Reason Magazine - Topics > Taxes

An Alliance for Freedom?

gillespie@reason.com (Nick Gillespie) — Mon, 21 Jul 2008 12:00:00 EDT

Born in 1956 and raised in Massachusetts, Grover Norquist is the unofficial head of what he calls the “Leave Us Alone Coalition,” a loose affiliation of people and groups dedicated to, as the subtitle of his new book Leave Us Alone puts it, “getting the government’s hands off our money, our guns, our lives.” The coalition, Norquist writes, “will triumph in the long unending struggle to define America. But there will be bad election years, disappointing candidates, bad breaks, and undeserved luck on both sides. There will be wars and recessions. There is nothing inevitable about our moving toward the city on a hill Ronald Reagan spoke of: a nation of individual liberty and economic prosperity that shares its vision of the good life through example, not empire.”

A diehard Republican who rarely misses an opportunity to criticize the GOP (see the above passage), Norquist has run Americans for Tax Reform, an advocacy group that calls for lower and lower taxes, since 1985. ATR is perhaps best-known for pushing hard, and successfully, for the reduction of top marginal tax rates from 50 percent to 28 percent in 1986 and for asking candidates to sign its “Taxpayer Protection Pledge,” a vow never to increase marginal tax rates. Norquist orchestrates a famous Washington, D.C.-based “Wednesday meeting” in which various members of the Leave Us Alone Coalition come together to share information, argue, and stoke their limited-government enthusiasm. (During the Clinton years, the Wednesday meeting was known as the weekly gathering of the “vast right-wing conspiracy.”)

Over the years, Norquist has worked with people ranging from felonious lobbyist Jack Abramoff to Angolan guerilla leader Jonas Savimbi to former Speaker of the House Newt Gingrich to consumer advocate Ralph Nader. (He collaborated with Nader recently on an initiative to promote transparency in government spending.) He is without a doubt one of the most influential figures in Washington during the last 25 years.

In May, Norquist sat down with reason.tv Editor Nick Gillespie to discuss his book, the future of partisan politics in the U.S., and more.

Video of the interview is online at reason.tv. Comments can be sent to letters@reason.com.

reason: What’s the basic proposition of Leave Us Alone?

Grover Norquist: It’s a description of the center-right coalition in American politics, the Reagan Republicans’ conservative coalition as opposed to the “Takings Coalition” of the left.

The idea of the Leave Us Alone Coalition is that everybody is there because on the issue that moves their vote—not all issues; they’re not all libertarians—but on the issue that moves their vote, what they want from the government is to be left alone. So around a table [are] the guys who want their money left alone, their guns left alone, their family left alone, their faith left alone, their homeschooling left alone. They’re in on one issue, the one they vote on.

I’m on the board of the National Rifle Association. I can assure you that many of the gun people in this country who vote on guns have what I consider the oddest views on free trade with China, but they don’t vote on that issue, so in a political sense it’s irrelevant. That’s what holds the coalition together.

2006 was a bad year. Why? The Republicans didn’t offer tax cuts or spending restraint, any of the issues that would’ve appealed to the Leave Us Alone Coalition.

reason: What about the Leave Iraq Alone Coalition? How does foreign policy fit into this?

Norquist: It doesn’t, and that’s why it’s been a problem for the modern Republican Party. The Leave Us Alone Coalition includes people who want to be left alone in terms of having foreigners not invade the United States and having a serious police force to stop crime. Now the question comes: Does occupying Iraq for five years contribute to the defense of the United States, or is it a provocation that will create other problems down the road?

reason: Many conservatives are starting to say, “OK, this is enough,” or that Iraq was folly to begin with. Clearly, before the 9/11 attacks, the stock Republican position was we shouldn’t be intervening militarily as much as Bill Clinton did, and it seems like some of that mentality is coming back. But [interventionism] has become a defining characteristic of the Republican Party.

Norquist: Bush ran promising not to be a foreign adventurer like Clinton. And the Republicans said we’re not going to engage in that. Clinton’s worse because he’s crazy, and he does things like go into Kosovo and Serbia.

When the United States was hit on September 11, there was a sense that we needed to do something to protect ourselves. People were pretty much open to just about anything because they hadn’t thought it through. They wanted something done. The response of going after Al Qaeda in Afghanistan seemed to make some sense. The jump from there to Iraq was kind of made based on faith—that certain things were true that in retrospect may not have exactly been true.

Here’s the challenge for the Republicans. They paid a very severe price in 2004. Bush, according to all the sort of charts you do, should’ve won with 58 percent of the vote except for the vote anchor of Iraq. And then when all of that was dropped on the Republicans in the House and the Senate in 2006, the undertow cost the Republicans the House and the Senate. So independents and a lot of voters don’t view the Iraq occupation as necessarily part of a serious defense for the country.

Where do you go from here is an entirely different question. Having broken Iraq, what’s the best way to protect the United States? How does one deal with that? That’s the fight they’re having now.

reason: How is immigration affecting the Leave Us Alone Coalition?

Norquist: It’s put some pressures on the modern Republican Party. I’m pro-immigrant. I think that we need more immigrants. I think we should have more people coming into the country, that people are an asset, not a liability.

Within the center-right coalition there are two legitimate concerns that one could have. First, do people come in the country and go on welfare? Well, the answer there is we should get rid of the welfare state.

reason: And actually one of the answers is that in fact they don’t go on welfare, because they’re barred from that by earlier reforms.

Norquist: Still, this is one of the concerns people have. A second concern: People don’t become assimilated. They don’t learn American history. They don’t learn English. They don’t learn what it means to be an American. Well, that’s because we have a public school system that’s run by a monopoly, a unionized set of bureaucrats, and they don’t teach the people born in Nebraska how to be Americans and American history and how to speak and write English very well. So we have a problem with our government monopoly education system, and we have a problem with the welfare system.

If there were no foreigners in the entire world, if there were just the United States, we’d have a welfare problem and an education problem. We ought not to use immigrants as the argument to distract us from the massive problem we have with the welfare state and the massive problem we have with the failed government-mandated unionized bureaucratic monopoly in the public school system. We ought to deal with both of those problems, and the immigrants are the tip of the iceberg, not the problem.

The challenge you have is some people get out there with some rather rash anti-immigrant rhetoric.

reason: People in the Leave Us Alone Coalition?

Norquist: Well, no. Republicans and elected officials. Nobody’s in the Leave Us Alone Coalition and voting for the [Republicans] because of a hostility to immigrants. It’s not a vote-moving issue; it’s an issue people talk about. It’s not a vote-moving issue, except for those people who don’t like anti-immigrant rhetoric.

reason: Who makes up what you dub the Takings Coalition, and what is its basic proposition?

Norquist: Around the table for the left—trial lawyers, labor unions, big-city political machines, government workers’ associations. [There are] the two wings of the dependency movement, those people who are locked into welfare dependency [and] the guys that make $90,000 a year managing the dependency of other people and making sure none of those guys get jobs and become Republicans.

And then, of course, all the utopians: the radical environmentalists and other guys, the people who passed laws to make sure your car is too small to put an entire family into, that toilets are too small to flush all the way, the animal rights groups, and so on. Somebody who just wants to be a vegetarian, that’s cool. Somebody who wants to mandate [People for the Ethical Treatment of Animals’] list of rules on other people, that’s where you get—

reason: But is that really happening with PETA?

Norquist: Sure. The anti-hunting movement. The people who want to ban fur and who want the government to—

reason: Are they really powerful in American politics? Are these really the central issues?

Norquist: No. I’m much more concerned about the trial lawyers and the labor unions and the government employees. But in the same group, there are guys who get government grants to go tell other people how to lead their lives, distinguished from [right-wing evangelical] Pat Robertson, who runs a church and says you should do this and you should do this but doesn’t necessarily bring the power of the state into making everybody be a Baptist.

reason: He might not be trying to turn everybody into a Baptist, but he pushes laws that are against the recognition of gay marriages in various states, things like that. Aren’t there elements of the conservative movement that are as coercive as members of the left?

Norquist: There are spokesmen for the religious right who would be, if allowed, as coercive, but one of the things I point out in the book is the actual history of how the religious right, the traditional-values activists, got involved in politics. It did not come about after Roe v. Wade. It did not come about after prayer was dropped from public schools. It came about in ’77, ’78, when the Carter administration went after Christian radio stations using the Fairness Doctrine. The devil or somebody wasn’t being treated fairly, and they were going to go after Christian radio stations and Christian schools. They were going to say they were all segregation academies and take away their tax-deductible status. People understood correctly that the state was going after their ability to educate their kids through their faith and to have communications through radio. That’s when the religious right got organized. Why? To be left alone.

Now, do you get guys who’d like to make anyone who gambles go to prison and have this list of things enforcing Leviticus? Sure, there are people who say that. Do they bring a vote to the table? No, they don’t.

reason: Has the Leave Us Alone or the Takings coalition grown over the past decade?

Norquist: I talk about 40 different trends in the book, and the answer is that you can argue it either way. One factor growing the Leave Us Alone Coalition is the fact that in the last 25 years the number of Americans who owns shares of stock directly, the investor class, has gone from 20 percent to 60 percent. That makes people more sensitive to taxes and regulations on businesses. That’s not taxing the other; it’s hitting me.

reason: Doesn’t that also make them more likely to want to bail out markets when they go south?

Norquist: The answer is no, because everyone’s in a mutual fund. People 50 years ago used to buy AT&T or buy Ford, in which case you could be for subsidizing Ford, but when you have a basket of industries and a basket of companies, you’d be stealing from some to subsidize the other. That’s why you can’t be as pro-protectionist as you could be if you’re just in General Motors. Not if you’re in a mutual fund where you’re broadly invested in the entire economy. So that’s a very helpful trend and moving in the right direction.

Another helpful trend is the decline of organized labor, from 30 percent of the private sector in 1970 paying union dues down to about 7 percent of the private sector today. The growth in the number of people with concealed-carry permits. The number of Americans who carry a gun on them is now in the millions.

reason: How does gun ownership figure into what is mostly an economic argument for freedom?

