Some folks will remember back to the olden days before we could carry in our palms access to the collective knowledge of the world. You know, way back to the ancient technology times of the late-1990’s when personal digital assistants (PDAs) were all the hot buzz and the idea that accessing your electronic mail through your cellular phone might, someday, be achievable for everyone. Reading the daily news in the old days meant turning pages from mashed-up trees while cheap, smelly ink stained your fingers with your morning coffee. In recent months, politicians of all stripes (kind of brings to mind images of skunks, huh?) have yearned wistfully for the “go-go” years of the Clinton administration; a time when the legislative and executive branches of government were more blissfully balanced to prevent wild ideological excesses from either political end (visualize a camel’s rump; see image if that helps).
Understanding the way forward for better jobs, better technology and better living for America is less difficult than our politicos and pundits would have us believe. The D.C. “elites” would have the people think that the problem is so difficult and so intractable that only a super-human panel of super-brilliant legislators can possibly provide the U.S. taxpayers with a solution. Poppycock. Bovine Scatological (BS) ruminations, and then some. So, following is the playbook from a Common Sense Economist, and we should begin by agreeing that there is nothing exotic or extreme about requiring our Federal government to balance its books. After all, we citizens must pretty much do the same thing every pay period; so Uncle Sugar should, too.
1. Taxes are Too High and the Tax Code is Inequitable; so flatten the tax rate and close loopholes.
Government taxes-federal, state and local taxes of all kinds-are removing wealth from the private citizens of this country and taxes transfer that wealth to the coffers and budgets of the political elites to spend as they see fit. Taxes remove wealth from the citizens, and control of those revenues is the prime source of power for political operators. To understand that U.S. citizens are over-taxed, you need only to look at two prominent U.S. citizens: the President and Vice President of the United States. President Obama, although his private citizen tax bracket is 35%, paid an effective tax rate of only 26% in 2010. Vice President Biden, although his private citizen tax bracket is also 35%, paid an effective tax rate of only 23% in 2010. The White House posted their tax information and the numbers were checked by the New York Times (New York Times, Politics Section, April 18, 2011, Jackie Calmes ). Yet, Obama and Biden are leading the flock in Tweeting for higher taxes for their tax bracket. They are calling for raising taxes on all their high-income colleagues but are paying less themselves. An interesting job, if you can get it. “Tax us ALL, but mostly YOU — ” Hillary Clinton’s 2006 return had an effective tax rate of just 25%, in the range of Obama and Biden, rather than her 35% maximum rate. In fairness, Republicans in the 35% bracket include candidate Rick Perry whose effective tax rate was just 17.8% in 2007 and only 18.9% in 2008. Mitt Romney refused to release his tax returns for public scrutiny, but John McCain’s 2006 return was 28.6% and his 2007 return was 30.5%; better than either President Obama or Vice President Biden (although McCain files his taxes separately from his wealthy spouse, whose tax returns are not released). Clearly, a flattened tax rate in the low-twenty-percent range is much closer to reasonable than the current 35% maximum private rate for “our richest citizens” (almost all members of Congress). Perhaps every member of Congress advocating higher tax rates should be required to post their last five years of federal tax returns on-line for scrutiny, before being allowed to cast their vote to increase taxes and close tax loopholes. Fair is fair, after all.
If the tax returns of other members of Congress, both Democrats and Republicans, are detailed and checked, we’ll likely find much the same result. We might observe a standard practice of paying reduced or inequitable tax payments at less than their 35% maximum tax bracket rate. Worse, the tax code is inequitable by design, because politicos of all ideological masks (kind of makes you think of bandits, huh?) have deliberately used the tax code for social engineering, pay-outs to voting blocks and campaign supporters and various (nefarious?) purposes. When a Harvard professor with decades of experience can no longer decipher the tax code, then “Houston, we have a problem.” And, it is a spending problem and a spending addiction, not a revenue-raising problem. [If you doubt that Washington has a spending addiction, just look at the so-called Social Security Trust Fund where you have invested your own hard-earned money from every pay-check since you first began working. The politicos literally emptied it out and spent every dime, replacing your hard-invested cash with IOUs.] But if the federal government is borrowing over forty-cents of every dollar it spends, then how can the federal budget be balanced again without tax increases?
