Wednesday, September 4, 2013

About Those International Norms...

Barack Obama says military intervention is justified in Syria in order to enforce “international norms”.  He then argues it is in the US’ direct interest to enforce these norms in order to send the right message to other bad guys.  Finally he says the US’ credibility is on the line because it is important that we “mean what we say”.  I agree with all of these arguments, however Barack Obama does not. 

For the moment let's pretend that all the hypocritical things Barack Obama said before he became President were the innocent musings of an amateur.  Things like:  he would never go to war unless the US was attacked or one was imminent, he would never go to war without the world by our side, he would negotiate with any dictator before starting a war, he would never go to war without congress, Iraq was a "war of choice" and he would never take military action by choice, etc., etc., etc.  Let's separate all that from the context of Syrian intervention and just look at the pure merits of the current arguments.  They still make no sense coming from this commander in chief. 

All we need to do is look back less than a year.  Recall, the Libya operation was based on similar arguments about "international norms" and "meaning what we say":  here was another bad dictator, another case to prevent horrific casualties, another promise it would be a “matter of days”, another “responsibility to protect”.  So off we went, without congress of course, to maintain a UN no-fly zone over Libya.  (Only that was a ruse.  In reality, it was regime change, and that’s what we eventually got after 8 months.)  If that’s where it ended, we could say “mission accomplished”, albeit late and under false pretense.  But that’s not where it ended. 

Any positive message which might have come from following through on our promise to enforce international norms in Libya, and showing that we mean what we say, was squandered in whole on September 11th 2012 in Benghazi.

Is not the murder of an Ambassador against international norms?  Didn’t Obama say he’d “find those responsible and hold them accountable”?  Isn’t it vital to hold them accountable to send a message to others who would do us harm?  Isn’t it important to mean what we say?  We have the murderers on video for God's sake, yet there has been no attempt to bring them to justice!       

It's not like they are hard to find.  CNN had no trouble locating the leader of the attack and interviewed him for hours in a cafĂ© in Benghazi!!!  What message did Obama send by failing to respond to Benghazi, other than jailing a Christian videomaker, critical of Islam, who had nothing to do with the attack?  What message did this send to Assad, Iran, and the other bad guys? 

Barack Obama’s arguments make no sense in the context of his actions in just the last year.  Forget his mind-blowing hypocrisy before that.  It would be a travesty of historical proportions to grant this commander in chief authority to shoot missiles into Syria.  The only thing he is qualified to shoot... is hoops.  

Friday, August 30, 2013

This Is So Convenient! (Xtranormal's Demise)

(updated 4/17/14)
The last time Barack Obama wanted to go to war without congress in support of al Qaeda and others, I made a cartoon video which got nearly a million hits.   The software I used was called Xtranormal, and if you've seen funny cartoons about Quantitative Easing (The Bernank), buying an iPhone, and countless others, you've seen what it can do.  Unfortunately, Xtranormal is no more.  They mysteriously shut their doors on July 31st, 2013.  All you see if you go there now is a big "pause" button: (Now even that's gone!)

Xtranormal was one of the few places where the first amendment could be leveraged with the latest entertainment technology.  It was truly the most powerful democratization of freedom of the press since Gutenberg and the blogosphere.  Xtranormal "blogtooning", as I called it, was a way for any schnook with a computer and some patience to create the kind of engaging entertainment content previously available only to those with a huge budget, manpower, and time.

Xtranormal has said nothing about why it closed down, when it may re-emerge, or what the future holds.  All we can do is speculate.  As for me, I find it disturbing that one of the most powerful and innovative tools ever devised for democratizing free speech is currently unavailable.

I have since learned that Xtranormal ceased operations due to a lack of profitability.  The assets and intellectual property of Xtranormal have been bought, as of April 2014, and there may be a second act after all.  The new owner is at, where you can get the latest news.)    

Since I cannot make a new Xtranormal video about Syria and the mind-blowing hypocrisy which is Obama's MO, here is the one I made about Libya which went viral.  (Just exchange the word Libya with Syria and it should suffice!)

