“If at the end of the day we need to raise taxes, we should raise taxes”

That statement makes the case sound pretty open and shut. It’s a good thing Reagan didn’t listen to everything Mr. Volcker said, or we’d be in even deeper trouble now. The Library of Economics and Liberty has this to say on Reagan and Volker:

“High inflation was the result of a dozen years of bad fiscal and monetary policy under two Republicans — Nixon and Ford — and two Democrats — Johnson and Carter — that was brought under control only when Paul Volcker, the Carter-appointed head of the Federal Reserve, jammed interest rates up to national-heart-attack levels and left them there until inflationary expectations were well and truly tamed. Reagan had nothing to do with unemployment and interest rates falling; that was the inevitable result of a drastic monetary tightening finally working its way through the economy.”

The more we hear about Volcker, the less there is to like. True, he brought down inflation, but only by raising interest rates. No one dares address out of control Washington spending, right? Instead, we’ll just tinker with the Federal Reserve piggy bank. A Democrat at heart, the only answer Volcker has to any budget crisis is higher taxes.

That’s a shame. With so much redundancy in government spending, so many failed programs, and funding of State programs that shouldn’t be Federally funded, it seems like there are lots of ways to cut deficits without raising taxes. Of course, no one can deny that pork is built right into Washington politics. If you try and rip away any entitlements watch the liberals go after you. If you try to take away a farm subsidy or military spending, watch the Republicans go after you.

Maybe Volcker is right, but for a different reason. If Americans won’t stand up and tell Washington to just stop the spending (even if it costs them personally to do so), we may just need to have another tax. At the end of the day, Volcker deserves this one piece of credit: A new tax is better than going further and further into debt.

Better still would be to knock off the out-of-control spending. But without government power and money, how would any votes be purchased?

In the past, even Democrats didn’t think that way. Of the post-WWII tax cutting Presidents, three tax cutters stand out above the rest: JFK, Reagan, and Bush. The Tax Foundation has posted hard analysis of all three. The report shows that JFK’s cuts were the biggest of the three:

“Contrasting the size of the tax cuts with national income shows that the Kennedy tax cut, representing 1.9 percent of income, was the single largest first-year tax-cut of the post-WW II era. The Reagan tax cuts represented 1.4 percent of income while none of the Bush tax cut even breaks 1 percent of income. The Kennedy tax cuts would only have been surpassed in size by combining all three Bush tax cuts into a single package.”

It’s interesting to note that while Democrats relentlessly cry about the Bush tax cuts, you would have to combine all of them into one package to beat JFK’s tax cuts. He understood something about the markets and the economy that today’s politicians mostly miss. The economy will thrive when it’s workers are free to keep as much of their money as possible. Don’t be confused, Kennedy was liberal. He argued for all the typical liberal spending preferences (education, medical care, and so forth), but he didn’t let his liberal social agenda confuse him into thinking the government could actually prosper at the expense of its citizens.

Reagan’s cuts come in at a respectable second place. They had a similar effect of relieving the nation of its recession and actually served to boost government revenues from $244B to 446B by 1989. Bush’s cuts, while small by comparison, did have a stimulative effect as well. However, the effect of these cuts was blunted by the fact that the cuts were split into three rounds. One can speculate that if they had been combined the effect might have been greater.

Today’s leaders have much to learn. Rather than punishing upper income earners and making them into objects of ridicule and hatred, our Tax Cut Professionals let them keep more of their money and our economy has always benefited from it.

NJ.com has published Christie’s recent address to the State’s legislature. In the speech he outlines a large number of budget cuts and freezes. One of the more controversial cuts is a hold on $475 million in State aid to schools. Naturally, this raises the ire of the teacher’s union. The cuts are decried as dangerous, unnecessary, and terrible for children. The unions already have the left wing media turning on the waterworks. Christie isn’t falling for it.

Another fiscal problem Christie identified will hit home for California politicians:

“One state retiree, 49 years old, paid, over the course of his entire career, a total of $124,000 towards his retirement pension and health benefits. What will we pay him? $3.3 million in pension payments over his life and nearly $500,000 for health care benefits — a total of $3.8m on a $120,000 investment. Is that fair?”

