or no government intervention.

In the current financial crisis, some financial institutions have extended credit to people who could not afford it or have invested heavily in faulty assets. Also, many consumers have borrowed too much. Now, they’re all paying a big price for their decisions. The worst thing government can do is prop up these failing companies and unwise consumers through bailouts. If we don’t allow them to fail, then they’ll continue to make bad decisions and hurt the economy even more. On the other hand, if we let them fail, then better companies will buy the good that’s left of the bad companies, and they’ll learn to be more efficient during hard economic times and eventually become stronger. Consumers will also learn to live more within their means.

Government should just relax
Without government intervention, the economy would take a huge hit (perhaps even worse than it is now), but in the end our financial institutions would be stronger. They’d learn that sub-prime lending and other risky practices will cause them to fail, and the best companies would learn not to repeat those mistakes. And hopefully, as Americans suffer through a recession, they’d realize that excessive debt hurts them and the economy. Maybe they’d start to save more and spend less.

Bailing people out only tempers the sense of urgency for the need to change. And the ironic twist here is that government helped cause this economic mess and now wants to save us from it. Government would do better to let the economy vomit out the toxins that are making it sick rather than trying to help it hold them in. The quicker the markets get the virus out on their own, and suffer the pain that goes along with that, the sooner the economy can be healthy again, and probably even stronger than ever.

What do you think?

The U.S. economy may be in trouble. Millions of mortgages are floreclosing, the stock market has fallen 13% since October, and other economic indicators point to a possible recession. In an attempt to avoid a recession, the House of Representatives, in concert with President Bush, has passed a so-called “stimulus package” that the Senate is now considering.

This package of reforms has 4 parts:

1. Single taxpayers who earn less than $75,000/year would receive a rebate (check in the mail) up to $600 and married taxpayers who earn less than $150,000/year up to $1,200 plus $300 per child. This rebate would go to an estimated 117 million American families for a total of $150 billion.

2. Individuals who earn at least $3,000/year but don’t pay taxes would receive rebates of $300 (single) or $600 (married).

3. Businesses would get a tax cut on property to encourage investment.

4. To help with the housing crisis, federal financing and support of mortgages would increase.

Congress and President Bush say that this economic package will stimulate the economy to help avoid a recession, but I think it’s more of a political stunt. Whenever the economy gets bumped and bruised, politicians run to its rescue because voters expect them to. They tweak the tax code or send out rebates, and when the economy finally improves, they take all the credit.

Any time Congress lowers taxes, more money in the hands of consumers and business people will stimulate the economy to some degree. But $150 billion in rebates to consumers–a big chunk of money–is just 1% of the $13 trillion U.S. economy. It’s only a drop in the bucket. Americans may run out to spend their rebates on iPhones and flat screen TV’s, but many will save them or use them to pay down debt. Either way, rebates help economic growth in the very short-run but help very little in the long-run.

The proposed tax cuts on business investment will spur economic growth in the long-run by increasing investment and creating jobs, but even this will do little to alter the economy’s path. The economy is made up trillions of little components. In most cases, one person or entity can do very little to affect its course. The most effective action government can take is to remove barriers that prevent growth, like high taxes and restrictive regulations.

The main problem with this economic package is that Congress has no proposal to cover the $150 billion in tax rebates in the budget. The federal government has a $163 billion budget deficit and the Congressional Budget Office predicts a $241 billion deficit by 2010. If Congress sends out $150 billion in rebates, then it must also cut spending by the same amount or raise taxes to avoid a larger deficit.

I would love to get a $600 check from the IRS this spring. But I think Congress should forget the rebates and instead slash business tax rates, restrain long-term spending, and loosen regulation. That’s the best the government can do right now to help improve the economy. And I hope the politicians don’t give themselves the credit when the economy eventually rebounds. They will have had little to do with it.

What do you think?

An article I co-authored this summer at PRI was published yesterday in the San Francisco Examiner. It addresses California’s need to improve its budgeting process by looking at the long-term effects of tax changes on the economy. It might be a little technical for some people, but the general topic discussed is interesting. Here’s the first paragraph:

SAN FRANCISCO - According to Gov. Arnold Schwarzenegger, California’s new $146 billion state budget will have no operating deficit. But there are serious questions about the reliability of the numbers because California, unlike other states, does not require dynamic revenue analysis, contrary to the wishes of many state Democrats.

Click here to continue reading on the Examiner’s website.

Believe it or not, after reading my Capital Ideas article on California’s pension system, Mark Carbonaro, a radio talk show host near Monterey, CA, asked me to come on his show. I’m not very eloquent, but it was fun to help him out. You can listen by clicking on the link below:

Wake Up Monterey! w/Mark Carbonaro

Capitol Weekly: The Newspaper of California Government and Politics published an op-ed I wrote on some bills currently in the California State Legislature. Here’s the first paragraph and a link to the full article:

“The California Chamber of Commerce recently released its annual list of job-killer bills currently in the state Legislature. The bills’ supporters claim these 25 measures will provide Californians physical and economic security when really they will eliminate jobs, increase taxes and enlarge the public debt.”

Read more