According to the article, economists agree that 3 million jobs were “saved” but there is no accounting for how many jobs in the future were sacrificed to keep those jobs over the last 18 months.  The debt has to be paid, or we have to default in the future.  Default will cost everybody more in the form of higher interest rates, and paying down the debt means higher taxes and fewer services, thus a demand reduction in the future.  So, which of those few qualified people called economists is going to tell me how many future jobs this stimulus cost?  If they are so good at predicting the future that they can do this calculation, why did we get into this mess in the first place?  The only people who have been able to predict today’s mess are the ones who cautioned against the ever expanding public, i.e. government, sector and increasing debt.

 Government borrowing drives private borrowers and lenders out of the market.  Why would I lend to small business when I can lend to the government at a “guaranteed” profit?  How much will banks lend to higher risk individuals when the government is out there selling bonds?  This means that borrowers will pay higher interest rates because of the government borrowing; i.e. the greater the government borrowing demand, the greater the increase in cost of borrowing on the rest of us.  It may take some time for interest rates to rise, but it will happen, and the government debt will still have to be refinanced at the same time that organic demand competes for the available lending capital as the economy recovers.

 I suppose my summary is that if government reduced spending and paid down debt when the GDP was expanding, then they could use the “savings” to do the opposite during contractions.  The problem is that they just spend more during the good times as well.  There is no free lunch forever and we can’t have government creating demand both during expansions and contractions.  This leads to an ever expanding public sector that collapses under its own weight; just look at what has happened toGreece.  Greece II coming to a country near you!

 I just love it when supposed experts say things like “our economy is underperforming by about 5 percent.”  If they were such good central planners, why did they allow the economy to start underperforming?  This is another of the classic blunders that we make in giving power to government.  The same people who claim they can fix the problem failed to anticipate it and denied it existed in the first place!  If they really have the ability to ease the pain by filling the gaps in demand, why didn’t they just do so before the pain started?

 Does anybody remember all of the denials that there was any mortgage crisis at all?  How about all of the banks claiming that they were well capitalized?  Now we just heard the CEO of Bank of America claim that they are again well capitalized, but then they announce a sweet deal with Warren Buffet and the sale of assets.  Pay no attention to the man behind the screen, address your comments to the Wizard Bernanke.  How many economists were writing letters and guest articles demanding that spending be reduced and taxes raised when the economy was doing well?

There are a number of other significant pieces of information that would be indispensable in analyzing the cost effectiveness of this new requirement.  A detailed analysis of past applications would have to be undertaken to determine if this sample of 40 is at all representative of the entire group of beneficiaries.  This would be required in order to determine if the 40 applications is a normal number for the time period in question, whether it compares favorably with past seasonal periods, and whether the new policy has deterred applications that would have failed to pass the screening.  For example, it is entirely possible that the 100 applications just prior to the effective date of the screening requirement were families that knew of the impending change and rushed to apply early to avoid the screening.  If 60% of the prior 100 applicants were such cases, the failure rate would have actually been 44.3% instead of the 5% of the sample.  Perhaps the normal volume for the time period during which the 40 applications were processed was 100 and that nearly all of the decline in applications was attributable to families who knew they would no longer be eligible.  This scenario would have saved $7,440 in benefits not paid, and cost only $1,235 for the reimbursed passing families.  Of course these examples are purely hypothetical, but, because reason did such a poor job of investigating the effects of the policy, they are just as plausible as reason’s conclusion that the new requirement failed to save tax revenues.

If the point was to highlight a perceived violation of civil liberties, then identify the rights at stake and the various involved parties.  Yes, it must feel quite invasive to go through drug screening.  However, this is a requirement for voluntarily applying for a welfare benefit.  How does this compare to the forced collection of the tax revenues used to pay the welfare applicants?  It is dangerous to weigh violations of civil liberties, but that is not required since a voluntary exchange cannot be a violation.  The suggestion that this new policy is somehow wrong because corporate welfare continues is equally spurious.  How is it that the existence of one abuse of tax revenues should justify another?  How onerous is it to place requirements similar to many workplaces on the receipt of forced charity?  Hopefully reason will resist devolving into the same tortured use of statistics that we expect from most of the media in future discussions on this issue.

