State of Class Warfare

Last night's State of the Union Address was rather dull. The President offered little in the way of anything new. He continued to spin his usual bombast and, while trying to portray himself as a cross-aisle conciliator, continued his divisive rhetoric and class warfare. He even went as far as to acknowledge (and failed to deny) that many might perceive his proposals and language from a polarizing perspective.

As the State of the Union Address and Obama's past record both indicate, class warfare is a key ingredient in the Left's worldview. It is a perspective that relies upon separating Americans into groups—classes—where the supposedly more fortunate have certain responsibilities to members of other classes. The Left tries to portray itself as the defender of the lower- and middle-classes, against the excesses of the uppermost classes. Accordingly, the Democrats attempt to cast the Republicans as defenders of the rich. Naturally, a dynamic develops, a divisiveness and a sort of warfare, of two-sides where the Democrats, from their perspective, try to claim the mantle of defending the average American against Republican-backed elite.

Unfortunately, this plot line is often successfully bought by the media and many in the electorate. But it unfairly distorts the Republican position. The Republicans (at least most) are not defending the rich, but are defending every American's right to own and keep their property.

This is an inclusive agenda. All Americans should be treated the same, regardless of one's income level. Each has the same claim to the product of his work or investment, whether labeled low-income, middle-class, or rich. In fact, the Republican ideology, if allowed, could completely do away with all of these labels. From the perspective of the government and its laws, there should be no class separations. All Americans should be afforded the same rights and should be treated equally under the law.

This stands in direct contrast to the Democratic worldview, which relies upon labels and divisiveness. The Left loves to classify and categorize individuals, grouping them by economic background, race, or other arbitrary division. Each group is then offered unique treatment, privileges, or responsibilities. This separates Americans and creates undue tensions between truly artificial groups.

Grievously, many accept this portrayal of American society. They cannot help but view America through this lens of autonomous and distinct groups, even though there are far more cross-cutting similarities among Americans than there are Balkanized group identities.

Nevertheless, many other Americans see through this distorted worldview. The low-income Republicans that many academics and pundits like to claim consistently vote against their economic interest are a prime example. It is not necessarily true that the so-called rural social conservatives choose social policy over economic interest. Instead many see the Republican economic position for what it is meant to be—a defense of every American's economic interests.

Whether one is rich or poor, it is in one's interest to have a system that believes that the product of each American's work is his or her own property. The government does not, as the Left likes to believe, have an a priori claim on one's income, thus graciously allowing individuals to keep the residual amount after "proper" [arbitrary] redistribution has occurred. Instead, our income and wealth are our own property and we have the right to do with it as we please. Taxes are to be paid to support the essential services that a government must provide, but these should be based on the proper needs of the system and our responsibilities as citizens to meet these needs, not on some arbitrary definition of "having too much."

Obama and the Democrats continue to distort this message, attempting to confuse Americans into believing that somehow some Americans owe something to others. This is simply not true, yet deeply divisive. Americans are in this together. We have one country in which we must share responsibilities and we should have one set of laws that treats everyone the same.

Redistributing GPA

University students in California put accepted liberal wisdom to the test in a well-executed video. Posing as petitioners, they asked bewildered classmates to sign a petition that would mandate redistribution of GPA points from those fortunate enough to have high GPAs to those with low GPAs—in order to bring everyone closer to the university median. Unsurprisingly, most students demurred, claiming it was unfair to take what they had worked hard to earn and give it to others. Regrettably, most were then unable to reconcile this belief with their contradictory support of a "tax-the-rich" mentality. Its quite sad how so many Americans, particularly our budding scholars, accept such arguments whole-cloth without thinking through the underlying reasons and implications.

The video is a few months old, but highly poignant given the equally obtuse rhetoric coming from the Occupy Wall Street movement.

Why Warren Buffett is Wrong on Taxes

Former chairman and CEO of American Express, Harvey Golub, writes on why Warren Buffett and Obama are wrong when arguing for higher taxes on the rich.

