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Collectivism in SW Florida

Ayn Rand wrote a short nineteen page paper asking: What is the basic issue facing the world today? Rand, in her paper makes the case that, “The basic issue in the world today is between two principles: Individualism and Collectivism.” Rand defines these two principles as follows:

  • Individualism – Each man exists by his own right and for his own sake, not for the sake of the group.
  • Collectivism – Each man exists only by the permission of the group and for the sake of the group.

The idea of collectivism is alive and well not just in Washington, D.C. but also in SW Florida. Specifically, in the Englewood Water District, which has decided to forsake the individual and vote in favor of the collective. Government at every level has a propensity to expand, and with that expansion it takes power from the poor in the name of the “greater good”.

According to the Englewood Water District website:

A small group of members from the Englewood Chamber of Commerce formed a “water committee” in 1955 to look into the water “situation.” During the next 4 years they had the perseverance, determination, and dedication to make the Englewood Water District a reality. They fought the odds, and the obstacles, because they saw the need to develop a high-quality, clean water system that would provide for the present and future Englewood. As they moved forward in their efforts, they learned the water and sanitary system could be owned and managed by the people of Englewood and not an outside source. They realized not only would residents’ health conditions be jeopardized without a water and sanitary system, but also the Lemon Bay environment. [Emphasis added]

So what is it that this “water committee” is proposing that has residents of the V9C District of Englewood, FL and others so agitated? The Englewood Water District has decided that for the “greater good” a group of citizens living in the V9C District of Englewood who currently use septic tanks must now pay (read imposed tax) to hook up to the city sewer system, whether they want to or not. Data shows there is no threat to the existing water quality or health conditions of those living in Englewood.

The bottom line: The 314 families living in Englewood’s V9C District are being forced to do something that they do not want to do, nor need to do.

Kathy Bolam, member of the Board of the South Venice Civic Association and the Governmental Affairs Committee, at a Sarasota Board of County Commission meeting testified:

Government was formed by the people to protect our rights and defend us from enemies whether foreign or domestic. That’s why we are asking your voice to be added to ours, because Englewood Water District in a bill passed by the Florida legislature in 2004, called their Enabling Act took away all property rights from the people living in the V9C district. The people in this district never were told about this bill, didn’t get the chance to read it or respond. As a result the EWD board of Supervisors feel empowered to expand their sewer program whether there is a public health or environmental need and whether the people want it or can afford it.

The results of their program will result in several families losing their homes. The area is mostly made up of retirees on fixed incomes and working single mothers, and small families. Those who cannot make the full payment when invoiced of $8,666.94 will then have $834.99 added to their property tax bill for 15 years. If they do not pay those taxes, the tax lien will be sold, and they will lose their home. One lady’s current tax bill is less than $500.00 and she stated that after paying her mortgage, etc. she has barely enough money to eat. Instead of decreasing the amount of homeless people, this action by EWD will increase it. U.S. Senator Elizabeth Warren said in a speech on Jan 7, 2015 quote “Since 1980, guess how much of the growth in income the 90% got? Nothing. None. Zero. In fact, it’s worse than that. The average family not in the top 10% makes less money than a generation ago.” Close quote. People just cannot afford to pay for something, they don’t need and don’t want just because a government body assumes they have the authority and power.

According to the Florida Constitution at Article 1 Section 1, it states that “All political power is inherent in the people.” Therefore, the voice of the people supercedes the goals of the EWD Board of Supervisors. Therefore, we ask you to send a fax, e-mail to that Board requesting that they be true to their Oath of the U.S. Constitution and the Florida Constitution and not violate the “voice of the people.”

According to Bolam, “Jerry Paul who was the local state representative for this area will be at the meeting talking about funding. He was the state representative in 2004 and was responsible for the Enabling Act.  He currently is a lobbyist (Capitol Energy Florida) for EWD and for Key Agency (EWD co-chair Mr. Fogo is financially connected to Key Agency). EWD renewed their insurance coverage with Key Agency.”

The Englewood Water District is moving forward and a final vote on taking the property of these families will occur on Thursday, June 4th, 2015 at 8:00 a.m. Citizens may call the Englewood Water District at 941-474-3217 to voice their opinions on this issue or attend the meeting at 201 Selma Ave, Englewood, FL.

Some Basic Economic Truths

During the summer of 1985 my oldest son, Mark, decided to leave his job as a chemistry teacher in a Silver Spring, Maryland, Catholic Boy’s High School to complete his Master’s thesis and his Doctoral work in Metallurgical Engineering at the University of Oklahoma.  With little money to finance the move, he was looking for ways to transport his wife; his five-year-old stepson, Chris; and his four month old infant son, David, from Washington, D.C. to Norman, Oklahoma.

Having recently retired from my job with a major oil company in suburban Philadelphia, I offered to help with the move.  So, on the appointed day I drove to Silver Spring and loaded every cubic foot of my trunk and my rear seat with some of their belongings.  As we headed west on Interstate 70, my son took the lead in a borrowed Mercury station wagon, with every cubic foot filled to capacity; my daughter-in-law followed close behind in their worn-out old Toyota, the baby strapped into a car seat beside her; and I brought up the rear with five-year-old Chris riding “shotgun” in the passenger seat beside me.