Norquist: Two things: A state that doesn’t trust you with your gun has other plans for you that they won’t want to talk about until you get the guns taken away. I always wondered as a kid: Why does Ted Kennedy want to take away my guns, and what is it he’s not telling me that he’s only willing to discuss with me after there are no guns in the hands of private citizens?

For some people, it’s a symbol of your autonomy: You can take care of yourself because you have a gun. People in rural or suburban areas do not have the police walk in front of their apartment building every five minutes. They really need that kind of protection on their own. It’s a very important part of the Leave Us Alone Coalition, and it really does move votes.

reason: Where is the Takings Coalition ascendant? Where are their growth points?

Norquist: Trial lawyer money. Their ability to win something like the tobacco settlement put billions of dollars in their hands, and they kick back a certain percentage of that to the politicians and the judges, and electing judges that will allow them to continue that. Public-sector unionism continues to grow, and should labor unions be able to change labor laws, they could add millions of people overnight.

reason: Explain that a little bit. What are they after?

Norquist: “Card Check.” If there are 100 people working for a firm, all they have to do is show up with 51 signatures on a card. Those signatures could’ve been forged. They could’ve been from buying people drinks. They could’ve paid somebody off. They could’ve threatened somebody. No secret ballot. Today, you could get 51 signatures and then you go to a secret ballot, at which point the guy who was threatened or bullied into it gets to vote secretly. They want to abolish the secret ballot part of that election.

reason: How complete is the correlation in your mind between the Leave Us Alone Coalition and Republicans, and the Takings Coalition and Democrats?

Norquist: There’s a lot of overlap. Certainly there are a lot of people in the Libertarian Party or unaffiliated people who want to be part of the Leave Us Alone Coalition. There are some people who think of themselves as being part of the Leave Us Alone Coalition but are offended by parts of the Republican Party, by some of the rhetoric.

reason: Such as?

Norquist: [Colorado Rep.] Tom Tancredo’s anti-immigrant rhetoric, which scares away people who came to this country because they wanted more freedom and then find out that Tom Tancredo’s there at the border spitting at them or their relatives as they come in. And there are a lot of people who are here legally, have been here for a long time, who are Asian or Catholic or Jewish and still think of themselves as immigrants because their grandparents were.

reason: If you could snap your fingers and institute three policies, what would they be?

Norquist: The first would be personalizing Social Security, privatizing Social Security, instead of having the state take 12 percent of your income and then promising to pay you something if you make it to 65 or 67. Instead, they should let you put that money into a 401(k) [retirement account], and then you would control it. That would make everyone in the country independent; their pension and retirement would come from their own activity rather than the state.

reason: They’d be able to bequeath it.

Norquist: They could pass it on to kids, relatives as they saw fit.

reason: Or nonprofit organizations.

Norquist: Yes, like reason, for instance. That’s I think the most important one.

The second that we’ve been working on is transparency, getting government at all levels, from the federal government to state to local government, every public school, to post every check they write on a website that’s searchable and to post every contract they enter into. We need to make Spend Too Much a hanging offense. If the politician said I’m going to take your guns, there would be people who walked out of the coalition on that politician. We don’t have that on Spend Too Much. We need to make the $900 hammer, the expenditure on the contract that’s too much, a fighting offense.

reason: So one of your arguments is that we just don’t have that information in a way that it can be unearthed to become a motivation.

Norquist: Right. The federal government spends $3 trillion. Yawn. My eyes glaze over. What does that mean? Is that too much? Too little? I don’t know.

The government just spent $900 on a hammer. The government spent $1 million to get the lawn mowed. The contract went to somebody’s cousins. That you can get angry about. That you can focus on. Why have we had such success in beginning a conversation on spending with earmarks? Because they’re singular. They’re identifiable.

reason: [Democratic presidential candidate Barack] Obama is actually pretty good on transparency. He signed the transparency pledge pushed by Reason Foundation [the nonprofit that publishes reason]. Who else is good on that issue?

Norquist: [Republican presidential candidate John] McCain’s been quite good on it. A number of governors have moved forward very well on this. Seven states now actually post every check that the state writes. What we need to do is get that to local government, to counties and cities and the federal government.

reason: What’s the third policy?

Norquist: The third policy is getting the government out of health care. That’s sort of a series of policies. But allowing you to buy your health care from any state so that you don’t have to live under the mandates and regulations of New Jersey just because you live in New Jersey, but could buy your health insurance from a company in Iowa. And the whole idea of moving more towards health savings accounts where people can pre-save and you’re actually spending your own money.

reason: The idea is that will introduce market competition and we will see an improvement in outcomes and the lowering of prices?

Norquist: Absolutely. You can always save overall money with rationing, which is what all these government programs are. We’d rather have competition squeezing down costs.

reason: Is this a pipe dream? Besides spending a hell of a lot of money on war, one of the things that George W. Bush and a Republican Congress spent taxpayer dollars on was the prescription health care benefit package. That’s a legacy of a supposedly conservative government. So are we just inevitably going more and more toward socialized health care?

Norquist: No, I think health savings accounts, which were brought in as part of that whole deal, now have something like 5 million people. Those are growing very rapidly. If we get those numbers up sufficiently, I think [it would] have a real effect.

reason: Who are you going to vote for for president?

Norquist: I’m going to vote for John McCain.

reason: Why?

Norquist: He’s committed now to vetoing any and all tax increases. He’s laid out a pro–tax cut agenda which is not—

reason: Is there reason to believe that? I mean, this is a guy who a month ago was saying that he didn’t know much about the economy. He seems to be all over the place.

Norquist: He has a good collection of people around him, including [former Texas Sen.] Phil Gramm and others, on the tax issue. He also looks in the mirror and sees a man of integrity, a man who tells the truth, and he’s now said enough times on national TV, “read my lips, no new taxes, here are the tax cuts I’m going to fight for.” It would break him to go back on his word, as it did to Bush Sr. when he went back on his word.

reason: How do you feel about McCain’s foreign policy? He is—and I mean this as a purely descriptive term—a warmonger. He was bred in the military. He talks a lot about the muscularization of American foreign policy. Is that something you’re comfortable with?

Norquist: It is my hope that somebody who has been tortured and has come out against the president on the torture issue, somebody who knows a little bit about the costs of war, may talk tough but be less willing to engage the United States in war. We now have the example of Iraq before us. Iran is three times bigger and it’s not flat.

reason: How do you feel about McCain-Feingold, which is John McCain’s signature program on campaign finance reform? It’s a clear attack on the First Amendment, on specifically political speech. How does that fit into your enthusiasm for John McCain?

Norquist: Only because it’s water under the bridge, over the dam, is it not a hanging offense. It was a hanging offense in 2000. I opposed McCain and supported Bush largely because he was off-center most on the issue of the First Amendment, and if you can’t get the First Amendment right, you have to wonder about some of the other amendments. I think it was a huge mistake. I think it was a very bad thing that was done, and the Bush people went and signed it, believing it was so goofy that the court would strike it down.

reason: Americans for Tax Reform—does it lobby, or is it a nonprofit?

Norquist: Both. It’s a 501(c)4. It can do grassroots lobbying. It cannot endorse candidates or parties.

reason: Do you do lobbying work for countries or for other groups?

Norquist: No.

reason: You were associated with the Jack Abramoff scandal.

Norquist: He was an old friend of mine. He got in trouble, and there was an effort by some to say, “Ahh, Grover knows Jack, so Grover did something wrong.” The good news is that Jack did me the favor of not trying to get me involved in anything that would be problematic, so—

reason: Did you find the charges against Jack Abramoff meaningful or revealing? Did they say something about the intersection of big money and big politics?

Norquist: There are two things. What Jack Abramoff got in trouble for was falsifying some statements to a bank. That’s what he’s been convicted of, I think: saying he had money that he didn’t have for a bank loan.

I did work with him on Indian tribe questions, where the government was trying to tax Indian tribes. We were opposed to expanding the federal government’s ability to tax Indian nations, just as we wouldn’t want them to tax Massachusetts or General Motors more.

reason: Talk a little bit about your intellectual background. How did you get interested in free market or limited-government ideas? Where did that come from?

Norquist: I was an anti-communist first and a free market economics person second. When I was 12, I read all of Kim Philby’s work—

reason: The great turncoat British spy.

Norquist: Yes. And I Led Three Lives by Herb Philbrick. So I recognized that there was an entity out there, the Soviet Union, that was purely evil and statist. I went from that to saying, well, then we want to be more of the opposite. Our government was less horrific than theirs but not necessarily without flaws, and it was too large and too intrusive. And then I became a free market economist and then studied economics at Harvard.

reason: How does that kind of mind-set change in the wake of the end of international communism?

Norquist: You did, with the Soviet Union, have a group that really did want to eat the United States, and there was a willingness to spend a fair amount of money on national defense to stop that from happening. When the Soviet Union was broken, that requirement, that challenge, was no longer there. We went from spending 6 percent of GDP on defense down to about 3 percent of GDP on defense, and I think we can competently protect our borders and protect our interests with less than the 3 percent we’re spending, unless—

reason: Some people are floating plans to mandate 4 percent of GDP, or whatever, to be spent on defense.

Norquist: They were pushing for that before September 11. There is a group of people who benefit from increased military spending who think somehow that doesn’t count for government spending. It does. I think the United States can push an agenda of free trade and intercourse with virtually all nations that reduces the threat that anyone might be to us. I think a China that we’re trading with and working with is less of a problem than a China we try to bully around.

reason: What fear should America have about radical Islam? Is Islam a fear to replace communism?

Norquist: There was an effort. There were some people who, when Bush got elected, wanted us to have a war with China, a billion Chinese, which is fairly stupid. A second stupid choice was to have a war with the billion Muslims in the world. We don’t have to have [a war]. I don’t know where these people got this idea that the United States is always better with daggers drawn with someone.