What gets me most upset is two other things about this argument: the unfair way taxes are collected, and the violation of the implicit social contract between me and my government that my taxes will be spent—effectively and efficiently—on purposes that support the general needs of the country. Before you call me greedy, make sure you operate fairly on both fronts.

Golub highlights statistics that the top 3% of taxpayers pay nearly 50% of taxes.  He also cites the inefficient collection of taxes - namely due to tax breaks and loopholes given to all sorts of special interests - and inefficient expenditure of taxes - on wasteful and unnecessary programs - to drive his message home.  Golub concludes "Here's my message: Before you 'ask' for more tax money from me and others, raise the $2.2 trillion you already collect each year more fairly and spend it more wisely. Then you'll need less of my money."


But while Golub's argument is fair, there is a more fundamental issue in his essay.  In refuting calls by some of America's wealthiest, including Buffett, for higher tax rates on the rich, he writes:

Others could pay higher taxes if they choose. They could voluntarily write a check or they could advocate that their gifts to foundations should be made with after-tax dollars and not be deductible. They could also pay higher taxes if they were not allowed to set up foundations to avoid capital gains and estate taxes.

The issue here is one of coercion and choice.  Buffett might be right when he calls for the closing of loopholes that give special treatment to certain forms of income or certain individuals, but that does not translate into justification for increased tax rates.  If Buffett feels he owes something to the community, he is more than free to write a check to any institution he feels deserving - including the US Treasury.  However, to argue that tax increases on certain individuals are necessary, because one feels like he is paying too little, distorts the relationship between government and the individual in a dangerous manner.

Income is naturally the property of the individual who earned it.  The government only has the right to take from an individual in order to provide the appropriate services of the state.  In other words, government should minimize its burdens on individuals and should tax only to meet its essential and proper functions (what these functions are is a separate discussion but would include many tasks that cannot be provided by the private market, for instance, defense, security, certain infrastructure, establishing rules and laws, and other pure social goods).  Taxes are thus a pooling of individual property to provide for certain aspects of the common good.  In this manner, taxes could be perceived as establishing or investing in an institution (the government) that provides needed services that would otherwise be unavailable.  Accordingly, all should benefit from this system.

Buffett's and Obama's argument turn this conceptualization on its head, arguing that the appropriate level of taxes is rooted not in the need to pay for essential functions but in an arbitrary determination of what an individual should possess.  Under this understanding, income (or wealth) is not the natural property of the individual, but is awarded to them based on their need.  Any amount that surpasses this arbitrary definition of need does not rightly belong to the individual and must, to be fair, taken away.  Taxes are thus used to 'level the playing field'.  The individual, whether rich or poor, now lives at the goodwill of the state, allowed to possess only due to the graces of leviathan.  In fact, taken to the extreme this argument does not even require the government to provide anything.  If taxes are justified by taking 'excess' from those who have it, the government has achieved its goal of taxation (this is not to say the government does not have other goals) simply by taking the money.

Taxation is a tool needed for the government to achieve its proper functions.  It is not a goal unto itself.  To assume otherwise is to break down the very fabric of a capitalist, free-market, liberal society and sets dangerous precedents.  It is certainly appropriate to debate how tax burdens should be carried by different segments of society, but it is far too dangerous to allow such discussions to distort the purpose of taxation.  Taxes are a government's paycheck or its alms - not a tool for social engineering.

Not Such a Hard Deadline

According to a New York Times report, August 2nd is not really the "hard deadline" that the administration has been arguing will signify the end of the federal government's ability to pay its bills.  For months pressure has been building to raise the debt limit by this date to avoid the catastrophic event of default.  However, as the Times reports it seems that there is at least another week of cash available to pay the government's bills.

It turns out the federal government is sitting on some extra cash.  

Thanks to an inflow of tax payments and maneuvering by the Treasury Department, the government can probably continue to pay all of its bills for several days after Aug. 2, providing potentially critical breathing room for Congress to raise the debt ceiling, according to estimates by several Wall Street banks and a Washington research organization.  