Below that is one I made right before Xtranormal shut down in July 2013, which anticipates a Syria intervention!


Thursday, August 15, 2013

Incompetency In Spades

Now that Reggie Love has revealed that Barack Obama was playing spades during the bin Laden raid, it's time to go back to this video which proves that my labradoodle had more to do with getting bin Laden than your president:  (under 4 mins and well worth the time!)

Wednesday, August 7, 2013

Diet Poison?

OK, this is totally anecdotal so take it for what it’s worth, but I believe Diet Coke is poison.  In fact I’d put Diet Coke third, just after crystal meth and crack cocaine as an addictive substance that will age you faster than Amanda Bynes and Lindsay Lohan combined. 

Now, I have not performed any double blind studies.  I have done no real research.  All I can say is I have an uncanny ability to detect who is drinking Diet Coke just by looking at them.  Give me a person’s age, let me look them over, let me know if they are currently addicted to crystal meth or crack cocaine, and I can tell you if they are a Diet Coke head or not. 

It’s really not that hard.  Are they overweight?  Prematurely white haired?  Skin pallid?  Out of shape?  A bit on edge?  Teeth yellow?  Bam – Diet Coke head!  Try it, it works every time if the habit is long term. 

I have no idea what ingredients might do this.  Some would point to aspartame, caffeine, phosphoric acid, or the combination.  I can’t even say Diet Coke is the only culprit.  I know of two men who were best friends and both addicted to Tab (do they still make Tab?).  They lived a thousand miles apart yet both died prematurely of the same form of kidney cancer within months of each other.  Tab is also a Coca-Cola product but differs a bit from Diet Coke.  Apparently it is just as addicting.  Again, totally anecdotal, but this is my experience. 

I do believe it is more than just the caffeine.  I know people who drink Diet Coke at breakfast.  I don’t know anyone who drinks regular Coke at breakfast.  I’m not saying no one does.   Caffeine is de rigueur at breakfast so you would expect people to get it any way they can.  I am just aware of people drinking the diet variety in the AM.  Weird, no? 

This guy in the UK claimed he was addicted to Diet Coke and needed to detox.  There are some who claim Diet Coke addiction contributed to the untimely death of comedian George Carlin.  I have no inside information on that.  All I know is what I see. 

And what I see leads me to believe that Diet Coke is poison.  If you like it, drink it.  That’s your right.  If you can’t stop though, you might want to try crystal meth, crack, or heroin.  At least then you’d qualify for free government treatment!

Thursday, August 1, 2013

Another Phony Scandal

The unfolding IRS scandal is chilling, historically so.  As is the Justice Department’s spying on journalists.  But, we are likely only seeing the tip of two icebergs, and there are other entire icebergs.   One such iceberg concerns Barack Obama's use of myriad federal agencies to persecute, bully, and harass corporate symbols of non-union success.  Federal agencies as diverse as The U.S. Fish and Wildlife Service, The Food and Drug Administration, The National Labor Relations Board, the National Highway Traffic and Safety Administration, and The FBI, have been thuggishly targeting corporations in support of Obama's big labor union agenda.  President Obama has redefined the “bully pulpit” and marshaled every tentacle of federal power to do his bullying.

Labor unions are Obama’s largest support system.  Unions supplied billions in the last three election cycles, practically all of it to Democrats.  More importantly, unions supplied the boots-on-the-ground and the muscle for Obama’s vaunted ground-game (1). The labor union agenda is Obama’s agenda according to Obama himself (2). The most frequent visitors to the oval office are labor union bosses and labor union lobbyists.  Government is unionized five times more than the private sector: 36% vs 7% and growing rapidly (3).  In essence, when government agents knock down your door, union members are knocking down your door.  When the IRS audits you or demands to know the "content of your prayers", those are union members doing that.  The IRS’s own labor union boss, Colleen Kelly, was at the White House the day before the IRS abuses started.   (This is particularly worth noting in the context of the cases below.)  