I think that we’re better off if we don’t threaten other people but keep an eye open so if somebody throws a punch at us we protect ourselves. There’s no reason for us to be at daggers drawn with China, Latin America, or any part of the world on a permanent basis.

reason: When you look back to the early Reagan years, are you optimistic or pessimistic about the idea of a smaller government, the idea of more individual freedom within the political arena? It seems in the cultural arena people are much more free than they used to be.

Norquist: Yeah.

reason: But are we on the right path or the wrong path, or is this just something that’s always kind of like Pigpen in the old Peanuts cartoons—it’s just a big dust ball that moves along?

Norquist: I think we can do better. I think we can do significantly better. I think liberty could take some rather strong jumps forward. Look, over 20, 30 years we had to fight the left with one hand tied behind us because we had to deal with the Soviet Union. We had to tolerate a larger state than we’d otherwise like while we did that, while the left was gnawing on our ankles here. I think we can fight against statism here with a freer hand absent the threat of the Soviet Union and absent the 10 percent of GDP spent on defense or 6 percent of GDP spent on defense. So, yeah, I’m optimistic.

reason: You call yourself a conservative.

Norquist: A Reagan Republican.

reason: OK. What is the difference between a conservative and a libertarian?

Norquist: Twenty IQ points.

'I'm Not Going to Lie: I Used to Smoke Crack in There'

mriggs@reason.com (Mike Riggs) — Thu, 17 Jul 2008 10:37:00 EDT

The City of Seattle had this great idea a while back: Let's invest millions of dollars in free public toilets that open up with the push of a button and self-clean after each use, so that people don't have to, er, patronize a store in order to relieve themselves. But Seattle residents trashed the toilets, and now the city is closing its dilapidated, techno-riffic outhouses and selling them on eBay:

[T]he restrooms, installed in early 2004, had become so filthy, so overrun with drug abusers and prostitutes, that although use was free of charge, even some of the city’s most destitute people refused to step inside them....
“I’m not going to lie: I used to smoke crack in there,” said one homeless woman, Veronyka Cordner, nodding toward the toilet behind Pike Place Market. “But I won’t even go inside that thing now. It’s disgusting.”

Why did the plan fail? For starters, the people who used the toilets—transients and druggies—didn't have to pay for them:

Seattle officials say the project here failed because the toilets...were placed in neighborhoods that already had many drug users and transients. Then there was the matter of cost: $1 million apiece over five years, which because of a local ordinance had to be borne entirely by taxpayers instead of advertisers.

I should probably check with reason's Ron Bailey on this, but I think Seattle scripted its own commons tragedy.

Happy Cost of Government Day!

kmw@reason.com (Katherine Mangu-Ward) — Wed, 16 Jul 2008 12:40:00 EDT

As the good people at Americans for Tax Reform are quick to remind me, today is "the date of the calendar year on which the average American worker has earned enough gross income to pay off his or her share of spending and regulatory burdens imposed by government on the federal, state and local levels."

So treat yourself to a beer—or your drug of choice—tonight (perhaps at the reason happy hour). You deserve it. And when you think about all the terrible days you have had at work already this year laboring in the service of Uncle Sam, you might need to have another.

Going to the Dogs

jsullum@reason.com (Jacob Sullum) — Fri, 11 Jul 2008 11:29:00 EDT

In a recent New York Times op-ed piece, Boston College law professor Ray Madoff explains how we're all footing the bill for Leona Helmsley's $8 billion bequest to the world's canines: Nearly half that money is rightfully the U.S. government's, since Helmsley's estate would be taxed at a rate of 45 percent had she not devoted it to charity. "The charitable deduction constitutes a subsidy from the federal government," Madoff writes. "In Mrs. Helmsley's case...her $8 billion donation for dogs is really a gift of $4.4 billion from her and $3.6 billion from you and me."

Really? By Madoff's logic, every charitable donation for which someone, living or dead, receives a deduction is partly "a gift...from you and me." So is every child, home mortgage, adoption, medical expense, and student loan that reduces anyone's tax bill. Unlike Madoff, who wants to change the rules for charitable bequests to make sure the money goes to "good causes," I don't think the tax code should be used for social engineering. But as long as it is, people who take advantage of deductions aimed at encouraging certain kinds of behavior are accepting a "subsidy" in Madoff's sense—i.e., keeping more of their own money than they otherwise would get to keep.

The deduction-equals-subsidy argument is actually weaker in the case of Helmsley's bequest than it is for the average itemizing taxpayer, since the money that's going to the dogs has already been taxed. Madoff is complaining that failing to tax it again is unfair to the rest of us, at least as long as the money is supporting a cause he doesn't like.

The (Diminishing) Return of Pandering

tcavanaugh@reason.com (Tim Cavanaugh) — Thu, 10 Jul 2008 12:00:00 EDT

In a political season simply oozing hope, change, and historical firsts, here’s something that might actually be encouraging: a widening gulf between promised election-year giveaways and the expressed desires of the populace on the receiving end. Has shameless political pandering become one more item on the long list of services Washington can’t deliver?

This year’s combination of costly interventions and pork-barreling has not deviated from the classical script for Washington largess. If people are paying more than they used to for gas, the tradition goes, the federal government is supposed to get in there and make prices go down, preferably through a gas tax “holiday” like the one proposed by presidential hopefuls Hillary Clinton and John McCain. If real estate prices are falling and deadbeat mortgagees are being kicked back into the rental economy, the government must stand athwart the market yelling “Stop!” Food prices up? Pass a farm bill extending subsidies for farmers in order to lock in those prices while…uh, giving out food stamps to prevent tortilla riots?

What’s out of character this year is the mounting evidence that American voters are not showing much interest in these quack remedies. As Clinton and McCain treated drivers to both glad-handing and creeping Anglophilia (in America we take gas tax “vacations,” thank you) by offering to lift the 18.4 cent-per-gallon federal gas tax during the summer driving season, voters themselves said no. According to a national Rasmussen Reports poll, a majority of respondents either opposed or weren’t sure about the tax break. The idea never had majority support, and local polling throughout the spring primaries showed even stronger opposition.

Leave aside the case against a federal gasoline tax in the first place. Lifting it this summer as a one-time benefit or stimulus is practically a caricature of the contemptuous solicitousness with which Washington treats ordinary Americans, the equivalent of kissing the booboo of drivers who have seen gas prices nearly double over the past three years. If climate change is your thing, the proposal is particularly galling: A government that was truly serious about reducing carbon emissions, or for that matter curing America’s “addiction” to foreign oil (causes to which McCain and Clinton both pay lip service), would make every effort not to shield consumers from the rising costs of fossil fuels.

Through lack of public support (or common sense), that gas tax vacances ended up going nowhere. The same could not be said, alas, for this year’s pork-larded, $307 billion farm bill, which seemed to gain more traction as it grew less popular. Americans have been against farm subsidies for years, to the tune of 70 to 80 percent opposition. In that stance, they are for once supported by the mainstream media, which generally give negative grades to agricultural subsidies and were strongly opposed to this year’s handout. The bill, ironically if accurately described as “politically popular,” sailed into law, with the House and Senate voting 316-108 and 82-13, respectively—more than enough to override a presidential veto.

In terms of pressing its affections on an unwilling public, however, the farm bill had nothing on the heavily panting mortgage bailout bill—sorry, the Federal Housing Finance Regulatory Reform Act of 2008. This piece of legislation won the hearts of Congress, the presidential candidates, and, after some soul-searching, President Bush himself, while leaving the citizenry strangely unmoved. Throughout the first half of this year, assorted versions of the bill were concocted with the goal of delivering assistance to distressed homeowners, but doing so narrowly enough to avoid infuriating voters. We were told, among other things, that Americans wanted a bill that didn’t bail out banks, reward “speculative” home buyers, or give unfair help to players in the mortgage-backed securities market.

The one version of this wooly tale for which there was actually some evidence: Americans never wanted a mortgage bailout of any kind. In March Rasmussen found that Americans opposed bailing out homeowners by nearly a 2-to-1 margin (53 percent to 29 percent), and were even more strongly opposed to bailouts for lenders. (To be fair, Gallup around the same time managed to get a 56-42 percent majority in support of “having the federal government take steps to prevent people from losing their homes,” with no elaboration of what the steps were—an important data point given the “voluntary” refinancing efforts Treasury Secretary Henry Paulson was urging at the time.) In May, during consideration of a mortgage-rescue bill sponsored by Rep. Barney Frank (D-Mass.), Rep. Kevin McCarthy (R-Calif.) told the L.A. Times that his constituent mail was running “50 to 1: ‘Don’t bail these people out.’ ”

Is McCarthy just another aloof Republican? For his sake I hope not: His district, Bakersfield, ranks eighth nationwide in the number of foreclosure filings per household, according to the foreclosure-tracking company RealtyTrac. Now this great country is not lacking in areas that have been designated “foreclosure epicenters.” Yet even in Bakersfield, which may actually deserve that title, bailout supporters are as rare as hens’ teeth. So who is for this thing?

That would be, first, the media, which have repeatedly expressed shock at the “surprising amount of opposition” to a mortgage rescue (The New York Times, in December), hoped that the housing crisis might “overcome bailout resistance in both parties and the public” (financial columnist Lou Barnes, in March), and puzzled over the “curious coalition opposed to a state rescue for mortgage borrowers” (Financial Times, in April). And second, the politicians: As of this writing, some version of the bailout plan appears likely to reach the president’s desk and receive his signature.

The American majority, on this handout and others, appears to hold very different views. Unfortunately, that distributed sense of fiscal responsibility doesn’t count for much against the concentrated strength of lobbyists, media buttinskis, and politicians who don’t want to get fired for not looking busy. But hey, a guy can dream. I mean, it’s not possible for democratically elected officials to go on thwarting the will of the people forever, is it?

Tim Cavanaugh is Web editor of the L.A. Times’s editorial pages.

Obama, McCain, and Financial Disaster

schapman@tribune.com (Steve Chapman) — Thu, 10 Jul 2008 07:00:00 EDT

Federal budget policy is a dry subject with far too many numbers and charts, which makes it uninviting to most Americans. But the theme of the current budget story is one that could have come from a blockbuster summer movie: We are doomed. There is a fiscal asteroid on course to pulverize us, and no one is coming to the rescue.

