Locking in dependency is Obama's aim

I've been thinking a lot about Barack Obama and his tax plan. I'd prefer to spend my Saturdays thinking about college football, but since an Obama Presidency may force me to get a second job, well, here I am. Steve Charnovitz has a great letter today in the Wall Street Journal, commenting on the Journal's excellent piece entitled Obama's 95% Illusion. Here's what he said: Your editorial is very helpful in pointing out that Sen. Barack Obama's plan would allow 44% of U.S. taxpayers to enjoy no federal income tax liability. Such a policy is wrong in principle. If America is going to use an income tax to pay for the federal government, then all income earners should have to pay some tax.

Whenever any citizen is exempt from having to pay taxes, the untaxed citizen has little incentive to insist upon a responsible government. If we allow the tax rolls to fall to 56%, then we will soon be dangerously close to a tipping point where the majority of the public has no stake in insisting that politicians stop wasteful federal purchases and subsidies to special interests.

There are a couple of important things related to this letter that I think need to be addressed:

First, it is increasingly clear that Barack Obama's primary constituency is the non-tax payer. Because Obama's tax plan gives cash payments to those who don't pay any taxes at all, it amounts to another form of welfare. As the Journal points out:

The Tax Foundation estimates that under the Obama plan 63 million Americans, or 44% of all tax filers, would have no income tax liability and most of those would get a check from the IRS each year. The Heritage Foundation's Center for Data Analysis estimates that by 2011, under the Obama plan, an additional 10 million filers would pay zero taxes while cashing checks from the IRS.

So, Obama's plan is geared to increasing the number of non-tax payers. He is not trying to assist them in getting jobs that would help them earn enough money to pay taxes in the first place. Rather, by transferring wealth from tax payers to non-tax payers, Obama is actually enshrining a new and larger underclass -- dependent on government handouts for their livelihood. This is, of course, regressive. But it meets Obama's desire to make a large voting class permanently indebted to the Democrats.

Second, we are on a slippery path to having a majority of the nation being dependent on the innovation, hard work and entrepreneurship of a shrinking tax paying class. This is both unfair and unhealthy for the country. A permanent dependent class will be an economic burden and ultimately a killer for economic growth, because it will require new and ever higher taxes to support. What is the motivation for innovation if you know that 50, 60 or 70% of your income will go to supporting people who either don't work or don't pay taxes? How is that equitable?

It isn't equitable. And even worse, it totally ignores human nature. Multiple studies of welfare recipients have shown clearly that people want to be self-sufficient -- there is no pride in taking handouts. People want to feel proud about their lives and the work that they do. I don't believe that they want to be treated like children. The welfare reform of the 1990s proved that putting in place incentives for people to find work is effective. When given the right motivation, people find jobs for themselves. It's basic human behavior.

Unfortunately, Obama and the "well intentioned" Democrats have never understood this basic fact. The opposed welfare reform because they didn't think people could pull themselves up and provide for themselves. Their basic assumption is that we are not capable of taking care of ourselves. And now they are planning a system that will be a massive new entitlement program -- funded on the backs of those who get up every morning and go to work. It is destructive and will result in a massive new dependent class which society will have to deal with for generations.

Is this the kind of country America will become? A Democratic-socialist state with ever higher taxes and ever lower productivity?

This is the America that Barack Obama envisions. His tax plan proves it.

Bunyan replies to Peale

Editor: Answering Dose 1 below, Crater signed this one John Bunyan, identifying with the author of "Pilgrim's Progress." Dave Crater writes:

Interesting you should take Dr. Peale as your namesake - there is the "power of positive thinking" irony in your note of course, but more substantively there is the hollowing out of Christian faith in the 20th century in which Dr. Peale was at the center.

It is that hollowing out which has been bearing bitter fruits like our current ones for about a century now - where faith in God becomes merely "positive thinking," belief in free markets and property rights becomes merely welfare state "capitalism;" where a government that tries to play God then plays the savior from the economic disasters it causes; where economic and financial understanding becomes merely "monetarism" or "Keynesianism" or, as Larry Kudlow wrote this morning, "we need government to act in order to fix the free market"; where genuine compassion and private generosity become merely taxation and wealth redistribution; where personal responsibility and moral hazard get pushed off to a later date when we've solved the latest crisis caused by the dearth of those very values; when political statesmanship becomes merely Barney Frank; and where republicanism and Republicanism become merely John McCain.