These corporate/union bullying cases are similar to the IRS scandal in that government agencies were selectively targeting opponents of Obama’s political agenda.  But, there are significant differences too.  The IRS scandals broke because the targeted parties, non-profits and individuals, made a big stink.  In these corporate cases, the targets are for-profit corporations who will never make a stink.  Unlike individuals and non-profit groups, corporations have a huge incentive to keep quiet when being targeted by their government.  Corporations answer to their shareholders, and shareholders care about one thing only - share value.  Confronting abusive government is never a shareholder priority.  Corporations are also easily painted as villains.  When corporations get unjustly targeted by governments, they usually suck it up, pay their fines, settle the lawsuits, and quietly get back to work.

Moreover, these corporations were occasionally bi-partisan targets.  That’s not surprising; The Code of Laws of the United States runs over 200,000 pages making virtually every corporation, individual, or group in violation of something and probably many things at any given time.  According to author Harvey Silverglate, who wrote a book on the subject, everyone in the US likely commits “Three Felonies A Day” (4).   What makes these corporate cases conspicuous is the over-the-top way they were handled, the timing, and the symbolic existential threat they posed to Obama’s labor union agenda.   Taken one at a time, each case is curious, puzzling; however, taken together and in the light of the IRS cases, the picture becomes clear.

The curious case of Tylenol and Johnson & Johnson: 

In 2011, the FDA took over three J&J/McNeil/Tylenol plants, shut one of them down, recalled a bunch of products, and started a criminal investigation claiming poor quality on several fronts (5). The infractions cited were various:  musty odors, poor quality, bacteria, imperfect doses, and dangerous containers.   Headlines were written, criminal violations alleged, reputations shot, management shuffled, mea culpas issued, fines paid, and tons of money lost to J&J.  How many people did these deficient products kill?  How many were maimed?  In all cases…none.  Yet, to this day, it is difficult to find brand named Tylenol and many other J&J products in a store.

This is not to say J&J products are perfect.  No company, much less a pharmaceutical company, can make that claim.  Every drug has side-effects, is prone to misuse, and has impurities.  But, J&J was severely punished for routine issues.  This all has the distinct air of a witch hunt.  Why the harsh treatment? 

J&J is one of the countries largest pharmaceutical companies and one of its most revered workplaces.  What makes J&J so successful, or any great company for that matter, is its people.  If you want a great company, you need great people.  If you want great people, you need a great workplace.  On that score, J&J consistently gets awards for being one of the best workplaces in the country (6).  One reason J&J is such a great place to work is its founding ideology, and that is precisely why Obama and the unions have singled it out. 

Robert Wood Johnson, a founding member of the company, immortalized J&J’s ideology in 1943 in a document he called “Our Credo” (7).   Line two, paragraph two, of the J&J Credo states:

“Everyone must be considered as an individual.”

This is anathema, inimical, to the concept of a labor union.  A synonym for labor union is “collective bargaining agreement”.  Unions seek to be considered as a collective, not as individuals.  The J&J Credo is a symbolic existential threat to the very idea of labor unions.  Considering J&J’s perch at the top of the prestigious pharmaceutical industry and their reputation as one of the best places to work, it is easy to see how they were a symbolic threat to unions.

The Credo also made J&J vulnerable when the federal government decided to bully them.  The Credo states: 

“…everything we do must be of high quality.”

Barack Obama’s tactical bible, “Rules for Radicals” by Saul Alinsky, teaches:

“Make the enemy live up to its own book of rules.”

No company could endure the scrutiny of the FDA when determined to find things like bacteria (which is everywhere), and odors (which are everywhere).  Whole J&J plants have been shuttered for such nebulous infractions.

Today, J&J does employ union workers.  Unionization at J&J runs about 5% compared to 7% for the entire private sector (8).  Public sector unionization is seven times higher averaging 36% (3). Not only was J&J a possible target due to their prominence and Credo, they were also unionized at below average rates.

