Category Archives: politics

Taxmageddon

In this article, I am going to attempt a praxeological (science of human action) explanation of the economic effects of the tax increases on high earners. I am doing this as an exercise to apply what I have been learning in my self-directed studies of the Austrian school of economics. I hope, as a baby Austrian, I do not embarrass myself too badly in this amateur attempt.

Obama is demanding that Bush era tax cuts end for high earners. This will raise the top tax rate from 35% to 39.6%. Dividend tax rates will go from 15% to 39.6%; actually to 43.4% to include the Medicare contribution tax added by Obamacare. Capital gains taxes go from 15% to 20% (actually 23.8% including Medicare contribution tax) or from 15% to 18% (actually 21.8%) if held for 5 years or more.

The immediate effect will be massive stock sales during the remainder of 2012 to take advantage of the significantly lower capital gains rate. Expect investors to favor holding their stocks and avoid profit-taking over the next 4 years in anticipation of a future reversal in tax policy.

Low (15%) capital gains tax rates and bad memories from the bursting of the dot com bubble resulted in corporate mergers and acquisitions being conducted in cash instead of stock. With high capital gains tax rates, expect that trend to reverse, as a conversion of stock does not incur any tax immediately. All of these responses mean that tax revenues from capital gains will fall significantly, as investors apply these tax avoidance strategies.

Low (15%) dividend tax rates resulted in corporations distributing profits to shareholders increasingly through dividends. Many corporations that never distributed dividends before began doing so to satisfy investor preferences due to this favorable tax treatment. With a return to high dividend tax rates, expect a return to much lower or zero dividend yields, as corporations respond to investor preferences to favor keeping retained earnings (already taxed at the corporate tax rate of 35% which is among the highest in the world) in the corporations’ coffers to hold those earnings as capital gains, which do not incur any taxes until shares are sold. Those who rely on high yielding stocks for income will shift to bonds or other forms of fixed income. In addition to Fed Quantitative Easing, which lowers interest rates while raising inflation rates, higher dividend tax rates will further hammer those who rely on fixed incomes like retirees. These responses mean that tax revenues from dividends will significantly decrease, returning to the historical trend prior to the 15% era.

Finally, there is the increase in tax rates on ordinary income in the upper bracket(s). Those who earn at these levels include business owners, corporate executives, and professionals like doctors and lawyers. Many of these high earners have some degree of control to adjust their compensation packages. Expect a greater proportion of compensation to be in the form of incentive stock options, so that tax on that income is deferred until the stock is sold. The modest marginal tax rate increase will have little effect. Those who have less control over their compensation will pay more, while those with greater control will pay less. This may end up being a wash or even a net reduction in tax revenues, if small business owners and professions work less and forego expansion due to reduced incentive. Reduction in the growth of businesses will result in a long period of economic stagnation and lack of new employment opportunities for workers.

Taking all of these effects together, it is pretty obvious that tax revenues from higher tax rates will significantly decrease. Investors avoid taxes by deferring stock sales. Investors avoid dividend taxes by influencing corporations to reduce dividends. High earners adjust compensation to defer taxes until they choose to sell stocks. Business owners and professionals forego growing due to reduced incentives. The economy will surely experience a 4 year period of slow or stagnant growth and persistently high unemployment.

Furthermore, continuing Fed QE and trillion dollar annual federal deficits funded >60% by Fed bond buying will stoke higher inflation. This adds insult to injury as real rates of return will be reduced, but capital gains taxes will be paid on fake gains from inflation. Inflated gains are fake because of the loss in purchasing power due to generally higher prices throughout the economy.

Fun times ahead.

checks and balances

The US Constitution established a Federal government with powers divided to provide checks and balances. Clearly this system of checks and balances has been largely eroded.

The laws passed by Congress have delegated its legislative responsibilities to the Executive branch. Laws are written that grant regulation writing power to the Executive. Laws are written that delegate the power to start offensive wars.

The Executive branch routinely issues executive orders and waivers that either nullify the enforcement of existing laws or rewrite them. Executive orders are often used to initiate the enforcement of rules that are in effect new laws that have not been passed by Congress.