2. Define the Role of Government to Spend Less; so focus the Federal government around “Neighborhood Effects.”
Since the earliest hours of our country’s experiment in free market democracy, the debate has raged over the proper role of the central government versus the role of the state governments, versus the rights and responsibilities of a free-thinking and free-acting citizenry. The Federal government is constitutionally limited in scope and authority by design, with any power that is not specifically enumerated in the Constitution residing solely with the States and the People. In playing an important role in the welfare of our nation, the Federal government can best organize its activities around issues with “Neighborhood Effects” while leaving the rest to the States and to the People. Economists’ use of the term “neighborhood effects” has expanded and gone through various metamorphoses over many decades. One usable definition is when the Federal government can mediate a transaction between several parties -like States- for a balanced benefit between the different parties. Take, for instance, national defense and securing our national borders. Or, the government creating the Eisenhower Interstate Highway system, which allows our citizens and our commerce to roll flexibly coast-to-coast on eighteen (or fewer) wheels. The next time you are tempted to extend a middle digit toward a tractor-trailer truck hauling a big load on a public thoroughfare, you might think instead to offer a friendly wave. Our mature, flexible interstate highway transportation system-and the long-haulers who make a living driving it-are a major engine in our free market economy. Another example of “neighborhood effects” is interstate (and international) water rights; if up-stream farmers, ranchers and cities consume all the Colorado River water, all the downstream folks (including Mexico) suffer the loss. Federal government-correctly engaged-can mediate a fair bargain for all involved.
Beyond a few, clear cut domains with interstate or international third party “neighborhood effects” needing to be addressed, the activities of the Federal government must be focused and restricted. Runaway government spending has created the current deficit mess, but that is because special interests have endorsed runaway government activities beyond any rational need. Since government spending competes for resources with the private, job-creating sector, and therefore raises costs throughout, less government spending means more capital resources for financing in the private sector. Once the private sector hums in new job-creation, government revenues will increase dramatically, just like the “go-go” years of the 1990s. One way to recapture the “go-go” years and further reduce government spending is through selective deregulation on business. A fascinating example, which takes us back to the current Technology Explosion with social media and the world in our palms, dates to the much-maligned Telecommunications Act of 1996.
3. Government is Stifling Innovation; so get government out of the way through deregulation
Since the 1990s, there has been a global explosion in technological innovation that was driven, at least in part, by the Telecommunications Act of 1996 which was approved by the 104th Congress on January 3rd 1996. Although experts and politicians debate whether the Act accomplished its stated objective of opening up markets to competition by removing regulatory barriers, it has definitely played a role generating an unforeseen technological tsunami that impacted almost every economic sector. “Convergence in telecommunications” became the catch-phrase of the 90’s, for integrating local telephone, long-distance voice, cable television and internet. The only limits seemed to be the imagination of young inventors empowered by creative funding from the private equity venture capital markets. Sure, there were plenty of failures and plenty of excesses during the “go-go” Clinton years of the 1990s. But look at where it brought us today; literally having the world at our fingertips, in our handhelds. Our new social media is shaking dictatorial governments to their roots, but similarly creating new devastating opportunities for criminal and terrorist acts. Ultimately, however, by deregulating the telecommunications sector and opening all aspects to local, national and global competition, the market power of supply and demand brought remarkable new products-and power-to the People. Industries hired like crazy at all levels; new fiber optics and wireless infrastructures needed to be designed and installed. New integrated circuits, new electronic storage capacities, new transmission and network control devices and software were demanded. The competition for technology, for people with cutting-edge skills, became so fierce that for-profit training programs exploded and even the Central Intelligence Agency (C.I.A.) had to create its own venture capital and technology development resource (“In-Q-Tel” since 1999) to attract the best talent and ideas from the private sector to support the needs of the intelligence community.
In summary, our politicos would do well to leave the rocket science to the rocket scientists, who presumably can now begin to prepare for the Alien Invasion recently promoted by “economist” Krugman. There is a tried and proven model that will work, in putting America back to work:
Cut Federal Spending by re-focusing Federal Government activities with the template of “neighborhood effects” and our limited Constitutional mandates; the past work of economist Milton Friedman in this respect remains keenly relevant today, in that the current times offer “an opportunity to reexamine the existing activities of government and make a fresh assessment of the activities that are, and those that are not, justified” (Friedman, 1962).
Flatten Federal Tax Rates and close loopholes to make the tax system equitable; this, combined with new tax revenues from a re-ignited private economy will help close the deficit;
Deregulate and diminish Federal government actions in all industrial and economic sectors; to again visit economist Friedman, the “government’s primary role is to preserve the rules of the game by enforcing contracts, preventing coercion, and keeping markets free” (Friedman, 1962). However, issues with the Banking sector and Wall Street in recent months demonstrate an important role for the Government in monitoring the markets but the regulations it passes must not suffocate free trade.
Citizens Active in Monitoring Government is a mantra that can have new meaning in this age of social media and enlightenment enabled by technology. From your local mayor, to county councils and State and Federal politicos, we can use our new technologies to watch them all, monitor them all, challenge their expenses and hold them accountable for their actions. Citizens active at all levels in our democratic process are the generator of American power.
Keep free markets free. Freedom. THAT is the operational value for America which will put us all back to work with better jobs, better technology and better living for all Americans.