Side bar:  In the 1980s, seven people died after ingesting cyanide tainted Tylenol.  The case was never solved, but the investigation did narrow the source of the cyanide to the Tylenol distribution network around Chicago.  Chicago in the 1980s would have been the perfect place if a union had wanted to frame a corporate enemy with poisonings and get away with it.  Organized crime and organized labor controlled everything including local law enforcement and politicians.  (Not sure much has changed.)  Moreover, unions in Chicago had control of the packaging and distribution of Tylenol.  Tylenol was shipped from J&J’s plants in bulk containers to independently owned distribution centers where it was put into capsules, then into jars, and finally boxed and shipped to retailers.  The cyanide was introduced somewhere in that union distribution network (9).

One person, James Lewis, was convicted for extortion related to the Tylenol case and is still considered a suspect, but he has never been charged.  Following the murders, J&J took their packaging away from the independent contractors and the unions and began doing it in-house.  Unions may have had nothing to do with those murders, but they did have the means, the motive, and the opportunity.

The curious case of Toyota and unintended acceleration:  

On August 28, 2009, four people were tragically killed in a Lexus with a stuck accelerator.  The tragedy properly led to further inquiry, and at the end of it all:

·   NHTSA had taken several Toyota models off the market (an unprecedented move)
·   Obama’s Transportation Secretary, Ray LaHood, instructed Americans to not drive Toyotas (also unprecedented)
·   Toyota’s top leadership, including President Akio Toyoda, was compelled to testify before congress
·   There were numerous congressional hearings
·   There was a 1.1 billion dollar lawsuit settlement
·   Toyota was ordered to pay about $15 million in fines to the National Highway Traffic and Safety Administration
·   Millions of cars were ordered recalled
·   Toyota lost its spot as the number one autmaker in the world
·   Billions were lost in value and profit.
·   Toyota’s reputation was seriously damaged.

What caused the unintended acceleration and what was the fix?  In the case of the tragic Lexus accident that triggered it all, it turned out to be errant floor mats installed by a dealer.  No other cause was ever definitively found (10).  Toyota did eventually recall millions of cars and replace some parts, but the whole issue faded with a whimper. 

Unanticipated acceleration is a ubiquitous charge against all automakers.   It is nearly impossible to prove or disprove.  In short, the case against Toyota was a giant witch-hunt which seriously hurt Toyota and helped GM.  Why would the government want to hurt Toyota and help GM? 

Not only is Toyota non-union while its rival GM is unionized, the UAW union owns GM along with the federal government who is the majority shareholder.  That makes Barack Obama the overlord of GM, Toyota’s main competitor.

Consider the following timeline: 

2008 - Union support of Barack Obama helps him win the Presidency of the US
Non-union Toyota surpassed unionized GM as the world’s largest automaker
2009 - GM and Chrysler go bankrupt and get bailed out by the US government, which hands a huge chunk of GM to the UAW union
Toyota is accused of unanticipated acceleration
Toyota cites floor mats and issues warning.
2010 – The ubiquitous complaints persist and the US government insists on recalls
Toyota is forced by the US government to cease selling several models, unprecedented in automotive history.
GM offers $1,000 checks to Toyota owners who switch to GM cars
Toyota sales are flat for the year.
GM sales rise 21% for the year.

But there’s more.  The unions had other reasons to have Toyota in the crosshairs.  While Toyota is non-union, they did have one plant in California that was a joint venture with GM staffed by UAW workers.  The partnership was called NUMMI, New United Motor Manufacturing, Inc.  GM pulled out of that partnership in 2009 after the government take-over.  Obama and the unions apparently had no interest in a partnership with non-union Toyota now that they owned GM.  Toyota was then stuck with UAW workers who had an inherent conflict of interest; while they worked for Toyota, they were also part owners of its largest competitor.  Toyota chose to close the plant and the unions responded with a fatwa:

 "You are going to see an attack on Toyota that is unprecedented." said Rome Aloise, a top Teamsters official.