The Supreme Court has been toothless in defending the Constitution by limiting the Federal government to the powers expressly granted. This raises the question, why would we even have an expectation that the Supreme Court should have jurisdiction to rule on matters of law for which the Federal government has not been granted any power. When all powers not expressly granted to the Federal government are reserved to the States and the People, it should be clear that the US Supreme Court should be similarly limited. Would it not make sense for State Supreme Courts to retain ultimate authority for all such matters instead of deferring to the US Supreme Court?

When the Executive branch oversteps its authority, what possible remedy is possible, when it requires a super-majority of Congress to impeach, and the US Supreme Court is largely deferential to Congress and the Executive?

We are left to resort to State nullification by the sovereign states and jury nullification by sovereign individuals. Through these means we can safeguard the powers that are reserved to the States and the People, when the Federal government has betrayed us and the Constitution to which they pledged to defend.

how to vote

To decide which candidate to vote for, we have to determine the criteria we use for evaluating candidates. From how candidates campaign and how the media reports on these campaigns, we are led to believe that we are choosing our representative of ideal human. This is a faulty premise.

Voting for a political candidate is expressing a preference for that candidate to fill a position. The candidate is applying to fill a job opening, and we are evaluating candidates to hire the one most qualified. We should apply criteria that are relevant and appropriate for this evaluation, and refrain from misapplying criteria that are irrelevant or inappropriate. Is it appropriate to hire or disqualify a candidate based on gender, religion, race, or sexual preference? Of course not.

The US Constitution defines precisely the role of the federal government and its elected officials. Defending the Constitution entails the recognition of the limited authority that is granted to the federal government, while liberty is protected by recognizing the rights of the individual. The powers that sovereign individuals grant to the federal government are enumerated, while the rights of the individual are unlimited. Therefore, the proper way to evaluate a political candidate is to consider first and foremost how faithfully they understand and defend the Constitution. Then, evaluate how qualified that candidate is capable of performing the limited responsibilities of that office, while never overstepping the authority granted to the office by the Constitution.

If a Presidential candidate talks about how to be a responsible civilian leader of the military in the role of Commander-in-Chief, that candidate is expressing qualifications.

If a Presidential candidate talks about faithfully enforcing the laws passed by Congress, when those laws are pursuant to the Constitution, that candidate is expressing qualifications.

If a candidate talks about expanding public education and green energy initiatives, that candidate is disqualified.

If a candidate talks about increasing healthcare and retirement benefits through a government-run Ponzi scheme, that candidate is disqualified.

If a candidate talks about using taxpayer funds or debt to stimulate the economy or to improve your community, your family, or your life, that candidate is disqualified. Bribery is corrupt, and doing so during a job interview should be astonishing. Not only is the candidate disqualified, the candidate should be charged with criminal behavior.

If a candidate talks about being a likable, generous, and charitable member of the community, that candidate is lobbying for the job of celebrity but offering no substantial qualifications for the office.

We should not be seeking an admirable model citizen, who exemplifies our moral principles and projects our image of an ideal American. Doing so betrays our obligation to defend the Constitution. A candidate who asks for our trust in all things is asking for license to act with unlimited power. We don’t need someone who demands that degree of trust. We don’t need someone with a personality and appearance that we find likable. We only need someone to perform a very limited job function for a fixed term.

The Constitution tells us exactly how we must vote. Now, if only voters would recognize that fact, they would then be equipped to fulfill their own pledge of allegiance, which implies a commitment to defend the Constitution.

on the rights of a fetus

Living cells do not per se have a right (protected freedom) to life for the same reason a virus or a mouse has no right to life.

Rights are a recognition of requirements for a person to live as a human which means freedom to think and act toward sustaining that life. Non-humans do not have rights, because they are incapable of recognizing rights. Without that recognition, there can be no rights, as their abrogation would immediately ensue through force, coercion, and other manners of violation.

A fetus is not yet capable of living in any way as a thinking, acting person in that sense. Therefore, it has no rights to do so.

As litmus test, can a fetus given rights (freedom without mom) perform the most basic biological acts of sustaining its own life? No. The fetus cannot oxygenate its blood, eliminate its toxins, convert food into a form that can power its cells, and any number of other biological functions that mom is performing on its behalf. If given the freedom to live as a person per se, the fetus cannot perform the most basic actions to sustain its life, it does not have rights, because no recognition of such requirements for it to live and no protection of its freedom will make any difference. The fetus does not need freedom at this stage in its life; it is entirely dependent on its mother.