We'll never get the politics right until we get right who God is - hint: He's not in Washington - but from a political standpoint, "neoconservatism," a modern incarnation of the classical principles of conservative thought, has been more observed by the Bush administration in passing and in the breach than in the observance. It is the answer, not the problem.

Responses to your notes:

1. Agreed. The race is over.

2. Ditto. Perhaps now we can stop the empty cheerleading among the GOP political classes? McCain is pathetic - there is no other word for it.

3. GWB as right as ever on Iraq and history will remember him so. GWB as wrong as Hoover on financial crisis, what causes it, what fixes it, and what economic leadership is, and history will remember his $700 billion bailout as simply another weak capitulation to 20th-century statism.

4. GWB indeed a shell - the kind of shell that has taken a steady beating for doing what is right (Iraq), then instead of permanently choosing the right side of the street and building on this foreign policy conservatism a coherent and courageous set of socially and economically conservative initiatives, a la Reagan building himself and the nation a genuine legacy in exchange for the unavoidable public relations beating in the media, he routinely sells out to welfare state expansion and economic statism, trying like McCain to drive in the middle of the street and getting himself hit by traffic going in both directions. He, the nation, and the GOP have suffered inordinately as a result.

5. Agreed, though few will understand where they actually went wrong. See aforementioned dearth of economic understanding rooted in dearth of spiritual understanding.

6. Those who maintain traditional Christian faith sleep peacefully amidst the confusion, for the Almighty is still in His temple. Psalm 2 comes to mind: "Why do the nations rage, and the people plot a vain thing?"

7. We should align with traditional (i.e., true) faith and classical (i.e., true) political conservatism. That means no more John McCains, Bob Doles, or Gerald Fords - how much mediocrity do we have to endure before we recognize what it looks like?

8. "A bit more deflation"? Deflation ended 5 years ago. Commodities are at twice their historic levels - we are well into a period of inflation.

Economic cold shower

One of the villains of Amity Shlaes's The Forgotten Man is uncertainty. Markets hate nothing more than uncertainty, which paralyzes decision-making and freezes capital. Typically, marketuncertainty is nasty, brutish, and short. Typically, government uncertainly is agonizing and long.

At the end of Roberts's and Kling's podcast (see my View from a Height blog at JSharf.com), Kling points out that there are vulture funds waiting to buy distrssed securities and properties in order to resell them at a profit, but that the holders are waiting for a better deal on a bailout. (Something like this may have happened with Citigroup and Wells Fargo fighting over Wachovia.)

This is bad for about 100 different reasons, but I'll pick 5 ways this royally screws up market operations:

1) It prevents mark-to-market rules from working, hiding losses when there effectively is no market.

2) It keeps distressed securities off the market, keeping markets illiquid.

3) The lack of a market in certain securities makes it impossible to issue new securities of that type.

4) It keeps the market from finding its level; something priced at 80 might sell for 50 after being dumped at 30; you'll never know the true value.

5) It keeps the vultures from earning money while not capitalizing the guys holding onto the assets.

I could go on, but you get the idea. It all adds up to nobody knowing what anything's worth, and nobody being willing to take risks because they can't price that risk adequately. As a result it freezes capital and damages the real economy.

FDR didn't help this problem, he made it worse. He got the politics of it - he didn't need to suggest a solution to get elected, and he steadfastly refused to work with Hoover after he was elected. I don't see anything from the forthcoming Obama administration to suggest anything different.

Political cold shower

Editor: New contributer N. V. Peale writes from Denver. His dark humor is typified by the use of "slightly sub-optimistic" to mean "gloomy as hell." His icy realism would probably horrify the late positive-thinking clergyman from whom our man borrows a pen name. Random thoughts on a Friday lunch hour

Just seeking to stir the pot a little. Apologies if slightly sub-optimistic.