The problem is simple and depressingly familiar. This year, federal spending will exceed federal revenue by more than $400 billion. Given the weak state of the economy, the deficit will get worse before it gets better.

Actually, it may never get better, because the current shortfall coincides with the start of the most dreaded fiscal event of all time: the retirement of the baby boomers, who will soon consume eye-popping amounts in Social Security and Medicare.

If that's not bad enough, Bruce Willis is not on hand to intercept the doomsday object before it arrives. Worse yet, neither Barack Obama nor John McCain wants the job.

The latest proof came when McCain unveiled his economic plan, in which he vows to eliminate the deficit in four years. His plan to balance the budget is simple: He plans to balance the budget. Exactly which programs he will trim to reach that goal are anyone's guess.

For someone with a reputation as a fearless foe of congressional earmarks and pork-barrel waste, McCain is amazingly timid in taking on the rest of the budget. About his only specific proposal is a one-year freeze in those discretionary programs that don't involve defense or veterans.

McCain doesn't say how much that would save, but it wouldn't be a lot. Those expenditures amount to only 17 percent of all federal outlays. Eighty-three percent of the budget would keep on growing. After a year, so would the other 17 percent.

He vows to follow up with "comprehensive spending controls." But promising to control spending in general means promising to control nothing in particular.

Just because voters will go along with a vague limit on total outlays doesn't mean they are willing to surrender funds going to them or their favorite causes. It's one thing to inform a toddler that he shouldn't eat too much candy. It's another to take the Tootsie Roll Pop out of his hand.

The Republican standard-bearer, however, acts as though the task will be easy. Among the methods offered in this plan: "Eliminate broken programs. The federal government itself admits that one in five programs do not perform." How about naming one? How about promising to pound a stake through its heart?

When it comes to spending, though, Obama is even worse. The National Taxpayers Union Foundation added up all the promises made by the two candidates and found that McCain's would cost taxpayers an extra $68 billion a year. Obama's add up to $344 billion a year.

The Illinois senator's pledge to get tough on unnecessary expenditures is as solid as cotton candy. Among his vows is to "slash earmarks to no greater than what they were in 2001," but earmarks make up less than 2 percent of the budget. Trying to restore fiscal discipline by cutting earmarks is like trying to lose weight by adopting an exercise program for your left index finger.

Obama claims he'll pay for all his new spending with new revenues and spending cuts. But like McCain, he has been hazy on the details. And it will be far easier for him to get Congress to approve new spending than to enact the measures needed to pay for it. Unless Obama is willing to take on his own party with the veto pen, we should expect four more years of irresponsible budgeting.

His only defense is that he would not have to make up as much lost revenue as his rival. The Tax Policy Center says his tax plan would cut federal receipts by $2.7 trillion over the next decade, compared with $3.6 trillion for McCain.

The details differ, but the basic picture is the same regardless of who wins: Washington will spend more, red ink will roll down like a mighty river, and we as a nation will continue to dodge the critical choices we face.

It would be nice to think some unexpected event will save us from the consequences of that folly. But as McCain is fond of saying, it's always darkest just before it goes totally black.

COPYRIGHT 2008 CREATORS SYNDICATE, INC.

Taxation Without Transportation

kmw@reason.com (Katherine Mangu-Ward) — Wed, 02 Jul 2008 16:13:00 EDT

Ever tried to cancel an airline ticket, only to discover that all the taxes, fees, and other annoying tacked on charges aren't refundable? Turns out it's just the U.S. government that keeps taxes for services not rendered.

European airlines refund taxes and fees, even when the ticket itself is nonrefundable. "For airlines, refunding the taxes and fees actually showcases to consumers what a large percentage of tickets those expenses are -- an issue that airlines have been harping on for many years."

And we're not talking chicken feed here. From The Wall Street Journal:

Last year, taxes and fees on U.S. domestic flights averaged $50 per ticket, with an effective tax rate of nearly 16%, according to a study by the aviation division of Daniel Webster College in Nashua, N.H. (The average domestic ticket cost $363 last year, including the $50 in taxes and fees, the study found.)

Don Young Gets Medal-of-Freedomed

rbalko@reason.com (Radley Balko) — Mon, 30 Jun 2008 10:00:00 EDT

A cabal of allegedly free market advocacy groups has inexplicably bestowed Rep. Don Young (R-Alaska) with a "Hero of the American Taxpayer" award.

The link above explains why that's not a terribly bright idea.

Al Sharpton, Tax Protester?

kmw@reason.com (Katherine Mangu-Ward) — Thu, 19 Jun 2008 16:51:00 EDT

Sharpton sticks it to the (tax) man:

Sharpton himself, his business entities and his nonprofit civil-advocacy group owe millions in back taxes, documents show....
As of 2006, the most recent year that financial documents for [Sharpton's National Action Newtwork] are publicly available, it owed $1.9 million in payroll taxes and penalties....
Personally, Sharpton owes $931,397 in federal taxes and $365,558 in New York City taxes, according to an IRS lien.

When you throw in Wesley Snipes, it's a trend of two tax-dodging celebs! It's sweeping the nation!

UPDATE: Read the proud history of the "trend of two" here.

I Got a Letter from the Government the Other Day

info@reason.com (Damon W. Root) — Fri, 06 Jun 2008 10:56:00 EDT

Libertarian heavyweight Robert Higgs is none too happy about those "economic stimulus" checks currently winding their way to our bank accounts:

There is, however, a little catch for you younger people: because the government was already running a deficit, its outlays for the stimulus payments must all be covered by borrowing, which means that the public debt will rise by the full amount of the payments. And guess who will be responsible for servicing that additional debt and paying it off when it matures. If you said "we, the U.S. taxpayers, will be responsible," then give yourself an A in the course. In short, we are getting a check from the government today, but at the same time, we are also being given the privilege of paying that same amount back, with interest, in the future.

Whole thing here.

Republicans and Tax Realities

schapman@tribune.com (Steve Chapman) — Thu, 15 May 2008 12:00:00 EDT

In the 1980s, a Republican House member, fed up with bipartisan efforts to reduce the budget deficit, denounced Republican Sen. Bob Dole as the "tax collector for the welfare state." Newt Gingrich, who later became Speaker, had captured something essential about the party's mood. It was not against the welfare state. It was just against paying for it.

That remains the case today, as John McCain and his supporters make clear. He rules out tax increases to cut the deficit, while vowing to get tough on spending. But the Committee for a Responsible Federal Budget says that while his proposals would slow the growth of spending, total outlays would still rise faster than inflation. Result: a larger deficit.

Republicans used to argue that keeping taxes down was the only way to restrain spending. But as taxes have been cut under President Bush, spending has soared by 29 percent (after adjustment for inflation). Meanwhile, a $236 billion budget surplus has morphed into a deficit of more than $400 billion.

If we want to cut federal spending, apparently we have to do it directly. And if we don't want to cut spending, the least we can do is pay for it ourselves instead of running up debts for our children to pay.

But Republicans object to raising taxes in general, and one in particular: the tax on capital gains. Obama's plan to increase the rate applied to the sale of assets has provoked howls of outrage on the right.

McCain said it proves Obama "doesn't understand the economy." An editorial in The Wall Street Journal claimed that lower rates yield higher revenues and drew a damning conclusion: "Either the young Illinois senator is ignorant of this revenue data, or he doesn't really care because he's a true income redistributionist who prefers high tax rates as a matter of ideological dogma regardless of the revenue consequences."

You don't have to be a Democrat to doubt that logic. Conservatives regard Obama as a true-blue liberal who itches to expand the size of the federal government. Do they think he would forfeit money to do that just for spite?

As it happens, Obama is the one who is heeding data rather than ideology. Most economists believe that in the long run, the 2003 cut in the capital gains rate reduced revenue rather than raising it. For that matter, even the Bush administration's budget admits as much. Keeping the rate at 15 percent rather than letting it revert to 20 percent, it estimates, would cause a revenue loss of $79 billion over the next decade.

It's true that rates and revenues may sometimes move in opposite directions. When the rate rose in 1987, capital gains realizations dropped. But there's an obvious explanation for that transitory effect. In 1986, seeing the increase coming, people hurried to cash in capital gains while the rate was low.

It's also true that after the rate fell in 1997, realizations rose. But as University of Michigan economist Joel Slemrod notes, that increase began well before the cut—and they plunged after 2000, without any rate increase. Assessing the last two decades, the Congressional Budget Office reports that any positive effect on realizations is "certainly not large enough to offset the losses from a lower rate."

Sensible people might not mind the lost revenue if the change strengthened the economy. But chances are it does just the opposite, by encouraging taxpayers to jump through hoops to reduce their tax liability.

A low capital gains rate hinders the free market by inducing people (especially very wealthy ones) to find ways to take earnings as capital gains instead of ordinary income. In other words, it encourages them to do things that would not make economic sense otherwise. A modestly higher rate would discourage such wasteful avoidance.

Like all taxes, capital gains taxes are a burden. But given that the federal government spends nearly $3 trillion a year, taxes are a regrettable necessity. When we cut capital gains taxes, we have to raise other taxes to make up the loss. Or we have to borrow more money—which means raising taxes in the future.

Republicans may abhor the obligation of paying for the welfare state they helped preserve. But for the moment, the only real choice is between doing that job better and doing it worse.

COPYRIGHT 2008 CREATORS SYNDICATE, INC.

Tax Revolt in Tea Party Zone

kmw@reason.com (Katherine Mangu-Ward) — Tue, 13 May 2008 07:00:00 EDT

Massachusetts must have been a terrifying place in 1995. A relatively recent arrival in the commonwealth myself, I had no idea that the mid-90s was a time when health care was unobtainable. I didn't know about the washed out bridges and unplowed roads. Nor do I recall seeing bands of feral children roaming the streets from 8:00 am to 3:00 pm due to the lack of public schools.