To artificially bestow a “right” to life on the fetus is merely granting an entitlement to enslave the life of its mother, if the mother does not consent to participate in the pregnancy. This would not be protecting anyone’s freedom—only taking freedom away from the mother.

I am anti-abortion and pro-rights. Therefore, I am for a woman’s right to choose, no matter how much I dislike abortion. My opposition or dislike for something does not automatically mean support for government action to outlaw it. Because the law must exist to protect individual rights, any law that would abrogate rights must never be passed.

My position on abortion is consistent with other similar positions. I am an anti-smoking non-smoker, but I oppose legislation that would ban smoking. I am anti-drug and I do not use drugs, but I oppose the war on drugs. These positions consistently recognize that the law must exist to protect individual rights, not to trample on individual liberties.

When does a fetus become a person with rights? I believe the earliest that can happen is when a fetus becomes viable. That is, when it is medically possible for the fetus to survive when physically separated from its mother. This may involve the assistance of medical devices, medication, and extraordinary measures. The key criterion is the ability for the baby to live without being tied to the mother’s life. At that point, the baby’s life can be sustained by other means, and adoption becomes an option. As medical technology improves, this may happen at earlier stages of gestation. This would be the reasoning behind objecting to late term abortion.

$114.5T unfunded liabilities

I just thought of a solution to the $114.5T unfunded liability problem in the US federal government balance sheet.

Given that entitlements due to retirement will bust the federal budget over time; given that people who perform purposeful work live longer and remain in better health than those who do not; given that people who continue to work will contribute to tax revenues instead of drawing on entitlements; my solution entails…

(1) Offer future retirees the option to defer retirement indefinitely.

(2) Remove regulatory barriers and provide legal protections for the elderly who want to work after the age of retirement.

(3) Most important to solving the budget problem, provide an incentive for the elderly to continue working by lowering personal income tax rates for employment income to zero.

By keeping the elderly employed, their health insurance continues to be employer subsidized, which eliminates their participation in Medicare. By continuing to work, they also forego receiving Social Security payments. As a bonus of participating in the work force, they continue to contribute to tax revenues through payroll taxes paid by their employers.

Certain industries will greatly benefit from the retention of employees with scarce skills, which are not being replenished in the work force. For example, COBOL programmers. As baby boomers retire, certain legacy technologies which will remain mission critical for decades are at risk of being under serviced. This proposal would provide some degree of relief for these industries as a side-benefit.

war of words

If the pen is a weapon, words are the ammunition. Politics is marketing, and marketing is a war of words. In both realms, the goal is to sway public opinion with ideas. A good tactic for undermining the opponent’s position is to poison the language they use to identify themselves.

For decades, whenever a leader wishes to be resolute about a cause, they declare a war as a call to arms. We have seen the war on drugs, war on crime, war on poverty, war on AIDS, war on terror, and now even a war on obesity. The indiscriminate use of war parallels the prosecution of indiscriminate wars in Bosnia, Iraq, and Libya. This enables the term “war on” to become vulnerable to poisoning, so that future use of this term becomes toxic. Furthermore, “war on” is conveniently similar to “moron”, which makes for a perfect nexus of ideas (superficial and with substance) for contaminating the term “war on”. We can now apply “war on” as a derogatory adjective; for example, should the President declare another war on something, he can properly be identified as yet another war-on President. War-on decisions become acts of foolishness and symbols of an ignorance of unintended consequences.

rise of terrorism due to UN

New Scientist: You can’t fight violence with violence

This does not explain the success of achieving the unconditional surrender of Imperial Japan and Nazi Germany in WW2. I believe the rise of terrorism as a successful strategy for insurgency is due primarily to the rules of war promoted by the UN, which forbid the targeting of civilians. Surrender in war is not a military outcome; it is a political one. Without the civilian population being faced with total annihilation, there is no reason to surrender, and resistance by this protected class can continue indefinitely.

UN junk science

The UN awarded Al Gore and UN’s Intergovernmental Panel on Climate Change (IPCC) with the Nobel Peace Prize.

On the IPCC’s report, the Cato Institute’s article Live Earth’s Inconvenient Truths explains why it is completely junk science.

The Telegraph’s article Al Gore’s ‘nine Inconvenient Untruths’ punches a few holes in Al’s film.

Of course, the UN is a political body, so its motives are far removed from the principles of science.