 Some liberals are now complaining that the Republicans are willing to push the government to the brink of a shutdown or default because “weak-spined Democrats” will blink.  If only this were really the case.  All we saw in the debt ceiling battle was political theater over who could claim victory.  The resulting increase in the debt ceiling and continued profligate spending were a foregone conclusion.  There was never any real chance that spending would be reined in or that the deficit would really be reduced in any meaningful way.  The media made is sound as though something significant was taking place, but it was really government spending as usual.  Yes, President Obama really wanted to increase taxes to appease his base, and the Republicans managed to prevent a tax increase.  However, what President Obama really wanted was to make sure the issue did not come up again until after the next election cycle, and the Republicans gave in on this front.  So call it a tie politically and another huge, but expected, loss for the American people.

 The liberal fears that the Republicans are going to create such showdowns at will are, sadly, completely unfounded.  As we just witnessed, the Republicans have no will to demand real spending cuts, only ephemeral cuts sometime in the distant future.  There would be no reason to cause repeated budget battles only to extract insignificant concessions on spending.  This is taking all of the political heat for potential shutdowns and disruptions to people’s lives for no real or lasting benefit.  Republicans know that most of the media will blame any disruptions entirely on the Tea Party and Republicans, with the full cooperation of Congressional Democrats and the White House.  Where is the logic in that?  It is perhaps just as irrational to expect logic from liberal commentators as to expect politicians to propose real solutions to our nation’s spending problems.

 Neither party is willing to admit to the American public that we have been duped and victimized by the world’s largest Ponzi schemes in the form of Social Security and Medicare promises without the taxes necessary to pay for promises made.  Democrats would have us believe that there is no problem and these programs are sound for years to come.  If so, why did President Obama say that the checks could stop without a debt ceiling deal?  Either the funds are there to provide the benefits promised, or they are not.  Most of us understand that the payroll taxes collected have been spent and there is no real “trust fund” from which to pay benefits.  So there has to be enough current tax revenue or new borrowing to cover all the benefits plus other operating expenses like roads and the military.  Unfortunately for the Democrats, there are not enough rich people to tax to cover the expenditures at our current rates, much less those in the future, even if the income tax were raised to 100%.  Republicans too must come to grips with the reality that they cannot continue promising no cuts to Social Security or Medicare without new taxes.  It is the same old story: tax and spend Democrats versus borrow and spend Republicans.  The problem is that we have finally racked up enough spending that there is simply not a tax level high enough or enough money to borrow to cover the spending promises.

 It is amazing that the establishment Republicans, the Democrats, and the media have determined that the Tea Party is at fault for our “broken” government.  In the minds of the political class, government is broken when it cannot arrive at a compromise that simply raises spending and puts the burden off into the future on the backs of young people and yet to be born children.  The Tea Party is labeled terrorists for stating the obvious, i.e. we have a spending problem and need to live within our means.  We have passed into the type of Orwellian rhetoric where common sense has morphed into terrorism and spending our children into oblivion is called responsible government.

 It cannot be that the political class truly does not understand what they are doing.  It is simply too obvious to all but the most dull person that even government cannot indefinitely spend more than its tax income.  We are even provided the contemporary results of such policies in the news broadcasts from Europe, whereGreeceand others are simply unable to pass “austerity” measures without causing riots in the streets.  Yet even these current lessons are ignored and our leaders blithely agree to put us even further into debt.

 So, those liberals fretting about being held hostage by the Republican Party really need not be concerned.  The political dance by the political establishment will continue and Nero will continue to fiddle whilstRomeburns.  Both Democrats and Republicans will continue to marginalize and demonize those daring to raise a voice of reason and propose actual plans to put our fiscal house in order.  The average voter will continue to remain blissfully ignorant of the issues and utter a few talking points on Election Day.  There will most certainly not be a series of concerted efforts to rein in spending and return to fiscal sanity anytime in the near future that might take the form of repeated budget battles over real spending cuts.

For those that don’t already know, it is the Securities and Exchange Commission, SEC, that determines who is a Nationally Recognized Statistical Rating Organization, NRSRO.  NRSRO status is then used to specify the types of investments that various entities such as banks and pension funds can own.  So, the SEC could simply determine that the downgrade by the S&P was so seriously lacking in some respect or other that its status as a NRSRO is revoked.  People would naturally be suspicious if this action were taken too precipitously, so it would require laying some groundwork with investigations and hearings.  This would entail legal notices to all of the higher management and those involved in making the ratings decisions, causing them to expend tremendous amounts of money hiring legal counsel.  News reports would start to surface about the personal lives of some of these people and suggestions that there might be nefarious motives for the downgrade.  Perhaps one manager liquidated all stock and bond holdings out of concern for the economy and the march toward debt oblivion, but now is accused of deliberately trying to crash the market in order to gain personally from the decline.