"We will take this fight to every Toyota dealership in California." Richard Trumka, president of the AFL-CIO, said via a videoconference link. "Our message is that Toyota kills American jobs. This comes at a time when Toyota can ill afford another black eye."

"If they close the NUMMI plant, we union people will not buy another Toyota." said Bob King, UAW vice president.

The source of the above quotes is a definitive piece on the subject, “Firestone Revisited: Was Toyota a takedown target in the name of NUMMI?”  by Mandy Nagy (11)

Despite all that and the tsunami in Japan, Toyota recently regained their position as world’s largest automaker surpassing GM in global sales.  Their cars still do not accelerate unexpectedly.

Side bar:  If you were around in the ‘80s when Audi was practically forced out of the US based on a similar charge of unintended acceleration, this may all sound familiar. In the Audi case, like the Toyota case, the whole thing turned out to be nebulous at best, and at worst, a coordinated attempt to take-down Audi complete with a scary "60 Minutes" story.  At the time, Audi of Germany was having unprecedented success in the US with its Audi 5000 model and eating into the lucrative UAW made Cadillac and Lincoln markets.

The curious case of Gibson Guitar Corp: 

On August 2nd, 2011, armed federal agents from The US Fish and Wildlife Service raided Gibson Guitar Corp. in Nashville Tennessee.  They stormed-in like a swat team, frightening workers, shutting down production, and confiscating computers, raw materials, documents.  This was the second time Gibson had been raided since Obama took office, the first having occurred in 2009.  At the time, the reasons given had to do with some alleged violation of an obscure statute having to do with foreign laws and exotic wood.  This made no sense.  Other guitar makers were using the exact same wood, but they weren’t raided.  Why Gibson?

Some suggested Gibson was targeted because CEO and owner, Henry Juskiewicz,  gave donations to Republicans while Martin Guitars, Gibsons rival in the acoustic guitar market, donated to Democrats.  This suggestion has re-emerged in the wake of the IRS scandal, but this also makes no sense.  Lots of CEOs give to Republicans and don’t get raided by armed federal swat teams. 

No, Gibson, like J&J and Toyota, symbolized an existential threat to Obama’s union agenda: Gibson had relocated from a forced-union state to a right-to-work state.

Gibson was founded in Kalamazoo, Michigan, right smack in-between union strongholds Chicago and Detroit.  But, Gibson moved production to Tennessee in the 80’s, fleeing a forced-union state for a right-to-work state.  This is a cardinal sin for Obama and the unions.  Obama has called the right-to-work “the right to work for less money” (12).  Unions hate right-to-work laws because it makes future unionization less likely and less lucrative for them.

Side bar: Gibson’s two major competitors in the domestic-made guitar market, Martin and Fender, both manufacture primarily in forced-union blue states, Pennsylvania and California respectively.  Fender Musical Instruments, Gibson’s rival in the electric guitar market has historical ties to media giant CBS, which owned the company until the mid ‘80s.  (Meanwhile, Michigan became a right-to-work state in 2012, and the conversion did not please Obama or the unions (13).)

The curious case of Boeing:

Another curious case which relates to Gibson is the case of Boeing’s South Carolina plant.  When Boeing tried to relocate some production to right-to-work South Carolina, Obama and his NLRB tried to block Boeing from operating the plant which had already been built at the cost of a billion dollars.  The whole thing was an outrageous and obvious attempt to both intimidate others from relocating to right-to-work states, and blackmail to get Boeing to reach agreement with its machinists union in Washington State.  It likely succeeded on both fronts (14). In light of the Gibson case and the question of motive,  the Boeing case highlights the extent to which Obama will go towards bullying corporations to achieve his ends.