But a popular ballot initiative to eliminate Massachusetts's income tax—thus bringing the state budget back to 1995 levels—is being greeted with howls of protest and predictions that the state will degenerate into underfunded chaos.

Gov. Deval Patrick sees trouble ahead should the flow of income tax revenue be dammed up: "Just as it is the people's money it is also the people's bridges and the people's roads and the people's schools and the people's broken neighbors, in some cases."

Massachusetts Senate President Therese Murray says she understands that people would like to have their money back—the average taxpayers would pay about $3,600 less in taxes—"but when their child has no school to go to and they can't get out their door to go to work because the street hasn't been plowed in the winter, I think the public would be back here really quick saying, 'Please, fix this.'"

New Hampshire, Texas, and Florida are doing fine without an income tax, but the Bay State (or Taxachusetts, as its citizens fondly call it) has a current rate of 5.3 percent on income.

The initiative is brutally simple: A 50 percent decrease in the income tax rate effective January 1, 2009, and the rest abolished one year later. That takes the state from its current revenues of about $28 billion down to the $17 billion it had in 1995.

The initiative process has three phases. Last fall, the Committee for Small Government gathered 100,000 signatures, well in excess of the 66,593 needed to push the initiative forward. Then there's a period where legislators can go ahead and pass the proposed law, thus skipping the balloting process. Needless to say, they didn't opt for that. Now the group must gather another 11,099 signatures and they'll be on the ballot.

"People think of us as a liberal state, but we're pretty good at [anti-tax] ballot initiatives," says Barbara Anderson, executive director of Citizens for Limited Taxation, a group that's been fighting taxes in Massachusetts since the 1970s. In 2000, her group used the ballot to win a rollback of a "temporary" tax increase still in effect from 1989. The tax rate was supposed to gradually decrease until it hit 5 percent. In Massachusetts, however, ballot initiatives are just for statues, not constitutional amendments (as they are, for example, in California). This means that the legislature can override them, which is exactly what happened. Lawmakers froze the rollback in 2002 at 5.3 percent.

This means that there is a chance the legislature could simply repeal the income tax elimination initiative as well. Given the popular support for the initiative, however, Anderson wonders if legislators might be feeling cautious. "If a few of them lose their jobs in November, I don't think the others are going to want to come back in and repeal right away."

In 2002, the Committee for Small Government snagged 45 percent of the vote with a similar initiative. "We found we could get a good respectable vote," says committee chair Carla Howell. The effort got almost no coverage, and every single one of the few editorial pages that took notice of the proposal opposed it, says Howell.

This time around, people are taking notice, in part thanks to a big campaign gearing up against the initiative. A far-from-ragtag crew of union members and city and town employees groups have brought in a hired gun in the form of former Blue Cross Blue Shield executive and civic leader Peter Meade to lead their Coalition for Our Communities. Howell is pleased to see the big guns arrayed against her. "The more they advertise, the more they will be helping us out. We don't need to sell our side. Our biggest challenge is just making sure that every voter in the state knows about it."

Howell also rejects concerns that the measure is too radical: "To be increasing the price of government continually where people in the private sector are dealing with wage freezes and job losses, that's radical!" Anderson echoes the sentiment: "It doesn't matter if you phase it in over 14 months, or 5 years, or 10 years, you're going to get the same rhetoric," she says, "It's the end of the world!" Might as well go whole hog.

Plucky though these small government campaigners may be, it's unlikely that Massachusetts lawmakers will actually stand by while $11 billion slips through their clammy fingers. Instead, they'll increase sales taxes, luxury taxes, and other fees. In fact, they probably won't even let the income tax phase out all the way. But having these kinds of fights in the past has at least staved off more increases, which would be better than nothing.

A statewide survey in April by polling firm Fabrizo McLaughlin found that Massachusetts voters think their government wastes about 41 cents [PDF] for every dollar of revenue. Elimination of the state income tax would reduce the state's budget by about 40 percent. As the kids used to say in the '90s: Coincidence? I think not.

Katherine Mangu-Ward is a reason associate editor.

Now Playing at Reason.tv: How the WSJ editorial page gets made—Q&A with Robert Pollock

Mon, 12 May 2008 15:00:00 EDT

Former reason intern Robert Pollock has been the editorial features page editor at The Wall Street Journal for more than a year. The Buffalo native sat down recently with reason.tv to talk about how he came to his libertarian beliefs; how the mainstream media is toeing the Journal's line on capital gains taxes; why The Washington Post is the Journal's toughest competition and why The New York Times' editorial pages have a "hectoring" tone; how the GOP turned its back on its small-government philosophy; why America needs more immigrants; and much more.

This 10-minute interview was conducted by reason.tv Editor Nick Gillespie and filmed by reason.tv's Dan Hayes.

Click below to view.

New at Reason

Tue, 06 May 2008 15:20:00 EDT

Science columnist Ronald Bailey does the math and exposes the Clinton (McCain) gas tax holiday fraud. Then he asks: Are voters stupid enough to fall for it?

Read all about it here.

Are Voters Stupid Enough to Sell Their Votes for Just $27 and Change?

rbailey@reason.com (Ronald Bailey) — Tue, 06 May 2008 15:00:00 EDT

During the 1992 Democratic presidential primaries, former Massachusetts Sen. Paul Tsongas denounced rival Gov. Bill Clinton (D-Ark.) as a "pander bear" who "will say anything, do anything to get votes." Sen. Hillary Clinton (D-N.Y.) is clearly following in her husband's electoral footsteps by proposing a "gas tax holiday" for the summer driving season. When primary votes are at stake, who needs to heed the laws of economics or even good sense?

Clinton's idea, which is also endorsed by Republican presidential hopeful Sen. John McCain (R-Ariz.), is to suspend the 18.4 cents per gallon federal gas tax for three months in order to give cash-strapped motorists relief at the pump. Assuming that dropping the tax would actually lower the price per gallon by the full 18.4 cents, how much would this actually save the average family?

Let's make a rough calculation, using an average commute of 20 miles per day in an automobile with a 15 gallon tank getting the corporate average fuel economy (CAFE) mileage of 27.5. A commuter would then fill up every 20 days. There are 98 days between Memorial Day and Labor Day, so that means five fill-ups over the summer. Five 15 gallon fill-ups at 18.4 cents per gallon less would mean that motorists would save a total of $13.80 for the summer. Let's double that for vacation driving and shopping and that comes to a grand total of $27.60 in savings. About enough to buy five Big Mac Combos.

But would prices actually go down by 18.4 cents? Not likely. As the Tax Foundation reports, most economists assume "that a temporary gas tax holiday would merely increase the profits of the oil industry due to the inability of domestic supply to respond to increased demand in the short run."

In addition, if the federal gas tax is dropped for the summer, the highway trust fund that pays for the upkeep of our crumbling roads and bridges will be short $10 billion. Not to worry, says Sen. Clinton: We'll make up for that fiscal shortfall by taxing the excess profits of Big Oil.

Clinton clearly hopes that primary voters will want to stick it to the greedy oil companies. After all, Exxon Mobil just announced $10.9 billion in profits for the final quarter of 2007. So Sen. Clinton says she'll take away some of those profits to pay for her gas tax holiday. And Clinton's not alone. Her Democratic rival, Sen. Barack Obama (D-Ill.) is also calling for a windfall profits tax on oil companies. But will it work?

The last time the United States imposed a windfall profits tax on oil companies was in 1980 and it lasted until 1988. The result, according to a 1990 Congressional Research Service analysis, was that the tax on oil company profits decreased domestic production by 3 percent to 6 percent and increased dependence on foreign oil by 8 percent to 16 percent. Keep in mind that the big private oil companies actually control only about 6 percent of the world's known oil reserves—the rest are owned by gigantic foreign national oil companies. And just where do private oil companies get the billions they invest in projects to increase supplies? That's right; their profits. In other words, Clinton actually ends up sticking it to consumers when she tries to stick it to Big Oil.

Sen. Clinton may be feeling the pain of motorists right now, but once she's in the White House, she plans to inflict more pain at the pump. In fact, all three presidential hopefuls plan to do this. Why? Because Clinton champions "the most aggressive approach to reducing global warming out there." She wants to cut the emissions of greenhouse gases that warm the planet by 80 percent by 2050. To do this she favors a cap-and-trade market on carbon dioxide emissions. The Progressive Policy Institute has calculated that a relatively modest $15 per ton price for carbon dioxide emissions would boost the price of gasoline by 15 cents per gallon. But Sen. Clinton is counting on voters failing to connect the dots between gasoline prices and her global warming policies.

This past weekend, on ABC News' Sunday talk show, "This Week," Sen. Clinton was asked by host (and former Bill Clinton aide) George Stephanopoulos, "Can you name one economist, a credible economist who supports the suspension?" Sen. Clinton replied, "I'm not going to put my lot in with economists." For their part, economists are certainly not putting their lot in with Clinton. According to Bloomberg News, 200 prominent economists, including four Nobelists, have signed a petition denouncing Clinton's gas tax holiday as a "bad idea." Even the New York Times' Clinton votary economist Paul Krugman grumbled that her ploy is "pointless, and disappointing."

We will find out soon if Democratic Party primary voters are really stupid enough buy into this cynical Clinton pander.

Ronald Bailey is reason's science correspondent. His book Liberation Biology: The Scientific and Moral Case for the Biotech Revolution is now available from Prometheus Books.

The Coming Recession

Mon, 05 May 2008 12:05:00 EDT

As this issue of reason goes to press, the dollar is at a record low against the euro, oil is more than $100 a barrel, consumer prices are up 4 percent from a year ago, and Federal Reserve Chairman Ben Bernanke is cutting interest rates so often that the guys at the office have taken to calling him Edward Scissorhands. The subprime mortgage fallout has yet to finish wreaking its havoc, Bear Stearns is holding on by the skin of its teeth, and the government’s bucket may not be big enough for all the bailouts under way. Gloomy faces dominate CNBC and the Fox Business Channel, muttering long-forgotten terms like inflation and recession.