Do not forget that S&P makes its living by selling its ratings services to customers.  How many customers do you suppose will choose S&P once it or its personnel are under investigation?  Internet sites will pop up even suggesting that consumers boycott any company that chooses to use the services of the evil S&P.  S&P can also look forward to becoming the new presidential scapegoat for all things negative in the economy along with former President Bush.  After all, everybody knows that interests rates rising are the fault of the ratings agency, that declining real estate values are due to rising interest rates, that unemployment is due to higher interest costs of short term lending, etc., etc.  The entity now know as Standard and Poors will no longer exist in a few years unless they are saved by a change in political power in Washington DC.  Even to the Republicans, S&P may be too tempting a sacrificial lamb to pass up if they gain a majority and thus assume responsibility for our fiscal mess.

The fact that S&P is the only ratings agency to downgrade United States debt proves their independence and lack of coordination with other NRSRO’s and at the same time likely writes its own epitaph.  There are simply too many pressure points for the government to apply to either make S&P disappear entirely, or, more likely, reverse their ratings decision in short order.  Perhaps the excuse will be “reforms” of the tax system or a “bipartisan” agreement to control spending in the next ten years.  Any pretense will be enough to reverse course after enough pressure is applied behind the scenes.  This prediction sounds conspiratorial, but is merely the rational reaction of a government with too much power.  It is easily justified as being in the public interest since we all suffer if interest rates increase.  In fact, the Federal Reserve has devoted massive efforts to keep interest rates at historic lows ever since 2008.

There could be no conspiracy if the government did not control all aspects of our lives and have the real power to do as predicted here.  Instead America has allowed our federal government to assume complete authority over our financial well-being, from our pensions to our mortgages to our health care.  The effect of surrendering this authority to the government gives it both the power and the ability to change the independent actions of lone companies such as S&P that dare to act in any way deemed contrary to the public good.  In essence it will become criminal to criticize government because it affects everything else.

Perhaps the most interesting part of the discussion was that the School Board has reduced staff by 5.3% since 2006-2007, but the student enrollment has also dropped by 2.7% over the same period.  This fact was highlighted by the School Board and staff as evidence that a revenue increase is essential at this point in time.  In contrast the mayors and the county have had staff cuts of 15-20% and at least some appear a little incredulous as to the claims of the school board that there is nothing left to cut without substantially impacting the delivery of education.  In fact, Winter Springs Mayor Lacey stated that they either just did or are about to lower their tax rate even though they have had substantial cuts in spending.

Another interesing question brought up was the spending required by unfunded mandates.  No answer was provided as to what portion of the School Board budget was devoted to satisfying state and federal unfunded mandates.  In order to justify increased taxes, the School Board offered that itsspending as a  percentage of the overall budget on administration and percentage spent in the classroom compare well to the other school districts in the state.  As always we were exhorted to remember that this government spending is for the children and that Seminole County has built a reputation for a good government school system.  Of course this sort of reasoning is a justification under any circumstances and has no logical limitations.  If saying “for the children” is enough, why not raise the millage 2 mills instead of 1, surely that would be even better?

It is clear that Seminole County does have a reputation for decent schools, as schools go, for the state of Florida.  This is clearly a benefit to prospective new residents as well as potential new business investment.  However, the honest answer to why the schools look good in comparison has more to do with the citizens of Seminole County than the schools themselves.  As the board claims, many residents move to Seminole County move here specifically to escape poorer schools in surrounding counties.  This means that the student population in Seminole County is self selected for those households that clearly value education highly and are willing to make substantial changes in order to achieve a better educational outcome for their children.  Is it any suprise that such households achieve superior results?   This is a demographic result more than anything else and when school officials are candid they will admit as much.

There are at least two other factors leading to the superior reports on Seminole County that have little to do with the actual performance of the school system.  First, the county has pursued development policies that have favored higher priced homes than surrounding counties.  More affluent households tend to have higher achieving students.  The other change was the rezoning of the high schools.  Was anyone really suprised that after rezoning the high schools that the relatively poorer performing schools showed immediate improvement?  Playing statistical games with the student population can do wonders for average performance of a student body.  Neither zoning decisions by the county nor school zoning changes by the school board actually do anything to improve the quality of the education delivered, but choosing your students does wonders for school grades.  Hopefully the School Board will not pursue and similar tactic and spend $450,000 on a special election so that they can choose their voters as well as their students.