Whenever Barack Obama acts in a puzzling way, it is best to consult his tactical mentor, Saul Alinsky, for therein usually lies the answer: 

“The Radical may resort to the sword but when he does he is not filled with hatred against those individuals whom he attacks. He hates these individuals not as persons but as symbols representing ideas or interests which he believes to be inimical to the welfare of the people.” Saul Alinsky, 1946 (emphasis added)

The unifying theme in all the above cases is that the targets are all “symbols representing ideas or interests” which Obama believes to be inimical to his political agenda.  All four companies are leaders in their industry and they threaten unions in symbolic ways:  J&J because it is so successful and has a Credo to treat employees as individuals, Toyota because it is non-union and is UAW/GM/Obama’s top rival, Gibson because it fled Michigan’s forced-unionism to relocate in a right-to-work state, and Boeing because it was a twofer: leverage for the machinists and a message about right-to-work.  

Unfortunately, these are not the only cases.  Unions have a long history of playing dirty and dangerous when threatened.  What makes all this so remarkable and chilling is that, in Barack Obama, the unions have a new thuggish partner capable and willing to use the full force of the federal government to harass their mutual enemies.   Individually, each case could be dismissed as plausibly due to some overzealous agency, but when taken as a whole, there can be no benefit-of-the-doubt.

(8) According to sources at J&J.  J&J declined to comment on their labor relations or union relations.

This is a repost of "The Next Big Scandal" 5/20/13

Wednesday, July 31, 2013

In Honor Of Milton Friedman's 101st Birthday

(In honor of the late Dr. Friedman's birthday, this piece is based on a few of his gems of logic.)

Almost every interesting economic proposition shares a confusing characteristic: what’s true for the individual is the opposite of what’s true for the country as a whole. To a consumer buying shoes, it appears as though the price is fixed and the supply is elastic. Consumers can buy as many shoes as they want as long as they are willing to pay the asking price. But to the country as a whole, it is the supply of shoes that is fixed and the price that is elastic depending on demand. This paradox permeates economics.

-- Milton Friedman - paraphrased from a speech titled “Money and Inflation” , 1980 (herein referred to as "Friedman's Paradox")

On Nov. 29, 2012 the New York Times ran a piece by Binyamin Applebaum and Robert Gebeloff titled, “Tax Burden for Most Americans Is Lower Than in the 1980’s”. The authors cite New York Times research, which makes the case that taxes are historically low especially on the rich. They calculate rates for various income groups and come up with a top marginal tax rate, at all levels of government (federal, state, and local), of 42.1%, compared to the 1980’s when it was 49%.

A couple of weeks later, On Dec. 12, 2012, the Wall Street Journal ran an op-ed by Edward C. Prescott and Lee E. Ohanian with nearly the opposite title, "Taxes Are Much Higher Than You Think". After studying tax rates, again at all levels of government, Prescott arrived at an average marginal tax rate of 40%, while the authors contend that the perception is that taxes are much lower.

So, the New York Times pegs the top marginal rate at 42.1% and Prescott and Ohanian have the average marginal rate at 40%; not enough of a difference to get too excited about. Yet, the two pieces seem to ascribe opposite perceptions to the public, and seem to promote opposite policy prescriptions. Who’s right?

With all due respect to these esteemed authors, neither is right. Here’s why taxes are much higher than most people think, and much higher than even Prescott and Ohanian think. Here’s also why The New York Times piece is wrong about taxes being higher in the 1980’s.

Keep your eye on one thing and one thing only: how much government is spending, because that’s the true tax ... If you’re not paying for it in the form of explicit taxes, you’re paying for it indirectly in the form of inflation or in the form of borrowing. The thing you should keep your eye on is what government spends, and the real problem is to hold down government spending as a fraction of our income, and if you do that, you can stop worrying about the debt.

--Milton Friedman - from the same "Money & Inflation" speech, 1980 (herein referred to as "The True Tax")

Both studies above employ similar methodologies based on individual tax rates. But according to Friedman’s Paradox, what is true for the individual is often the opposite for the country as a whole. Instead of looking at individual rates in every jurisdiction and arriving at an average rate as both sets of authors appear to have done, the better way, the simpler way, the more inclusive way, and the Friedman "True Tax" way, is to find total government spending and compare that to Total Income. By doing that, we learn what is happening with taxes in the country as a whole, inclusive of all borrowing, printing, business taxes, and indirect taxes.