The consensus is that the government will not run short of money until Aug. 10, when it would be unable to cut millions of Social Security checks without borrowing more money. ...The government will exhaust its ability to borrow more money on Aug. 2, which is equivalent to maxing out a credit card. But there still will be cash in the federal wallet.  Some Republicans have expressed skepticism about the Aug. 2 deadline, describing it as an artificial line drawn by the Obama administration for political reasons. Analysts emphasize, however, that the deadline is real; it’s just the date that is inexact.

Obviously this does not obviate the need for some deal to, at least in the short-run, raise the debt ceiling with concomitant cuts in spending and some tax reform.  It does however provide the markets with some much needed time before "crisis" hits.  If these numbers are legitimate, it would be prudent for the White House and congressional leaders to seize upon them to quiet market psychology.  Winning a political battle is not worth sinking the economy.

A Message from Chaz

Charles Krauthammer sends a message of warning to the GOP to not take the debt limit fight to the cliff.  Arguing that Obama has politically "outmaneuvered" the Republicans, he believes that the GOP needs to forgo a large reform package in order to "call Obama's bluff".  Instead they should opt for a short-term package and then address the reform issues later, putting the burden of failure on the Democrats.

If conservatives really want to get the nation’s spending under control, the only way is to win the presidency. Put the question to the country and let the people decide. To seriously jeopardize the election now in pursuit of a long-term, small-government, Ryan-like reform that is inherently unreachable without control of the White House may be good for the soul. But it could very well wreck the cause.

This seems to be sage advice.  As John Podhoretz reports at Commentary, a recent Quinnipiac poll suggests that if the US defaults on its debt, Republicans will be blamed by a margin of 48-34.  Republicans are right to be angry at the left's intransigence and unwillingness to seriously address our crumbling fiscal condition and are correct in the prescribed medicine of entitlement and tax reform.  Nevertheless, they must not lose perspective of the broader conflict.  It will be impossible to make the needed ideological shifts in our government, if the GOP cannot maintain a position of leadership.

A Taxing Mentality

Tensions have been mounting as the White House and congressional leaders have failed to agree on a package to resolve the impending debt-limit crisis.  Republican leaders, including House Speaker John Boehner, House Majority Leader Eric Cantor, Senate Minority Leader Mitch McConnell and Senate Minority Whip Jon Kyl, have all resolutely stood firm in opposing any tax increases as part of a deal to raise the debt-limit.

The GOP leadership is absolutely correct in their obstinacy.  While ultimately some short-run tax increases may be necessary to pay-off the monumental heap of debt this country has imprudently managed to accumulate, the Democrats seemingly do not understand the need to spend less than the federal government takes in.  Until the Democrats show an understanding of what taxes are for - namely to pay for the essential services required by this country - no tax increases should be considered.

Mona Charen highlights the backwards thinking of the left in an editorial at NRO.

It is becoming a verbal tic — the tendency on the part of the president to tell wealthy Americans (“people like me,” he’s always careful to add) that they have made more than enough money and will have to cough up more of it for the government. Speaking for himself on July 11, the president offered that he had “hundreds of thousands of dollars that I don’t need.” 

The president is of course welcome to donate as much of his extra money as he likes to the federal treasury. He knows Timothy Geithner personally and can probably get a guarantee that his check will be cashed without delay. And since the president is so ready to impute unpleasant motives (like greed) to those who oppose tax increases, perhaps we should impute some sort of moral failing to him for not having thus far contributed his spare change to the government.

The government should never be in a position to determine who has "enough" and thus claim a moral right to take "excess" from an individual.  The government's place is to provide a set of essential services - military, police force, infrastructure, and arguably some minimal safety net (to minimize social disruption).  The need for taxes should be based not on some arbitrary definition of "enough" but on the predetermined needs of the state to properly function.

The Democrats' reliance on the notions that the government can take because people have to much and that the government should provide because people want, shows a flagrant disregard for the purpose of government and taxes.  Tax reform may be necessary (loopholes should be closed), but it cannot succeed (and shouldn't be part of a "grand bargain") until this country's approach to spending and taxes is reevaluated.