The trip across the country was not up to my usual standard for cross-country driving.  Since the Interstate highway from Indianapolis to St. Louis was completed, but unposted, I had always taken that to mean that they wanted me to use my own discretion.  As a result, I was accustomed to driving the 1.030 miles from Philadelphia to St. Louis in just under fifteen hours.  But on our trip in August 1985, from the D.C. area to St. Louis, it was drive two hours, nurse the baby, drive two hours, nurse the baby, and on and on.  Then, after a night’s rest in St. Louis we set out again the next morning for the last leg of our trip from St. Louis to central Oklahoma.

As we had lunch in a roadside restaurant in Joplin, Missouri, I remarked that we were just a few miles north of Camp Crowder, Missouri, where I spent the first week of my U.S. Army military career, and that I’d like to revisit the place sometime just to see if it was the same as it was in the summer of 1953.

That was the last word on the subject until we crossed the Missouri/Oklahoma state line fifteen or twenty minutes later.  It was then that young Chris said, “Grandpa, tell me about some of your war wounds.”

Not wanting to go into detail on how I was machine-gunned by a group of South Koreans in a “friendly fire” incident during basic training, I decided to tell him some stories about wounds I received when I was a boy, just a few years older than he.  So I proceeded to describe a long ugly scar I have on my right knee that I received when I was just ten or eleven years old.  When I had described the scar, Chris said, “Grandpa, how did you get that wound?”

I said, “Well, as I recall, my friends and I were at the local ballpark in my hometown, crawling around under the bleachers, when I knelt on a broken soda bottle.”  To which he replied, “What were you doing crawling around under the bleachers?”

I said, “We were looking for small change, nickels and dimes that people had inadvertently dropped while watching a softball game.”

“Why were you looking for nickels and dimes?” he asked.

To which I replied, “We wanted to buy some sodas.”

He thought for a moment, a puzzled look on his face.  Then he said, “Grandpa, you can’t buy a soda for five or ten cents.  Sodas cost sixty cents.”

Not when I was your age,” I replied.  “When I was your age we could by a soda for five cents.”

That came as a big surprise to him.  He said, “How did that happen, Grandpa?”

I said, “The Democrats did it.”

“The Democrats did it?  Why did they do that?”

Thinking I’d impart a bit of economics wisdom, I said, “Well, the Democrats discovered many years ago that if they passed a law taking money away from people who have jobs and who work for a living, and give it to people who don’t have jobs or who don’t want to work, the people who get the free money will always vote for them on election day.  That helps to create what we call inflation and that’s why a soda costs a lot more than five cents today.”

This was obviously a new concept for him and I could almost hear the wheels turning in the seat beside me.  Finally, he said, “Grandpa, could the Democrats pass a law that would make candy free?”

I replied, “Sure they could.  But think about it… if the Democrats made a law saying that candy would be free, how long do you think the people who make candy would continue to make it?”

New concept; I could hear the wheels turning again.  Then he said, “Grandpa, am I a Democrat?”

I said, “Well, it’s too early to tell.  We’ll have to wait a few years to find out.”

Then he asked, “Grandpa, could the Democrats make a law that some candy would cost money and some would be free?”

I replied, “Yes Chris, the Democrats could make some candy free and others that would cost money.  But are you asking whether the Democrats could make a law saying that the kind of candy you like would be free and all the rest would cost money?”

A big smile crossed his face.  He nodded his head and said, “Yeah!”

I said, “You’re a Democrat.”

I’m happy to report that my step-grandson has turned out just fine, in spite of his Democratic leanings as a five-year-old.  He graduated from the University of Oklahoma with a degree in Economics and is now a successful executive with a major Oklahoma City bank.  But now, thirty years later, there is evidence that many who were as ignorant of basic economic principles as my grandson was at age five, are still burdened by the same economic illiteracy.

The proof of what I say can be found in the television commercials of a company called Lear Capital, Inc.  In their most recent TV ads they tout the current low price of silver, showing a two dimensional graph in which the abscissa, or x-axis, represents time, and the ordinate, or y-axis, represents the fluctuations in the price of silver.  If one were to believe the graph, the market price of silver during a significant time period represented on the graph dipped to less than the price of production.  In fact, that claim is made quite clearly in the Lear Capital voice-over.

When I saw the ad I couldn’t help but be reminded of my grandson’s attitude toward the candy market when he was just five years old.  The fact that a precious metals marketing firm would continue spending big bucks attempting to convince television viewers that mining companies are continuing to mine silver when the market price is less than the cost of production, is proof that there are some adults out there in TV land who still believe in the Tooth Fairy.

When I posed the hypothetical question to my grandson thirty years ago, asking him how long he thought candy manufacturers would continue to make candy if there was no profit in doing so, it never occurred to me that, some thirty years later, silver miners might be doing just that.