President George W. Bush, by contrast, is relatively cheery, conceding that we are in “challenging times” but arguing that “our financial institutions are strong” and the capital markets “functioning efficiently and effectively.” “In the long run,” Bush said in a March 17 White House address, “our economy is going to be fine.” And some statistics back up the sunny view: Unemployment is still at a low 5.1 percent, and productivity remains high.

Presidential hopefuls are offering a variety of explanations and possible solutions for what 42 percent of voters say is the most important issue to them, according to a recent CNN poll. At a March 20 rally, Sen. Barack Obama (D-Ill.) suggested the problem was a combination of “special interests” and war: “At a time when we’re on the brink of recession, when neighborhoods have ‘For Sale’ signs outside every home, and working families are struggling to keep up with rising costs, ordinary Americans are paying a price for this war.” Sen. Hillary Clinton (D-N.Y.) took a different tack: The “economic crisis is, at its core, a housing crisis,” she said in a major Philadelphia address on March 24, but she cited other factors as well, including Bush’s “brain dead energy policy.” Sen. John McCain (R-Ariz.) won the Republican nomination without really talking much about the economy.

How will we know when it’s fair to speak the dreaded r-word? In general, a recession is defined as a decline in a country’s gross domestic product for two or more successive quarters. In the United States, an official pronouncement is required from the professional doom diagnosticians on the business-cycle dating committee of the National Bureau of Economic Research, who often take other aspects of an ailing economy into account. GDP growth slowed dramatically at the end of 2007 and is projected to be zero in the second quarter of 2008, so we look to be well on our way.

As oil prices continued to climb and housing prices continued to slide, Reason assembled a panel of economists and other market watchers to help make sense of the headlines, point some fingers, figure out how we got where we are, and offer advice about how to get out with our wallets intact.

Blame the Fed
Gerald P. O’Driscoll Jr.
The U.S. economy is in the midst of an old-style credit crunch brought on by a combination of bad policies and incredibly lax underwriting standards at financial institutions. The biggest policy failure was the decision by Alan Greenspan’s Federal Reserve to hold interest rates too low for too long. That led to a tsunami of credit that inundated the economy with cheap money. Mortgage lenders in particular were flush with funds and searched for deals wherever they could be found. Heretofore unqualified borrowers suddenly “qualified” as underwriting standards relaxed and then disappeared.

Egged on by statements from Chairman Greenspan, market participants came to believe the era of low interest rates would last indefinitely. But the era did come to an end as the Fed was forced to begin raising interest rates. Faced with the prospect of paying higher rates on their mortgages in the future, borrowers began defaulting. First home prices stopped rising, and then home prices began dropping—precipitously in some overheated housing markets. Now we are approximately six months into a new cycle of lower interest rates, but with no end in sight to the crunch.

At least two other factors stoked the crisis. First, many exotic financial products were issued whose value was tied in one way or another to home prices and the value of the securities into which home mortgages were bundled, such as collateralized mortgage obligations. The pricing of these financial products was the product of complex economic models, not the outcome of market transactions. As the value of the underlying homes and mortgages declined, pricing of the financial exotica became nearly impossible. As we learned in the collapse of Long Term Capital Management, these pricing models fail precisely when their accuracy is most important—in times of financial turbulence. The inability to price the financial products has exacerbated losses among the firms holding them.

There is a wonderful parallel here to the collapse of the Soviet Union. As the great Austrian economist Ludwig von Mises argued almost 100 years ago, central planning inevitably fails because there are no market prices to allocate resources. Market prices can only be the outcome of actual market transactions among buyers and sellers. Planners used mathematical formulas to value resources, especially capital. Now Wall Street wizards have imported Soviet thinking to allocate financial capital. Is it any wonder that it failed?

The second factor contributing to the housing market collapse was the federal government’s commitment to “affordable housing.” Lenders, especially Fannie Mae and Freddie Mac, were pressured into promoting housing to low-income groups that could not qualify for normal loans. That policy is predicated on the belief that there is an underserved group of people who, but for economic discrimination or some other market failure, would be homeowners. That social goal and the credit-driven desire for more deals merged into mortgages made without adequate collateral.

We learned two lessons from the drive to make home ownership available to the heretofore underserved. First, many of these were not homeowners because they could not afford a home. Only under the temporary “hothouse” conditions in mortgage markets did they seem to qualify. Second, people who have no equity in their homes cannot meaningfully be said to be owners. When times turn tough, they will walk away. They were effectively renters, not homeowners.

The crisis will end when housing markets hit bottom and the prices of mortgage securities stabilize. Banks also need to unwind their positions in exotic financial derivatives.

The Fed needs to understand it is facing a capital crisis, not a liquidity crisis. The very low interest rates on safe assets show there is ample liquidity in financial markets. The Fed should not supply capital. That is the job of markets, and they are doing it.

Gerald P. O’Driscoll Jr., formerly a vice president and economic adviser at the Federal Reserve Bank of Dallas, is a senior fellow at the Cato Institute.

No Hoofing to Hooverville
Megan McArdle
Just one thing puzzles me about the race to the White House: Why would anyone want to get there? I know that being crowned prettiest girl at the prom is the great lasting rejoinder to everyone who made fun of you in middle school, but given the economic condition of the country, the next four years seem like a rotten time to reign.

Ignore the econopundits making comparisons to the 1930s. While the parallels are striking, we are missing the key ingredient in the onset of the Great Depression: tight Fed policy that caused the money supply to shrink by 25 percent. You can put away that bindle and push the apple cart back in the garage.

But if we’re not exactly hoofing it to Hooverville, we nonetheless face one hell of a rough patch. Record high oil prices, surpassing even the momentous spikes of the 1970s, have brought with them another piece of ’70s memorabilia: stagflation. Federal Reserve bankers are faced with an extremely unpalatable choice. They can tighten up the money supply to combat inflation, at the cost of making the probable recession even deeper. Or they can hang loose and watch inflation march upward while the economy does God knows what. With the credit markets broken, the Fed may end up losing its hard-won credibility as an inflation fighter while producing only marginal benefits to growth.

The president has no control over any of this, but that won’t stop people from blaming him anyway. He will also almost certainly have to come up with some regulatory scheme for increasing transparency and accountability in the vast new financial markets that have been created by the securitization of loans during the last 30 years. It will be a tough order to give investors better information without strangling valuable financial innovation.

But by far his biggest quandary will be the budget. Obama (who I assume will be the Democratic nominee) wants a big new health care entitlement; John McCain wants even more tax cuts. Both will be frustrated by adverse budget math. The economic slowdown is going to cut into tax revenues, and most economists agree that a recession is not a good time to raise taxes—nay, not even on “the rich.” Meanwhile, the baby boomers are about to start retiring, turning Social Security, Medicare, and Medicaid into the sucking chest wound of the federal budget. Assurances that the trust fund won’t run out until 2042 notwithstanding, the president will have to start coping with Medicare deficits as soon as next year, and a falling Social Security surplus soon thereafter. All this will be compounded by the slowdown in GDP growth made inevitable by declining labor force participation and service-intensive elder care.

Any future president should be panicking. That doesn’t mean the rest of us should. At the end of the day, America has the most flexible and resilient economy in the world. We’ll pull through somehow, although a lot of us won’t be very happy in the process. But least happy of all will be the president—the bum we get to throw out when things don’t go our way.

Megan McArdle blogs about economics at The Atlantic.

First, Do No (More) Harm
Ron Paul
This nation is facing an economic crisis the likes of which have not been seen in several generations. It is crucial that we take to heart the lesson that should have been learned after the Great Depression, which is that the central bank should do nothing.

I have been writing and speaking for years about the dangers of the Federal Reserve, but the importance of the actions of the Fed in laying the groundwork for the downturn in the business cycle pales in comparison to the damage done by actions the Fed takes once the downturn arrives. At the first sign of crisis, even with growing inflation, the Fed began to further inflate, lowering interest rates, stepping up open market operations, and injecting liquidity. World markets, already jittery, see these steps as affirmations of their worst fears and react accordingly by selling assets denominated in smoke-and-mirrors fiat currency and fleeing to the solid value of gold, oil, and commodities.

Every action the Fed takes sends a signal that the U.S. dollar will continue to be inflated and therefore debased, which is why the correct action is no action at all. Lower interest rates and liquidity injections are viewed with alarm by foreign markets, while higher interest rates and money tightening are anathema to many domestic investors. The Fed is between a rock and a hard place, and its insistence on inflating the money supply to manage the brittle economy will likely be our undoing.

Until we realize that the Federal Reserve system itself is flawed, and until we recognize that no one economic maestro or committee of economic experts can set prices and plan the economy, this nation will continue to flounder about in an economic malaise. Ending that may take a much more serious downturn than anything we’ve seen yet. It is beyond doubt that our economy is in recession, and the only rational response is for the government to allow malinvested resources to liquidate so that we can return to a stable economy.

While the Fed should take a hands-off approach, Congress should aggressively cut taxes and spending and repeal regulations that stifle economic growth, such as the Sarbanes-Oxley Act. This country has enormous economic potential, an industrious work force, and an enviable history of innovation and entrepreneurship. If the government would learn from its past mistakes and abstain from further interference, we could get back on a solid footing and grow to our full potential.

My fear is that the Fed will continue with its policy of inflation and Congress will be pressured to continue to stimulate the economy with government spending, probably extending to even more outright taxpayer-funded bailouts of financial institutions, subprime mortgages, and government-sponsored enterprises that are “too big to fail.” These debt-funded efforts reward the recklessness of some institutions at the expense of the productive sectors of our economy. Until the federal government acts to extricate itself from intervention in the markets, economic activity will be hindered and true recovery will not take place.

Rep. Ron Paul (R-Texas) is a nine-term congressman and a candidate for the Republican presidential nomination.

The Vicious Ethanol Cycle
Robert Bryce
I see three big dangers to the global economy: the ongoing fallout from the mortgage mess, rising energy prices, and rising food prices. That last item is the most maddening, because surging food prices are largely the result of the ethanol scam.