            First a point of emphatic agreement: there is absolutely no reason to favor oil companies over any others or to subsidize any business at all.  Apparently the Times agrees as to oil companies, but not in principle.  It is only the subsidies to Big Oil that need to stop and mostly because they make too much money and are not environmentally friendly.  The real reason to oppose subsidies as a matter of course is that government should not be in the business of running businesses.  The marketplace should pick and chose winners and losers in the free economy, not Congress by grant of government license to make money.  This type of central planning of economies does not work and should be discouraged in all circumstances and for all types of businesses, whether they are popular or not.

            Apparently one of the biggest sins that BP and others have made is moving their headquarters and parts of their operations to low tax jurisdictions.  It is quite a stretch to say that having a corporate headquarters outside of the United States means that the Federal Government is subsidizing your business.  Awareness that businesses are being enticed, or perhaps even driven, offshore due to our federal tax policies is a good thing.  This new awareness of the harm to domestic growth, employment, and wealth generation should concern our elected officials.  However, it is hard to see what could be done to restrict businesses from moving to more favorable tax climates without effectively becoming a fascist country.  The better answer is for our government to acknowledge the problem and the real source; i.e. our own tax policy.

            Next the Times article throws out a red herring that reducing the “subsidies” would reduce American output by less than half of one percent.  This is probably correct as reducing any subsidies simply increases the cost of production.  Big Oil will simply pass on the increased costs of production to the consumers.  Remember, corporations do not pay taxes, they only collect taxes for the government from their customers.  This will cause some increase in prices for other items dependent on the cost of oil as well.  Increased prices will cause a small decrease in demand, and, therefore, a reduction in the production of oil.  However, the real loss is caused by putting more tax dollars, taken from consumers by the corporations, in the hands of government because government expenditure of those revenues will produce less new wealth than if the money was left in the hands of the people.

            The only real subsidy in the entire article is the depletion allowances that reduce taxable profit by the oil companies.  These allowances are not a real expense and can be far greater than the actual expense of the lease or acquisition of mineral rights.  There should be no special treatment of Big Oil or any other type of business and these depletion allowances are a special benefit to raw material providers such as the oil companies and miners.  If, as suggested by the article, there is some treatment of foreign taxes paid by oil companies other than an expense like any other, that may also be a case of special treatment for companies that pay foreign taxes.  These payments should be treated as expenses just like rent and the light bill for determining taxable income in this country.  However, it is not a subsidy to Big Oil if the general application of the tax code treats foreign taxes differently than other operational expenses.

            The article responsibly reports that the American Petroleum Institute argues that despite the special tax benefits, oil producers pay a higher percentage of their earnings in taxes than most other corporations.  The article then fails to refute or even attempt to justify why Big Oil should still have tax benefits reduced, such that an even higher percentage of earnings is paid in taxes.  The article also quotes without questioning a source that Big Oil is “highly profitable.”  Sure the absolute numbers of profits earned are huge, but, as the API tried to point out, it is the profit margin that matters.  It is odd how media reports always report the least significant information to support their slant.  Just consider a counter example: a newspaper would never report that some local CEO paid millions in taxes when they can report that the effective tax rate paid by the CEO was less than her secretary paid.  Why is it that when talking about profits, the media switches from percentages to absolute numbers?  I am sure there is no bias there.

            It is extremely ironic to have liberal legislators and their supporters clamoring about the fact that businesses structure their operations to avoid unfavorable tax treatment and then propose that the answer is to make the tax treatment even more unfavorable!  If they were truly concerned about the loss of jobs to Panama or the Marshall Islands, they could end the byzantine internal revenue code.  Still more irony is found in the condemnation of corporations for choosing between leasing equipment or owning it based upon tax consequences.  Why would a business do anything but try to reduce its costs, which will lower end prices to consumers and increase sales volume?