1. I don't see how McCain pulls it out, at this point.

2. The last debate a sad spectacle. To the point of my deep personal embarrassment. For America.

3. GWBush has given two small TV addresses lately, aimed at reassuring markets. Both have made things worse. Credibility zero.

4. GWBush has become a "shell." Fresh out of hemoglobin and neurotransmitters. Probably wishes he didn't run for reelection in 2004. Down to the last penny, we observe the blooming fruits of Neoconservatism.

5. The word "Greenspan" will soon become a grandiose pejorative. "Bernanke" and "Paulson" likewise.

6. None of the talking heads (elected or otherwise) knows what they're doing. Americans beginning to sense it. Bad advice everywhere. We're all on our own. Caveat emptor.

7. Expecting major forthcoming realignment in GOP and conservative movement. Which way should we align? Where will each of us land in the new land?

8. My economic hypothesis continues to be -- A bit more deflation, then significant inflation. But not sure when we hit the other end of the wishbone.

Barack channels Marx

It's no accident that Obama dwells on the purported economic malaise as his main selling point. His solution is the Marxist one: redistribution. This is why he constantly refers to “taxing the rich” as the solution, a solution that all good Marxists long to impose on our nation. But would it really be a solution? Consider the underlying assumptions. The first assumption is that the economic pie is fixed and can be taken for granted. When Karl Marx wrote Das Kapital in the 1840’s, the industrial revolution was young and its underlying economic theories were largely unformed. Marx drew upon the agricultural themes laid down by Malthus. Wealth was indestructible land, and the income crops grew regardless of who owned the land. Therefore, why would not industrial wealth be the same: fixed and indestructible? And if “justice” in agriculture is to redistribute the land, why would not workers “owning the means of production” not be the same expression of justice?

The next assumption is the desirability of a “steady state” economy. The green movement which opposes population growth and economic activities of most kinds are the natural allies of the Marxists. Both groups strive for the mythical static economy that neither shrinks or grows, that is predictable and controllable, that is “in harmony with nature”.

But these assumptions are false and dangerous. It is no accident that most of the ardent Marxists are liberal arts majors, gleefully devoid of real economic knowledge! The typical Marxist is a professor somewhere who continually spouts off about “the workers” without owning a pair of coveralls and without calluses on his hands. With tenure, feeding at the public trough in some state university, the professor doesn’t know what he doesn’t know!

For one thing, to define justice as equality is a mistake. Not all members of society have equal gifts. If the entrepreneurial spirit and success are punished, all of society is poorer! Once the seizure of power and the redistribution is over, the economy will contract, bringing with it poverty for all. “ Equal outcomes” means all of society equally poor at the subsistence level.

The next thing the Marxists don’t get is that wealth is NOT a static fixed pie! Economies grow or die. To stick to the agricultural metaphor, entrepreneurs can, in effect, "create farmland." The wealth pie expands or contracts depending on the policies and incentives put in place. For Obama to dwell on the “haves” and the “have nots” is a fraud. With 70% of the millionaires in this country SELF MADE, the real issue is between the “doers” and the “do nots." But every member of society CAN be treated with equal dignity!

This is the fraud perpetrated on blacks in this country by the likes of Jesse Jackson. Rather than tell his flock to stay in school, to work hard and to work to improve their lives, he tells his people they are victims. The problem is “white people conspiring to keep you down." Dropping out of school, getting pregnant at 13, being content to stay generation after generation on welfare has “nothing to do with their poverty!” His solution is to march on the capital and demand that society just “give” them money, (such as the “reparations for slavery”, classic victimology!) But the promise of America is not equality of condition but equal opportunity. Until these leaders change this emphasis, blacks will remain on the bottom of the economic ladder.

The last thing the Marxists don’t understand is the American ideal, which is if you work hard, there’s no limit to what you can achieve. The “rags to riches” stories are what attract people to this great land of ours! Americans want to get ahead. Americans want to do well, they want to grow their potential, not be stuck in a static planned economy with a Marxist Party elite telling them how to live their lives.