Class Warfare and the Social Yard-Stick

Class warfare is becoming a full-blown storm on Capitol Hill. It is not really anything new – a time-tested strategy frequently relied upon by the left, but also used by the right. President Obama’s latest deployment was during his announcement of the bipartisan tax deal with Republicans.

Presumably, such a cross-aisle deal is a time to rejoice at actually finding middle ground in the exceedingly divisive Congress. Instead, the “class card” was thrown about. Obama likened the deal to one made with hostage-takers [Can a deal really be enforceable if made under duress?!]. He stated, “I’ve said before that I felt that the middle-class tax cuts were being held hostage to the high-end tax cuts. I think it’s tempting not to negotiate with hostage-takers, unless the hostage gets harmed.”

Now, the merits of Republican tactics aside, the interesting issue is the continued desire of American politicians, particularly on the left, to sow the seeds of class warfare. The storyline is familiar – greedy fat cat CEOs, those over $250k not “paying their fair share,” and “tax-cuts for the rich.” Republicans feed right into this game, defending the economics of high salaries and bonuses (needed to incentivize performance), arguing for low tax rates (high rates stifle economic growth), claiming that some “rich” just really are not all that rich, and pointing to all the good that some wealthy do for the community.

All of this is probably true and these arguments need to be made. However, they miss the fundamental point and allow the political game to be dictated on far-left terms. The left loves class warfare. It plays into a multitude of arguments defending wealth redistribution and increased government involvement in the lives of private citizens. But it rests on a fundamental misunderstanding of what income’s purpose is.

The left looks at income as a sort of social yard-stick, a tool to measure one’s value to society. By this logic the more one makes, the more good they should bring. However the argument goes, there is quite a bit of injustice in the system! Greedy CEOs do not help the country and yet they get rich, while struggling laborers barely make ends meet! The natural solution? Take from those who undeservingly make a lot of money and give to those who deserve it, but do not get it.

Implicit in this argument are at least two assumptions. The first is the particular standard regarding who deserves what. The left has come up with some arbitrary criteria of what is “deserving” and thus how wealth needs to be redistributed. Enter the Republicans – who try to challenge the left’s definition of “deserving.” This is where the class warfare is generally fought. Republicans, for instance, argue that CEOs, for better or worse, do deserve at least some of their recompense.

However, by playing the game of “what social value do [insert: CEOs, top 5% of income earners, those who make over $250k, etc] have,” Republicans are tacitly acknowledging the deeper assumption in this leftist [daresay socialist] argument – that there is even a relationship between social value and income.

The fact of the matter is that income is a measure of one’s services in a given line of work. It is the market’s determination of what value an individual provides for a certain occupation. Income, like the price of nearly every other good, is motivated by a host of factors, including, of course, supply and demand.

However, it is not – and should never be – a measure of one’s value to society. This is too arbitrary of a claim. Society – government in particular – has no right to pass judgment on an individual’s value or their associated income. [Beyond the issue of right – government simply has no, non-arbitrary means to determine value outside of the market-mechanism.] The rich are no more or less deserving of their wealth, than the poor are of their dearth. “Deserving” just simply is not a concept that the government is fit to act upon.

It is time to cut the class warfare. It is far too divisive and harmful for our country. Not only does it lead to strife between individuals and groups, but it creates an environment where the government feels even more compelled to meddle in the private affairs of citizens. One may not like that someone else makes more than him, but that never justifies arbitrarily taking it from him. Why should it be any different for the government?

Cut off Our Nose to Spite Our Face

Today’s passage, in the House, of the 90% tax on bonuses received by employees of companies receiving bailout money is economically foolish and quite possibly unconstitutional. It stands as another testament of the failure of our government to think rationally and unselfishly in order to help this economy. The Democratic s, and unfortunately about half of Congressional Republicans, are quickly adding to a long series of failed policies.