            A real solution is to end all corporate taxes.  These taxes are nothing more than fraudulently concealed taxes.  Because voters do not see the tax taken from their wallet with a line item on a receipt, they do not mind paying the embedded taxes in the items they purchase.  These taxes are extremely regressive in that lower income people tend to spend a greater percentage of their income on consumer goods.  A large portion of the population has been victimized into thinking that they do not pay income taxes because they do not have a federal tax liability on their 1040, but they are paying all of the embedded corporate taxes in all of the products they buy.  The FairTax eliminates the incentive to move offshore and change ownership structures for tax avoidance purposes alone.

            Instead of bashing Big Oil for producing what consumers want and providing jobs in the process, the Big Government planners should get out of the business of trying to centrally plan our economy.  There are always unintended consequences of the policies put in place to change behavior.  In this case it should be expected that Big Oil will move offshore and hire foreign companies to avoid US corporate taxes.  The move offshore has the unintended consequence of jobs loss here in this country.  Rather than follow up poor policy choices with more bad policy choices to correct an unwanted consequence, undue the initial attempt at government market manipulation.  Be honest in labeling subsidies only those things that are specific benefits conferred on Big Oil rather than the perverse results of normal tax avoidance behavior.

           It appears that Darden overestimate the taxes that it would be paying and so it is missing out on several million dollars in graft that it expected to realize.  Because the tax exemptions are realized on an annual basis, if Darden does not owe enough tax to claim the entire gift from the taxpayers, the benefit goes unused.  Rather than be content with having a tax bill of zero for project involved, Darden wanted more.  First it sought to apply its tax exemption to sales taxes collected for the State.  This legislation, introduced by Chris Dorworth, was so tailored to the needs of Darden that it would be the only company eligible to use its taxpayer gifts to offset sales tax liabilities.  As a result the Orlando Sentinelwrote a story questioning the wisdom of such legislation.  It appears that first grab went nowhere.  Still not content, Darden now is seeking to extend the life of its tax credits so that they do not expire unused.  So instead of simply losing the benefit of the maximum exemption, Darden can apply the unused portion to taxes due after the original 20 year period of the deal.

           While it is marginally better to only allow Darden to extend the tax exemption rather than to take more current tax dollars from the taxpayers, it is still a raw deal.  When will taxpayers ever stop having to bribe Darden?  This game of demanding tax breaks in exchange for simply operating their business is offensive to all the rest of us without the political clout to negotiate ourselves out of having to pay taxes.  If corporate taxes are discouraging hiring and growth, then lower the taxes for all businesses rather than just the politically favored ones.  It is clear there is no limit to the amount that will be sought under these arrangements.  Even after winning their incentive package, Darden is already back for more without any new consideration.  They will not hire any new people or build any new facilities in exchange for this new benefit.  It is a political payoff, pure and simple.  Hopefully this level of greed by Darden and its cronies in Tallahassee will help everybody realize that so called economic development incentives are simply theft from taxpayers from the outset and that there is no limit to the amount that will be stolen if the people fail to stand up to this form of crony capitalism.

           The right way for politicians to foster economic growth is to get out of the way and let the people conduct their business freely.  Picking and choosing winners and losers by political processes introduces a level of uncertainty and discrimination into the marketplace that can only discourage future economic activity.  It also encourages businesses to engage in what should be wasteful time and resources lobbying politicians for perks and special deals.  It is true that nothing will completely eliminate the lobbying efforts of politically inclined businesses, but if there was simply no legal way for legislators to bestow monetary gifts at taxpayer expense, these lobbying efforts would focus only on regulatory issues rather than seeking actual cash from the government.  These shameless cash grabs in exchange for political payoffs would end if there was no corporate welfare flowing from our government.

           Before turning to the statements above, it is worth reminding people of some background information.  First, Congress passes budgets, and the budgets originate in the House of Representatives.  Yes, the President must sign or have his veto overridden, but Congress makes the budget.  It has been the practice for presidents to prepare and send to Congress proposed budgets annually for the following ten year period.  For the record, President Reagan held office from 1981 to 1989, President Clinton from 1993 to 2001, and President Bush from 2001 to 2009.  Also for the record, the Democrat Party held the House of Representatives from 1949 to 1994, and 2007 to 2010; the Republican Party held the Senate from 1981 to 1986, 1995 to 2000, and 2003 to 2006.