As U.S. ethanol distilleries vacuum up ever increasing quantities of corn, and corn takes up an ever larger percentage of arable land, prices for all types of food are skyrocketing. During the last two years, corn prices have more than doubled and soybean prices have nearly tripled. In 2007 food prices in the U.S. increased by nearly 5 percent. Bill Lapp, of the Omaha-based research firm Advanced Economic Solutions, told The Boston Globe in March that he expects food prices to increase at an annual rate of 7.5 percent for the next five years.

Because of mandates requiring gasoline producers to mix ethanol with their fuel, 20 percent of the U.S. corn crop in 2006—about 2.1 billion bushels—was diverted into ethanol production. By 2009, according to the National Corn Growers Association, about one-third of the expected crop—some 4 billion bushels—will be used to make motor fuel. And those projections were made in April 2007, eight months before Congress passed the Energy Independence and Security Act of 2007, which requires the consumption of 36 billion gallons of ethanol by 2020, a fivefold increase over current levels.

The far-reaching economic impact of ethanol mandates is already being felt. In early 2007, tens of thousands of people marched in the streets of Mexico City to protest the rising cost of tortillas, an increase that Mexico’s secretary of economy, Eduardo Sojo, blamed on American corn ethanol production. In March of this year, Pilgrim’s Pride, the world’s largest poultry processor, shuttered a plant in Siler City, North Carolina, and fired 1,100 workers. Company CEO Clint Rivers laid the blame squarely on the ethanol mandates, predicting that “there is much more to come” in the way of food price increases. “We’re spending our tax dollars to raise the price of our food to subsidize the ethanol industry,” he said.

Congressional meddling in the energy market has created what Lester Brown, the president of the Earth Policy Institute, calls an “epic competition” between “the world’s supermarkets and its service stations.” Therein lies the perversity of ethanol mandates: As the global economy heads for rougher times, food prices are soaring. And those prices will increase anxiety among consumers, who will further reduce their discretionary spending. Congress has created a negative feedback loop that will reverberate for years to come.

Robert Bryce is the managing editor of Energy Tribune. His latest book is Gusher of Lies: The Dangerous Delusions of “Energy Independence” (PublicAffairs).

War Is the Health of the Civilian State
Robert Higgs
Adam Smith famously observed that there is “a great deal of ruin in a nation”—that is, nations can take a lot of abuse. Let’s hope he was right, because the George W. Bush administration has taken a great many actions during the past seven years that contribute to economic ruin.

Much of the White House’s faulty economic policy can be traced to its wars in Afghanistan and Iraq, especially the latter because it has been larger, costlier, and more diverting. I use the word diverting deliberately to emphasize that the government’s military adventures in southwest Asia have served to draw the public’s attention away from economic measures that otherwise would have attracted more notice and hence more resistance.

One reason war is always associated with especially rapid growth in the size, scope, and power of the state is that it focuses people’s attention on what is seen as the most urgent matter, so they simply don’t notice what the government is doing in other areas. Another reason is that during wartime many people increase their broad support for the government and are less inclined to challenge its actions even when those actions have little or nothing to do with the war.

Hardly anyone was surprised that real military spending (measured in accordance with the government’s own narrow definition) increased by almost 60 percent between 2000 and 2007, compared to real GDP growth of 18 percent during that time. Note, however, that the government’s real nondefense outlays increased concurrently by more than 24 percent—an increase one-third greater than that of GDP. When people let down their guard in “supporting the troops,” they permit the government to make greater headway in its ceaseless quest to enlarge spending in a wide range of areas, many of them strictly civilian in nature.

The administration has partially concealed the burden of its spending binge by resorting to deficit finance. Federal debt held by the public increased by 49 percent between the end of fiscal 2000 and the end of fiscal 2007—a 24 percent increase after adjusting for inflation. To facilitate this surge in public borrowing, the Federal Reserve engineered a 40 percent increase in the monetary base, easing credit conditions in the commercial banking sector. The real estate bubble (now bursting) and the substantial depreciation of the dollar’s international exchange value are but two of the consequences of these reckless, war-spawned fiscal and monetary policies.

In view of the plunging stock market, my guess is that the current recession—in which many of the easy-credit-induced malinvestments of the past seven years are being liquidated by means of write-offs, loan defaults, bankruptcies, and other asset forfeitures—has much further to run. If you like the present worsening economic situation, write the president and your congressional representatives a letter and thank them for their war and their related economic spoliation.

Robert Higgs, a senior fellow in political economy at the Independent Institute, is author of Crisis and Leviathan: Critical Episodes in the Growth of American Government (Oxford University Press) and many other books.

Stagflation or Depression?
Robert E. Wright
The current U.S. economic outlook is as bleak as it was in 1974 or even 1930. Will the economy wither? Or will it just wilt a little before blossoming in a bath of Fed-supplied liquidity? Nobody knows for sure, but I fear the former. Here’s why:

Our educational system does a poor job of teaching people how to think independently. It always has, but until recently that wasn’t a big problem. Today’s globalized economy, however, demands ever larger numbers of engineers, doctors, scientists, and sundry creative types. We probably won’t create enough independent thinkers until we have school choice at the primary, secondary, and tertiary levels.

Thankfully, entrepreneurs abound. They’ve pulled us out of the economic fire in the past and could do so again. But they are more hamstrung than ever with high, uncertain, and often capricious taxes and regulations that do not appear to be going away anytime soon.

Something stinks in our financial system. Six different mortgage securitization schemes blew up between the Civil War and World War II for exactly the same reason that subprime mortgages tanked last year: very poorly designed incentives for mortgage originators. Why don’t financiers and their regulators pay more attention to America’s rich financial heritage? Their modeling is more sophisticated than ever, but their economic reasoning is not.

The national debt is so high ($9.4 trillion, or almost $31,000 per person) that the government must largely rely on monetary stimulus rather than more salubrious fiscal measures, such as permanently cutting taxes. Too much easing by the Fed could lead to 1970s-like inflation and further financial havoc.

Urged on in part by the example set by their profligate leaders, Americans wallow in a huge pile of private debt as well. A high level of individual leverage has become a permanent fixture of the nation’s landscape. Americans owe so much that to keep growing, financial institutions have to push the margin of safety by making loans on ever thinner collateral and ever weaker covenants. If the economy slows significantly, many more poor-quality loans will hit the proverbial fan. The ensuing mess will stink and take a long time to clean up.

Even if the Federal Reserve manages to save the economy this time, these problems may continue to fester, breeding the next economic catastrophe. Perhaps, though, even greater levels of incompetence in other countries will break our fall.

Robert E. Wright is the author of One Nation Under Debt: Hamilton, Jefferson and the History of What We Owe (McGraw-Hill) and a curator for the Museum of American Finance. He teaches business, economic, and financial history at New York University’s Stern School of Business.

The Only Thing to Fear Is Fear-Driven Government ‘Control’
Donald J. Boudreaux
New York Times columnist Gail Collins was underwhelmed by the president’s folksy course-things-ain’t-great-now-but-we-Americans-with-our-rebate-checks-and-incessant-complaining-about-congressional-earmarks-are-gonna-be-just-fine address to the Economic Club of New York on March 14. She complained that “in times of crisis you would like to at least believe your leader has the capacity to pretend he’s in control.”

This is the attitude that scares me. I worry not a whit that the subprime crisis or falling share prices will cause long-term economic woe. As unnerving as the current downturn might be today, people in competitive markets always find ways of regaining their economic footing tomorrow. Investors recalibrate their expectations and entrepreneurs redirect their energies to take better advantage of the changing economic landscape. Workers’ pay and consumers’ standard of living, after blipping briefly downward, resume their upward trend.

“Nonsense!” a chorus yells. “What about the Great Depression? Or the 1970s?” The experiences of these decades are indeed relevant. They are, however, precisely why the clamor for putting someone “in control” of this crisis is so frightening.

Contrary to the conventional wisdom, whose strength of empirical support rivals that for the flat-earth hypothesis (“It seems so obvious!”), the massive move toward centralized control of the economy during the administrations of both Herbert Hoover and Franklin Roosevelt did not “rescue” Americans from economic hardship. All that FDR’s soaring rhetoric and army of officials manning newly created alphabet-soup agencies managed to do was to prolong an economic downturn into America’s deepest and longest depression—one that showed no reliable signs of ending until after Roosevelt met his maker. As the economic historian Robert Higgs documents in his 2006 book Depression, War, and Cold War, investors were terrified by the very real risk during the 1930s that government would extend its control over the economy even beyond what it achieved with its New Deal programs.

The 1970s weren’t as bad as the 1930s. Most important, there was no serious talk during the ’70s of nationalizing industries or socializing investment decisions. International trade was expanding rather than being suffocated by a disco-era Smoot-Hawley tariff. Still, wage and price controls were in vogue (and in effect), Congress and Richard Nixon were keen on command-and-control regulations, and Fed chairmen Arthur Burns’ and G. William Miller’s control over the money supply was injuriously inflationary. Shot through with so many interventions giving government more “control,” the economy slipped into an infamous malaise.

My only fear, therefore, is fear itself—fear that deludes people into believing that giving government greater control is the key to earthly salvation. As I write these words, the Fed’s aggressive moves to bail out Bear Stearns and prevent other necessary market corrections—along with increasing public support for protectionism, anti-immigrant nativism, and environmental hysteria—send shivers down my spine. The threat of a long-term crisis is only as real as is the likelihood that government will try to exert more control.

Donald J. Boudreaux is a professor of economics at George Mason University.

Fiscal Discipline: Use Only in Case of Surplus

matt.welch@reason.com (Matt Welch) — Thu, 01 May 2008 19:33:00 EDT

Some surprisingly straight campaign talk from The Associated Press:

Republican John McCain is making promises that would cost billions of taxpayer dollars, yet he is vague about how he would pay for them. [...]
McCain has pledged to balance the federal budget, although he has backed off an earlier promise to do so in his first term and now says he would do it within eight years. [...]
[He] proposed a new mortgage refinancing program for struggling homeowners that could cost the government $3 billion to $10 billion. He proposed to suspend federal gas taxes for the summer months at a cost of $8 billion to $10 billion.
And McCain has several proposals whose costs are unknown, such as his pledge to give all veterans a plastic card to get medical treatment anywhere they choose, a new student loan program and tax write-offs for companies that provide Internet service to rural areas.
How would he pay for it? New user fees could pay for the gas-tax holiday, McCain adviser Doug Holtz-Eakin said. [...]
[F]or all the numbers he has provided, McCain has been reluctant to say exactly which programs he would cut.