Here are the results when Friedman’s True Tax methodology is applied to 2012:

· Gross Domestic Product (GDP) was about $15.8 trillion*
· Total govt. spending at all levels was about $6.2 trillion
· Total Income was about $9.6 trillion. ($15.8t - $6.2t = Total Income)
· True Tax rate is about 65%. (6.2t / $9.6t = True Tax Rate)
(Traditionally, tax rates are expressed as a percent of GDP, but GDP can be artificially inflated by money printing and borrowing. Since Friedman referred to “income”, subtracting govt. spending from GDP, makes sense. Government does not generate income, only the private sector does. Moreover, Total Income closely tracks AGI (Adjusted Gross Income) reported on 1040s. AGI is the basis on which income taxes are calculated.)

So the True Tax rate was 65% in 2012, when expressed as a percent of Total Income. But that doesn’t include money creation/printing by the Fed, which may or may not be considered spending. Since 2008, the Federal Reserve has created two trillion dollars in new money and that money is not included on any ledger of government spending. The Fed claims it isn’t actually spending money when it creates money because it is buying US bonds, which it can later sell. This is the exact same argument Fannie Mae and Freddie Mac were making about home mortgages - right before they went under. To settle this, let’s just say inflation has averaged about 5% since we dropped the gold standard in 1971. If we use that conservative figure, and add 5% to 65%, that yields a total True Tax rate of 70%!**

That is not the top marginal tax rate for high earners like the New York Times calculated. Nor is it an average marginal rate like Prescott arrives at. That’s the average tax rate on every single dollar of our Total Income. When Friedman’s Paradox is applied to tax rates, the illusion of progressive taxation goes away. Essentially, we are all in one big tax bracket, whether we know it or not. Our individual income tax rates vary, but there are enough taxes buried in everything we buy that it levels-out our average burden. We all pay roughly $.70 of every dollar we earn on taxes. You may think your lawyer, oil company, or banker just got a big tax hike, but their increased tax burden is passed right back to you in the form of higher fees. Their hike is your hike, and so it goes, ‘round and ‘round.

(Update: Having recently read some commentary and heard Robert Reich speak glowingly about the economics of the 1950's with its high wages, "high taxes", lots of unions, narrow income gap, etc., I thought I'd calculate the True Tax rate for 1950 and 1960. About those “high taxes”, eh, not so much...the rate in 1950 clocks in at 31.4% and 1960 at 40.3%. True Taxes today are double what they were in the 1950s. The 1950s are so beloved because Europe, Japan, the USSR, etc. were still smoldering from WWII, China was still in loincloths, and we had a brand new industrial infrastructure to unleash. The desire to return to the economics of the 1950s is a fantasy that could only be fulfilled by a third world war fought in Europe and China!)

Here’s a rough breakdown of the $.70 tax everyone pays on every dollar of Total Income: $.30 is paid in direct taxes. These are the explicit taxes everyone sees: Income taxes, employee’s portion of payroll taxes, sales taxes, property taxes, etc. $.25 is buried in the prices of things we buy. These are the stealth taxes: business income taxes, employer’s portion of payroll taxes, business property taxes, use taxes, fees, etc. $.10 is deferred onto future generations as borrowings, and $.05 is deferred and/or eaten by inflation due to money creation. ***

In 1985, the middle of that decade, we spent $1.5 trillion at all levels of government, reported GDP of $4.2 trillion, and had Total Income of $2.7 trillion resulting in a True Tax rate of 56%.* If we add 5% for inflation, as we did for 2012, that would yield 61%, but the Fed was not printing $.5 trillion a year in 1985!** In either case, whether we use 56% or 61% , taxes today at 70% are quite a bit higher than they were in 1985. Certainly not less, as The New York Times piece asserts.