           Since President Reagan took office in January 1981, the first budget passed and completed under his presidency was 1982.  At the end of fiscal 1982, the U.S. debt was $1.142 trillion, and at the end of fiscal 1990 was $3.233.[1]  While not quite a tripling of the debt, the statement is true enough.  President Clinton took office with a national debt of $4.693 trillion and left with a national debt of $5.807 trillion.[2]  President Bush inherited President Clinton’s total and managed to run the tally to $11.910, which does indeed nearly double the debt as stated above.[3]  As far as the Clinton surpluses, they simply do not exist.  The data cited here show an increase in the national debt each year, though the increases are relatively small.

           Now, it is far more relevant to look at the debt as a percentage of the economy because the ability to pay back the debt depends on the “income” of the nation.  As a percentage of GDP, the numbers are as follows:  Reagan 32.5% to 53.1%, Clinton 66.1% to 56.4%, and Bush 56.4% to 83.4%.  So the talking points appear to hold water as to the presidential watches.  But the real story is that the only time the debt actually declined as a percentage of GDP under any of the presidents was in President Clinton’s second term with both houses of Congress in Republican control when it actually declined 9.0%.  The next best mark was a decline of 0.7% during President Clinton’s first term, after the Republicans took control of both houses for the 104^th Congress. 

            Unfortunately for the Republicans, the same success under Clinton did not hold during the Bush presidency when they had total control for the 108^th and 109^th Congresses and a split during the 107^th Congress, thus the reason for my previous posts labeling the Republicans the “borrow and spend” Republicans, as opposed to the “tax and spend” Democrats.  Apparently the only time we can get some fiscal sanity is to have the Congress in the control of the Republican Party and the White House in the hands of a Democrat.  I am sure we can all be nostalgic about those great days of the Clinton presidency when government was gridlocked, the President was “distracted” and deficits and spending as a percentage of GDP were generally declining.

            So now that we have the accurate story on the past presidents and Congresses, what about the current spending?  Of course the past records have nothing to do with whether President Obama and Congress are spending responsibly today.  It is easy to see that when deficits, which used to be measured in billions, are now in the trillions, we have a spending problem.  When the annual deficit used to average about 2.5% of GDP, it now has jumped to about 10% of GDP.  Democrats talk as if simply going back to the Clinton era tax rates would solve the problem, but it does not.  See my earlier post here for an explanation that it is simply not possible to meaningfully reduce our debt through increased taxation or wealth confiscation.  There is no case that either party has been fiscally responsible when our stated national debt is approaching 100% of GDP and climbing.

            These platitudes from Democrats are also offered to diffuse concern over our unfunded liabilities saying that Medicare and Social Security do not need to be reformed.  The USDebtClock.org estimates the unfunded liabilities in excess of $113 trillion.  That’s right, our “off balance sheet” liabilities are nearly ten times the stated national debt alone.  Taken together the debt and unfunded liabilities are about nine times what our country produces in a year.  Effectively the Democrats are arguing that there is no spending problem today because there was too much spending in the past.

           If Democrats really believe that things were so great under President Clinton, perhaps they would support sufficient cuts to actually reduce the debt as a percentage of GDP by nine percent as in President Clinton’s second term?  Just to put that thought into perspective that would require a budget SURPLUSES of nearly $1.2 trillion, or about $1.9 trillion LESS spending in 2011, or about a 50% cut in the total 2011 federal budget.[4]  With that in mind, how significant does the recent budget deal to cut a fraction of a percent from the 2011 budget sound?  Neither the Republicans nor Democrats are serious about fixing our fiscal crisis at this point in time as demonstrated by the recent hysteria about insignificant spending cuts.

What is most worrisome is that the Democrats and Republicans do appear to be reaching agreement on claiming cuts where there are none and making supposedly innocuous changes like ending the home mortgage interest deduction.  Let’s leave aside for the moment whether this would actually raise significant revenue and examine whether there is any home mortgage loophole at all.  In order to appreciate the situation, consider two homes, one purchased with a mortgage loan and occupied by the owner and another purchased with a mortgage loan and rented to tenants.  The rental property owner deducts the interest of the mortgage loan as an expense of running a real estate business and offsets his rental income with the mortgage payments, real estate tax, repair expenditures, management costs, advertising expenses, etc., like any other business.  The resident owner is currently allowed to deduct her mortgage interest and real estate taxes against her other income, just like the landlord does.  However, she cannot deduct most repairs and maintenance costs and is now Congress is proposing to end the deduction of the mortgage interest.