Whole thing, with plenty more details, here. I might also add that trillion-dollar wars tend to be expensive, as do plans to boost the standing military by 150,000 troops, etc.

It is perhaps noteworthy to point out that this is almost precisely the opposite of John McCain's tax/budget philosophy of 2000, when he was a big (and convincing!) budget hawk and debt-payer-downer. Here he is in his 2002 memoir Worth the Fighting For, talking about his differences with George W. Bush on that score:

He and I disagreed on tax policy. My position invited greater hostility from conservatives in the party and in the press than my support for campaign finance ever had. Republican primaries had long featured a bidding war to see which candidate could promise the biggest tax cut. I chose to offer the smallest, targeted to middle- and lower-income families, so that we could use most of the budget surplus to pay off the national debt, build our defenses, and begin to pay the transition costs of reforming Social Security and Medicare for the sake of future American generations.
Lest anyone think my positions were brave, if self-defeating, honesty obliges me to note that every poll my campaign conducted (and we took as many as we could afford) found greater support for paying down the debt than cutting taxes for upper-bracket incomes, among Republican voters as well as Democrats and independents. [...] You will have to trust me that I held and expressed these views before I had survey research proving their popularity.

Readers of this website might also find of interest the selection immediately preceding the passage above:

I welcomed a greater, if still limited, role for government in national problems, anathema to the "leave us alone" libertarian philosophy that dominated Republican debates in the 1990s. So did George W. Bush, I must add, who challenged libertarian orthodoxy with his appeal for a "compassionate conservatism." He based much of his more activist government philosophy in an expanded role for the federal government in education policy and in his support for contributions that small, faith-based organizations could make to the solution of social problems. I gave more attention to national service and to a bigger role for government as a restraining force on selfish interests that undermined national unity. But his positions did him much credit, as well they should have, and they do him much credit now as he uses his presidency to advance them.

John McCain's Plan to Keep Employer-Provided Health Insurance While Moving Away From It

jsullum@reason.com (Jacob Sullum) — Wed, 30 Apr 2008 18:11:00 EDT

Severing the government-supported, market-distorting connection between health insurance and employment would promote choice, allowing people to select the medical plans that best suit their circumstances, and security, addressing one of the main anxieties about health care by making coverage portable. This is one of the few areas where the Bush administration was on the right track, and I'm glad to see John McCain picking up the idea. But I wish his talk were a little straighter on this subject. Here is how he describes the current system, in which most Americans with health insurance get it through their employers, and the change he'd make:

Under current law, the federal government gives a tax benefit when employers provide health-insurance coverage to American workers and their families. This benefit doesn't cover the total cost of the health plan, and in reality each worker and family absorbs the rest of the cost in lower wages and diminished benefits. But it provides essential support for insurance coverage. Many workers are perfectly content with this arrangement, and under my reform plan they would be able to keep that coverage. Their employer-provided health plans would be largely untouched and unchanged.
But for every American who wanted it, another option would be available: Every year, they would receive a tax credit directly, with the same cash value of the credits for employees in big companies, in a small business, or self-employed. You simply choose the insurance provider that suits you best. By mail or online, you would then inform the government of your selection. And the money to help pay for your health care would be sent straight to that insurance provider. The health plan you chose would be as good as any that an employer could choose for you. It would be yours and your family's health-care plan, and yours to keep.
The value of that credit—$2,500 for individuals, $5,000 for families—would also be enhanced by the greater competition this reform would help create among insurance companies. Millions of Americans would be making their own health-care choices again. Insurance companies could no longer take your business for granted, offering narrow plans with escalating costs. It would help change the whole dynamic of the current system, putting individuals and families back in charge, and forcing companies to respond with better service at lower cost.

Although you might not guess it from McCain's gloss, the "tax benefit" in question goes to employees, not employers. Companies can deduct money spent on employee compensation as a business expense whether it takes the form of wages or health benefits. But since the government does not treat employer-provided health insurance as taxable income, there's an artificial incentive for employees to prefer compensation in that form, rather than the cash equivalent. If both kinds of compensation were treated the same, most employees presumably would prefer the money; employers would respond by ditching health benefits and offering higher wages instead. Equal tax treatment could be accomplished either by taxing the health benefits as income or, as McCain seems to be proposing, making the money an employee independently spends on health insurance tax-free as well.

Although the policy change has to do with taxes paid by employees, The New York Times has McCain "eliminating the tax breaks that currently encourage employers to provide health insurance for their workers," which makes it sound as if employers are the ones getting the breaks. And the McCain campaign seems to be downplaying the impact that equalizing the tax treatment of health benefits and wages would have on the prevalence of employer-provided medical coverage. According to the Times, McCain's domestic policy adviser "said he believed that many employers would still offer health insurance to try to attract the best workers." McCain himself says "employer-provided health plans would be largely untouched and unchanged" for the "many workers" who "are perfectly content" with the status quo. Maybe this is just his way of reassuring people that changes in the compensation mix would be driven by employee preferences. But the main economic rationale for eliminating the health-benefit tax preference is to make employer-provided medical coverage the exception rather than the rule; otherwise we would still have a system in which medical coverage is both artificially expensive, since patients have little opportunity or incentive to economize, and insecure, since losing a job often means losing health insurance.

Friday Funnies

info@reason.com (Scott Stantis) — Fri, 18 Apr 2008 07:00:00 EDT

Now Playing at Reason.tv: "Bitter and Frustrated" Taxpayers Sound Off!

Thu, 17 Apr 2008 12:00:00 EDT

...

Tax Day Jukebox

jwalker@reason.com (Jesse Walker) — Tue, 15 Apr 2008 17:08:00 EDT

In honor of April 15, here's a populist classic from Johnny Paycheck: "Me and the IRS."

In the interest of fairness and equal time, I should acknowledge that the taxes Mr. Paycheck disdains are needed to pay for important government programs. Here's a song about one of those.

Charles Nelson Reilly Has a Tax-Induced Headache

gillespie@reason.com (Nick Gillespie) — Tue, 15 Apr 2008 11:57:00 EDT

Want to know the true barbarity of tax state? Check out this old Excedrin ad in which Charles Nelson Reilly (!?!?) is reduced to a stammering heap of jelly during a tax audit for claiming that a fur coat he bought for "a m-m-model" is a "legitimate business expense." He "owns a dress line," fer chrissakes.

Everyone feels like a criminal on tax day!

Does Leviathan know no bounds? And does Excedrin really have four (count 'em) ingredients, including an anti-depressant?

"Unfortunately, buckos, it's time to pay up!": The (Cartoon) Beatles in "Taxman"

gillespie@reason.com (Nick Gillespie) — Tue, 15 Apr 2008 10:17:00 EDT

The Fab Four's animated counterparts declare the pennies on their eyes in their animated series from the 1960s (and yes, they get around to singing "Taxman" by the end):

Thanks to Maura Flynn for the tip.

This looks better at Rough Cut, reason.tv's video blog. Go there now!

Smoke that Tobacco Settlement Money When You Got It, Boys (Ohio Edition)

gillespie@reason.com (Nick Gillespie) — Tue, 15 Apr 2008 08:48:00 EDT

You remember Ohio, don't you—that blue/red/purple state that had Barack Obama and Hillary Clinton talking down free trade and other hallmarks of what once was called the free enterprise system. Now state legislators are talking about raiding the booty they got from the big settlement against tobacco companies to create jobs, etc. This they do with the endorsement of "conservative" newspapers such as The Cincinnati Enquirer:

A proposal by Gov. Ted Strickland and legislative leaders [would] use $230 million in tobacco foundation funds to help rescue a $1.57 billion jobs program.
The transfer would leave just $40 million in the anti-smoking fund, created out of a settlement with tobacco companies 10 years ago. Foundation leaders say the fund will be exhausted in two years. No one's saying what will happen to the state's successful Quit Line program or other smoking prevention and cessation approaches.
Meanwhile, state officials are saying economic recovery efforts can't wait...
A diversion of anti-smoking funds to economic development could result in increased state revenues, which in turn could be used to rebuild the tobacco foundation. Anti-smoking advocates would have to suspend their protests; state officials would have to do more than give their word. They've have to nail down such an earmark tightly....
Since its creation, the tobacco fund has been a ready source of revenue to address or avoid various financial crises. During the Taft administration, legislators used $568 million in tobacco payments to balance the budget. Last year, Strickland decided to take future tobacco payments in a $5 billion lump sum and applied the sum to property tax breaks for senior citizens and to school construction....
Ohio desperately needs a shot of economic adrenalin, and Strickland's plan looks broad enough and brave enough to provide that jolt.

The governor would create "a comprehensive stimulus package to fund development of biomedical, bioproducts and alternative energy industries. It would also fund local infrastructure improvements and expand internship opportunities for Ohio students." More here.

Those internships are vitally important, no doubt, to saving Ohio's struggling economy. As an Ohio resident, I hope this package will work better than, er, I guess that one put together by former Gov. Bob Taft (a third-generation pol who proves the idea of regression below the mean), which seems to have done absolutely nothing.

Since it's Tax Day, and I'm shoveling cash out the door to Columbus, I'll suggest another stimulus idea, one that doesn't rest about spending money gotten through found money in the form of the tobacco settlement or the ability of a state that's leaking population to lure cutting-edge industries back to Youngstown and Toledo: Cut your tax burden.

Ohio ranks fifth in the nation for state and local tax burdens. I'll be the first libertarian to tell you that taxes aren't the be-all and end-all when it comes to deciding where to live or put a business, but I'm absolutely certain that the plan being kicked around now won't do a goddamn thing to help the economy.