While I am no Constitutional expert, this bill seems highly likely to be unconstitutional. The bill essentially violates Article 1, Section 9 of the constitution that forbids the legislature from passing bills of attainder or ex post laws. In other words, Congress does not have the right to punish individuals or groups without trial. This law serves as a direct, and ex post, punishment of anyone who happens to work at a company that accepts bailout money.

Along this line, it is also fair to note that this bill is indiscriminate in that it equally punishes those who have done well and poorly. Many of the people that made ruinous mistakes are long gone. Their replacements should not be punished for the misdeeds of their predecessors. Likewise, these companies are large and complex. One division could have performed poorly, while another was stellar. Is it fair to punish a division within AIG that had strong profits this year? It is not the government’s but management’s place to make these decisions.

Constitutionality aside, the proposed law is economically insane. This policy will only serve to further America’s economic plight. First, if anything, the bill will induce a huge flight of talent and make retention next to impossible at any bailout company. When these companies are at their most needy, we want to design policies that entice the most talented people to work on fixing the problem. What talented manager will continue (or start) to work at a bailout company if they not only have the risk of being on a sinking ship, but now have severely reduced opportunities of compensation. They’ll just as easily move to a competitor who can pay them more.

Furthermore, the companies that recognize this and want to avoid such a flight of talent will naturally change their compensation structures. Simply, they could increase salaries to offset potential bonuses. This makes the legislation ineffective. Simultaneously, it serves to divert management’s focus from fixing their business to finding creative ways to compensate their employees. This is a huge waste of time and money that we cannot afford right now. In addition, if employees are more heavily compensated with salary, instead of bonuses, their incentives to work long and hard hours are reduced. Finally, companies take on much greater risk with fixed salaries, rather than flexible bonuses which can be tailored based on personal and company performance. This detracts from the ultimate goal of fixing the economy.

Secondly, this proposed law will reduce incentives for companies to accept bailout money. This policy is clearly counterproductive when coupled with the bailout. If the Democrats think a huge bailout program is necessary, there is no better way to thwart that than by un-incentivizing companies from accepting the money. It is like extending a leprous hand, knowing you may help someone stand but ultimately kill them from the disease.

Furthermore, the policy only serves to destroy market confidence. It reeks of nationalization and excessive government involvement. Who will invest in companies that, as pointed out above, have even more reasons to fail? It is unnerving to think that the pompous fools in Congress think that this is going to help our market confidence- one of the main things that is needed in this environment. Also, it’ll continue to undermine consumer confidence and spending, creating yet another downward pressure on individuals’ desires to purchase goods (or even pay their mortgages).

It is all too clear why such a bill gained such traction; why half the Congressional Republicans voted for it. It is simple, unbridled populism. It is far too expedient and politically beneficial for these legislators to stoke the anger in the people and then come to ‘save the day’. Unfortunately, saving the day is the last thing that will happen here. Rather, these congressmen and women are using the angry masses and these proposed policies for political expediency. Barney Frank and Nancy Pelosi know they can get Joe-Six-Pack into a furor by blaming his plight on Wall Street, and then look like a hero when they punish Wall Street. Not only does this negate Joe’s, Barney’s and Nancy’s culpability, but it doesn’t just punish Wall Street, it punishes all of America.

People may feel a bit angry at Wall Street- and possibly rightly so. But the channeled rage that the President and Congress are creating is not constructive, but destructive. We need to be focusing on fixing problems, not pointing fingers. This is especially true, because, as I pointed out elsewhere, there is not one group of people responsible. We cannot start drawing lines and finding scapegoats, but come together to find real, smart, economic solutions to this mess.

[Just a note -I could care less if the management at AIG received bonuses. That isn’t the point. The point is that the government should not be getting involved in such issues. If the government deems it appropriate to give taxpayer dollars to companies than it has to accept that the money will be spent by the companies. The bigger the role it plays it deciding how a company spends this money the closer we slide down the slope of nationalization and state control- a place no one [hopefully] wants to go.]