Clearly the mortgage interest deduction just puts landlords and resident owners on a more equal footing with regard to their real estate investments.  If this is changed, nobody in their right mind would ever use mortgage debt to acquire a residence.  Instead they will rent.  As to existing properties, I am sure that there would be a rash of property swaps between friends and relatives and home ownership would plummet as people took the rational step of converting their non-deductible mortgage loans into deductible mortgage loans and becoming tenants in their own former houses.  Even Congress should realize that it is easy for people to make this adjustment and maintain the deduction for a rough equivalent of their own home.  Now it is true that some less educated or perhaps poorly advised people will not make this rational adjustment, but isn’t that just taking advantage of the “less fortunate” amongst us?

Now let’s try to guess whether this change will produce meaningful new revenue.  If we assume that people will meekly accept this new taxation and make no adjustments, there would be an increase in revenue approximating the tax due on roughly 20% of reported income for those who stretched to afford their homes.  This would not increase taxes on those who own their homes outright (presumably rich people), and would make little difference to those high income earners that still finance their home, since the Alternative Minimum Tax already phases out the deductions for those people anyway.  So we are really talking about a new tax targeted only at the middle class working people that the politicians always proclaim they are “fighting” for!  This plan reeks even more when you take into account that the people affected only pay a small percentage of the total income tax in the first place.  In summary, the proposal is to eliminate a deduction for the middle class to collect about enough revenue to be a drop in the proverbial bucket while at the same time discriminating against the unsophisticated buyer and discouraging home ownership in general.

This plan fails to cover massive deficit spending just as miserably as all of the “tax the rich” plans.  If you look carefully, you will learn that federal tax collections have been relatively steady at roughly 20% of GDP for decades regardless of the tax rates on the rich, and the home mortgage loophole will be no different that raising rates on the rich.  Most people will then needlessly expend resources to avoid the impact and frustrate the new collection goals.  WE DO NOT HAVE A REVENUE PROBLEM, WE HAVE A SPENDING PROBLEM!  In order to make any progress toward reducing deficits and then the debt, people need to accept the simple fact we cannot afford a socialist utopia and must reverse course on the growth of government in order to have any chance at avoiding a financial apocalypse.

It is time for real leadership in Washington DC.  These leaders must come clean with the American people and take responsibility for the mess they created.  The people must come to realize that the promises made by politicians are not substitutes for reality and the time has come to pay the piper.  Yes, there will be pain, and yes, we must all “share the burden,” but shared burden does not equate to confiscatory taxation on the “rich.”  For that to work, we first have to create a lot more rich people.  Fortunately, the answer to how to create more rich people is well documented; free markets and limited government made our country the most prosperous in the world.  Restoring government to its limited role of policing fraud and violence while allowing the marketplace to create wealth is the best method to provide the greatest wealth to the most people that has ever been conceived.  All attempts to “spread the wealth around” destroy wealth and discourage the creation of new wealth.  It might be possible to grow our way out of our financial mess, but only with much smaller government and much greater freedom of action.

In order for any progress to take place we must all contact our representatives and demand that the borrow and spend Republicans work with the tax and spend Democrats to reduce overall spending substantially.  We will all share the pain by expecting LESS from government rather than more.  Eliminate corporate welfare and individual dependency with equivalent zeal.  Stop centrally planning the economy and let it grow.  Accept that people will fail and must seek out charity rather than offering specious guarantees of “safety nets.”  The people of this country are up to the challenge, but they must convince our leaders of this fact or will will not have the chance to prove it before national bankruptcy.  We must all giver our leaders permission and instruction to make the hard choices necessary so that our children are not forced to bear the burden of our selfishness.

            This is where we run into the first bit of trouble.  People do not consider the consequences of the legislation and tend to focus on its benevolent intent.  We simply do not take into account the often unseen and unwanted consequences of such “feel good” legislation.  We do not factor in the cost of detaining people to determine if violations have occurred, the cost of lost time and labor of all involved parties to alleged transgressions, we assume zero likelihood of false accusations, and we assume that compliance with the desired behavior will be significantly enhanced by the enforcement of adopted legislation.  Unfortunately, our legislative process does not have a reliable mechanism for testing all of these assumptions after the new law is put into practice.  Even worse, when the existing bodies of laws do not prevent a future harm, our societal impulse is to enact new laws to prevent such harm from occurring again, rather than evaluating whether the problem is truly susceptible to a legislative solution at all.