Inflation is taxation without legislation.
--Milton Friedman
The differences between all these numbers and our perceptions are the result of our political and monetary systems. Politicians at all levels of government and The Federal Reserve are able to hide huge chunks of our True Tax burden from us. All we see is the $.30 in explicit taxes, while the remaining $.40 is buried and/or deferred on others.

Are voters stupid? They’re probably just human. The main reason voters do not realize they are being taxed $.70 of every dollar of Total Income is that $.40 is in the form of stealth, or indirect taxes, which are buried in everyday prices. All the taxes and fees paid by businesses, like payroll taxes, income taxes, property taxes, use taxes, and fees, are built into everyday prices. Take a simple MacDonald’s Big Mac hamburger: Before that hamburger gets to you, the farmer who grows the corn, the rancher who raises the beef, the farmers who grow the wheat, tomato, lettuce, onions, eggs, the trucking company, the oil companies, the restaurant owner, the advertising company, and many more, all pay taxes for their payrolls, income, land, fuel, and supplies. Those taxes are passed on to you when you buy that hamburger, but you have no way of measuring their cost!

Then there are the deferred taxes. The difference between what governments spend and what they collect in taxes must be acquired either by creating/printing, or borrowing money. Creating new money devalues the currency (all other things being equal) and will eventually cause inflation. Excessive inflation is politically dangerous and therefore avoided, except as a last resort. Borrowing is simply deferred taxation, or deferred money creation. Of the two, it is much easier to get away with. Both borrowing and creating money have a deferred negative impact, but an instantaneous positive one. Voters are simply acting like imperfect humans and choosing instant gratification while deferring pain. Unfortunately, they are also taking benefits for themselves in exchange for passing the costs onto future generations.

The two big disconnects confronting taxpayers are 1) The level of stealth taxes at all levels of government, and 2) The ability of the federal government to create and borrow money, and then spend it on benefits to buy votes.

1) Stealth taxes are surprisingly the biggest item in the gap between perceptions and reality. Voters should insist on eliminating hidden taxes. Every tax should be leveled at a voter. None at businesses. After all, businesses do not vote. We must go back to the idea of “no taxation without representation”. This is a loophole in our political system and has led to a huge economic disconnect. A hidden tax is a license for politicians to do what comes naturally: buy votes. All taxes, to use Milton Friedman’s word, should be made “explicit” to voters.
2) The Federal Government, due to its role as issuer of the currency, must not be the entity providing safety net and/or entitlement items. There is an inherent conflict of interest when politicians control the creation and borrowing of money and can lavish benefits on their constituents. State and local governments cannot print and borrow as the feds can. Therefore, they must be the ones handling safety net and/or entitlement items. If states want to increase payments, they must raise revenue. If they want to cut taxes, they must cut spending. States therefore should take-over things like Medicare, Medicaid, Obamacare, Social Security, etc. Voters should insist on this. Moreover, the constitution clearly intended these things be done by the people and the states, not the federal government.

The way to align the needs of voters and politicians in the US is to get the states and local governments to handle all safety net and/or entitlements, and get voters to explicitly pay the True Tax. Of course, federal taxes would drop, federal business taxes would be eliminated, and a commensurate rise in state and local taxes would occur. But going forward, the whole system would be more responsive and visible to voters. If we did just those two things, we would quickly have a smaller, more efficient, less costly, and more responsive government at all levels.

And everyone including Prescott, Ohanian, Applebaum, and Gebeloff would know the True Tax rate.

This piece has been updated from the original which was titled "Taxing Logic" and was published on this site 1/14/13
*Spending figures are from, and GDP figures are from BEA. Various pages were used on all sites. 2012 numbers are estimates. All numbers were rounded.
**Inflation figures are from and numbers were rounded.
***Breakdown figures come from where each revenue line item was subjectively allocated to either direct taxes or indirect taxes. Numbers were rounded.

Wednesday, July 24, 2013

Weinergate Revisited

Weiner - The gift that keeps on giving, and giving, and giving...