Not only is it unfair, but it doesn’t even make fiscal sense. The tax rate required to support pension programs like this would never pass on a referendum, and officials know it. That’s why these sorts of benefits are “hidden”, taxpayers only see the current cost of teachers’ salaries, and it seems reasonable at the time. Years later, when it’s time to pay for these benefits is when the taxpayers really feel the pain. Now is that time for New Jersey.

Then there are the moral arguments. Why does a government worker get better treatment than everyone else? That sounds like a form of government our Founding Fathers worked hard to get away from, not something we should embrace. A public servant is just that, a servant. We should not be creating government jobs that pay better than their private sector equivalents, provide better benefits, and make it nearly impossible to get fired. But that’s exactly what nearly all government jobs do.

I’m liking this guy more and more. I wonder if he’s busy in 2012.

The uninitiated may think debt reduction could be accomplished by reducing redundant, duplicate, and overlapping government programs. However, that won’t work because each of those programs represents a job for some government worker, and in some cases sends pork back home to a Congressional district. Then there’s Medicare reform. Given that the program is a $32.4 trillion debt entitlement, it would seem like low hanging fruit for a debt commission. That’s a non-starter too, however. Politicians rely on scaring seniors with the specter of Medicare cuts. To actually implement such cuts would (in their minds) be political suicide.

So what are we down to? Well, some question why we need a military presence almost everywhere. Since we spend roughly 29% of the Federal budget on the military, that sure seems like a good place to look for savings. However, Republicans are the party of the military, so that’s a non-starter as well.

Then there are tax hikes.

It’s somewhere between humorous and infuriating that Congress has blown through endless sums of money and is now suddenly concerned about all the debt. Where were these “deficit hawks” in the Democrat party when the failed stimulus bill was being considered?

In Washington parlance, “concern about deficits and debt” only means one thing: More taxes. Some things in life are so simple. Democrats tax and spend. It’s true. The old adage simply has it backwards…they spend, and then tax.

Republicans aren’t much better. For them, the adage reads “Republicans borrow and spend letting someone else lose their seat by raising taxes”.

Tax or no tax, one thing is for certain: Washington will quickly blow through every dollar it has (and a lot more after that) on senseless pet projects. If you have a better vote buying scheme, I’m sure they’d love to hear it.

The first question that makes me ask is “why not a tax cut for everyone?”. Obama answers this simply, by saying that Bush’s tax cuts for the wealthiest Americans (actually it was a tax cut for darn near everyone), put our Country into the hole it’s in now.  Of course, a tax cut can’t cause a recession or make poorer people not pay for their mortgages, so we’ll dismiss that as more partisan blathering from our “hope and change” President.

Since Obama is bound and determined not to provide for JFK or Reagan style across the board tax cuts, we’re left with “targeted tax cuts”.  This has two problems: 1) The government is once again in the business of picking winners and losers (“working” families with  lots of kids benefit the most, while people who invest in our businesses and have no kids are led to the slaughter), and 2) It causes uneven, unpredictable, tax revenues.

Let’s follow Obama’s tax policy to it’s logical end.  Say that everyone decided to stop having children, and stopped meeting Obama’s definition of “working”…well in that case people would end up paying a lot more taxes for no apparent reason, and Uncle Sam would be living high on the hog.  That’s not good policy for us, it’s good policy for a statist who loves power.  Progressive tax policy is rightly accused of providing for penalties to politicians’ enemies, and favors to their friends.  Targeted tax cuts take these issues to a new level.  But progressive Democrat liberals are all about creating uneven tax code.

Why shouldn’t someone who has buckets and buckets of money and chooses to finance businesses with their money count as “working”?  Sure, these people don’t slap on an orange vest and go pick up trash but aren’t they working? If they invest foolishly they may loose everything they have, in other words, they are taking on risk you and I don’t (and can’t).  That’s “work” in my book.