            All of the problems with nanny state legislation become enhanced when the issue is one such as Driving Under the Influence.  Any rational person would have to agree that the use of mind and reaction time altering substances will impair any given persons driving performance.  Since all people are different, the severity of the impact varies from person to person.  The government solution to this complex problem is to impose one size fits all rules and adjust as political winds blow.  Thus we have varying legal blood alcohol levels in the various states.  Some would argue that the variation is a problem, but it is actually a result of the fact that the rule is arbitrary in the first place.  For some substances, we have rules that go even further and impose a “zero tolerance” solution so that the amount of the substance is removed as an issue.

            So, what would a libertarian do?  Simple, determine the party responsible for the harm and require restitution.  Both responsibility and the amount of damages can be difficult issues to resolve, so the ultimate determination is usually made through some form of arbitration or mediation.  This process is present in our society today in the civil court system, but government likes to criminalize things in order to deter harmful behavior even more than the cost already does.  In practice, this means that state prosecutors go after violators, costing time and money for all, and frequently impose prison sentences.  This leaves victims of DUI with little or no possibility of every recovering anything approaching real restitution.  A libertarian approach would focus on curing the harm caused more than any perceived retributive or deterrent effect.

            What about those checkpoints?  These are the result of relying on government to solve problems.  Rather than focusing on curing the harm, the focus shifts into attempted prevention.  Since the government does not have absolute control over the people, prevention is not really possible.  This leads to ever increasingly invasive attempts to increase the control over the people so that they can prevent harm.  Unfortunately, because we are dealing with government, they do a very bad job, and tend to injure all of our individual rights while attempting to protect a relative few.  That is precisely the case with a DUI checkpoint.  Instead of officers looking for evidence of impaired operation of a vehicle, they simply stop everybody and subject us all to an unreasonable search and seizure because of the arbitrary nature of the stop.  Now, since DUI laws have evolved from having to demonstrate a harm by the accused into a strict liability criminal offense whose only proof required is an accurate measurement of blood alcohol level, the government has a need to collect data.  In the case of DUI, that means either a breathalyzer or blood extraction.  Since we still have some procedural safeguards in place, this requires a court order when done without consent.  Normally this takes time, but in a relatively surprising bit of efficiency that has only taken decades to occur to law enforcement, our State is going to put the executive enforcers, i.e. the police, and the judge in the same place at the same time.  The only thing missing from the proverbial judge, jury and executioner here is the jury.  As a practical matter the jury really does not matter once the evidence is collected as the “crime” is proven by a simple test that yields a number.

            Now we all hate to see traffic deaths, and DUI certainly is theoretically avoidable, but the problem is that the same could be said for all “crimes.”  If it is permissible for the State to arbitrarily set checkpoints and take measurements for arbitrary levels of a given substance, how is there any real limitation on the power of the State?  Most people are now at least somewhat concerned with terrorism.  What if the State determined that it would set up checkpoints, conduct strip searches and vehicle searches at arbitrary points in time and place for any material that could be used as an explosive?  Perhaps the State could criminalize the possession of wire cutters and other tools without an electricians license and then use these checkpoints to search for such contraband?  Of course that sounds hyperbolic and absurd, but if arbitrary stops and searches are allowed by our Constitution, then there is nothing to stop such absurd results from occurring.  If a time traveling pollster could conduct a survey of people in 1975 as to whether they say that having to stand in security lines, their luggage searched, and strangers feel their entire bodies prior to boarding a plane is “very unlikely, somewhat unlikely, likely, or very likely” in the near future would have found near unanimous agreement that such practices would never take place.

            One of the prices of freedom is that we have to accept that we and others will make poor choices at some point in time.  Those choices will have consequences that vary in degrees of severity.  Some will even result in death and serious injury.  Without sacrificing personal freedom, it is impossible for the State to protect us from ourselves and our fellow citizens.  This case of DUI checkpoints should clearly demonstrate this simple truism.  Despite decades of efforts to end DUI, it still takes place.  Giving up our freedom in small increments in order to be safer is still giving up our freedom.  As Benjamin Franklin said, “They that can give up essential liberty to obtain a little temporary safety, deserve neither liberty nor safety.”  The most important part of that quote is the statement that any safety gained is only temporary.  Even with the best of intentions and assuming the same on the part of all of our police, judges, and prosecutors, we cannot allow ourselves to become accustomed to sacrificing our liberty in increments or we will eventually lose our freedom entirely.