Why are kids special?  I have no kids, so I get none of Obama’s tax kickbacks.  Is that fair?  Is Uncle Sam telling me there is an unwritten law of the land, that my wife needs to be pumping out lots of children?  Why?  Is the U.S. underpopulated?  Do we need hands for the farm?

When you target tax cuts instead of providing for a level, low tax base that’s even for all people, you are picking winners and losers.  The progressive tax system has made this silliness a mainstay of American tax policy.  We are taught from birth that rich people are ‘unfairly’ wealthy and that they don’t work like you and I do.  They need to pay a little extra.  But is that true?  Do rich people “use more government” than poor folks?  Of course not.

The argument that gets pulled out over and over to support the progressive tax is the “regressive” nature of flat taxes. This is the idea that if everyone pays a flat tax, it’s harder on poor people than rich people.  To that, I say a giant “So what?!?!”. Poor people pay a higher percentage of their income for groceries, clothing, transportation, satellite TV and anything else.  That’s not a social statement, it’s a numerical fact.  When you have less money, static costs we all pay seem bigger.  That’s supposed to be motivation to get a better job, in a free market.  It isn’t perfect but it’s good enough to encourage many Americans to provide the best possible living they can for themselves.

Swiss cheese tax code does little more than make the President look good in front of crowds who aren’t educated enough to understand what he’s suggesting.  It doesn’t jump start anything in the economy and it provides little in the way of actual relief for most Americans.  The 40% tax on top earners, however, will do exactly the opposite.

California’s adventures into socialism and high taxes teach us a good lesson so that other States can avoid the mistake, and perhaps even save our Country the agony of living through it.  California ranks 48th in terms of its business tax climate.  I prefer to say it this way: California is the 2nd most punitive State to run a business in. I’m sure many of California’s leftists (and there are many), do not see this as a problem.  However, when businesses run away to other States that’s fewer jobs (and yes, evil Republican business owners) that the State can rely on.

Excessive social spending doesn’t help matters either.  It’s a massive drain on the already suffering economy and it does nothing to encourage people to move to the State.  When times were better, California should have been building up a cash reserve to deal with rainy days like today.  Instead, the legislature totally leveraged the State to win leftist voters.  Worse, the response to the recent economic crisis by the legislature was to raise taxes even further.

With a progressive tax code that essentially begs millionaires to leave, and a corporate income tax that ranks 6th highest in the nation, it would appear that California has done everything it can to chase money out of the State.

Tax budgeting is counter-intuitive by nature.  It requires legislators to often do exactly the opposite of what would seem logical to the uninitiated.  Raising taxes always discourages an activity.  Raising taxes on rich people and businesses encourages rich people and businesses to find a new place to live…and find a new place is exactly what they’ve done.  Until California reverses course on tax policy and social spending policy, they can expect more of the same results they have been getting.

I happen to like the idea of a tax that applies evenly to all people, since we all get the same government. I think that’s a laudable goal that the Fair Tax would achieve.

What I do not like about the Fair Tax is the idea of moving all taxation to a national sales tax. There are lots of great reasons to question this idea and here’s one of the best I’ve found: it hurts sales.

There’s a well worn concept that when government wants to discourage an activity, they tax it. If they want to encourage something, they reduce taxes on it.

Why do we want to punish people for buying things? Obviously, people will do anything they can to avoid paying taxes. I don’t blame them. We’re taxed to the hilt.  The Fair Tax would appear to target those who buy really expensive things.  Is that a good idea?  If you’re a low-medium income worker at a Yacht factory, I bet you’re just fine with people buying Yachts.  But with the Fair Tax, you might just find yourself out of a job.

When you add up Federal, State and Local taxes (all of whom seem to forget the other two are also taxing us), we lose a third (or more) of our money before we get the paycheck to the bank. Then when we add bloated State and Local sales taxes as they exist today, plus property taxes, and silly government fees, you’re down to under half. So much for the American dream.

If we transfer all of the tax burden to a national sales tax it’s a recipe for economic disaster. If you think the last couple Christmas seasons were hard on retailers, just wait until we pay citizens not to buy things.

We need a low flat tax for all Americans, but taxing people for buying what they want and need is hardly the way to do it.