However, there is some empirical evidence that there are fewer consumers who might fall for that advertising scheme than we might think.  Another Lear TV ad that has run on a daily basis for many months proclaims that the first one-hundred callers to their 800 number will receive up to $500 worth of free silver… just for calling their number.  If, in fact, callers to that 800 number are actually given silver coinage, they could be given a silver ten-cent piece, just for their taking the time to listen to a sales pitch, and the marketer could still claim truth in advertising by hanging their hats on the words “up to.”

Nevertheless, it is frightening to think that Madison Avenue advertising firms have such a low opinion about the economic smarts of the American people that they would air such an insulting advertisement.  My step-grandson has discovered some important economic truths.  Apparently, some in the corporate world and on Madison Avenue have not.

VIDEO: IRS Commissioner Admits the Tax Code Cannot Be Understood

“The best thing [Congress] could do would be simplify the tax code,” Koskinen told the National Press Club on March 31. “I don’t know how anybody understands all the ramifications of it.”

The IRS Commissioner also quipped that, “the IRS code is longer than the Bible, with none of the good news.” Read more.

A Handy Glossary for Tonight’s Class Warfare State of the Union Speech

Let me preface this piece by saying that if you have convinced yourself that the government, by taking more of our money through higher taxes, will make us all more prosperous, then you need not read any further. I have come to learn that any attempt to persuade the far-left “tax-and-spend” crowd is a fruitless endeavor despite the obvious disconnect between what these people say, and what they do. This piece is directed at ordinary Americans who, as evidenced by the mid-term election results, have lost patience with the “big-government-is-best” crowd.

Whether it’s John Kerry’s tax avoidance scheme…or the Obamas spending $1,000 on just one meal at a club that charges an unbelievable $500,000 for membership, it’s clear that the leaders of the far-left are living by the credo “do as I say, but never as I do.”

I have asked many of the tax-and-spenders two simple questions and I rarely, if ever, get a reasonable answer.

Question #1: Do you voluntarily pay more in taxes? Hint; they always say no (despite demanding that we pay higher taxes).

Question #2: How does taking more of my money make me better off?

If you decide to tune in to Tuesday’s State of the Union speech or to ask your tax-and-spend friends the above questions, I have provided you below with a glossary of key buzzwords and phrases you will find in the president’s speech and in their answers:

“WE NEED TO” – The tax-and-spend crowd never discuss taxes in terms of “I need to” and “you need to,” largely because they avoid higher tax rates themselves and they know you don’t want to pay higher taxes either. Using the term “we” rather than the terms “I” or “you” is a clever rhetorical-trick they use to make you believe that the “other guy” is going to be hit by the new taxes, not you. Whether it’s John Kerry’s tax avoidance scheme by parking his $7 million luxury yacht in Rhode Island to avoid paying the $500,000 Massachusetts tax bill, the Clintons avoiding hundreds of thousands in estate taxes by using shady loopholes to divide their real-estate holdings into trusts, or the Obamas spending $1,000 on just one meal at a club that charges an unbelievable 500,000for membership, it’s clear that the leaders of the far-left are living by the credo “do as I say, but never as I do.”

“IT’S AN INVESTMENT” – I love this one because it requires tax-and-spend types to completely exit the world of the real for the world of wishful thinking. An “investment” is something individuals CHOOSE to do with their money where they put off immediate satisfaction for future payments based on a reasonable expectation of future gain. When government takes your money in the form of taxes to “invest” they do the following:

Tragically, this scene is repeated everyday inside the D.C. inner circle and rhetorically disguised as public “investments.”

1) They have CHOSEN for you what you chose not to do in the first place. If you wanted to “invest” in Solyndra then the opportunity was there, and the fact that Americans didn’t invest in Solyndra should have been a sign to the government that something was wrong. Instead, they took your money and gave it away at an incredible loss to all of us. Tragically, this scene is repeated everyday inside the D.C. inner circle and rhetorically disguised as public “investments.”

2) They distort the markets they enter by giving away your money to their connected friend’s businesses and, at the same time, assisting their connected friends in crushing their unconnected business competitors. If you have money, then it pays to make government connections to ensure your “investments” never lose.

3) They take your dollar and make it worth less before the “investment” is even made. The government bureaucracy siphons off a large percentage of your money before it arrives back in the economy, a phenomenon economist Arthur Okun called the “leaky bucket.” What “investment” have you ever made that is guaranteed to lose money before it’s even proposed? Only in government-speak is this a sound “investment.”

“FAIR SHARE” – An inconvenient series of facts for the tax-and-spend crowd, which they contort themselves to explain away, is that the government is taking a historic amount of money from you, and the highest income-earners already pay a significant share of the taxes. For the first time in American history the government took over $3 trillion from you in taxes, an astounding $1 trillion more than they took from you in the year 2000. Also, the top 20% of income-earners already pay 70% of the taxes and earn about 52% of income. Think about that, just 2 out of 10 Americans pay 70 cents of every tax dollar the government takes. If this isn’t a “fair-share” then you owe it to us to explain what percentage is, and how you figured that out.

Obamacare is decimating middle class incomes by hiking premiums while, at the same time, increasing the costs of healthcare for business owners and dramatically reducing the take-home-pay for their employees, as employee salaries stagnate to compensate for the increased healthcare costs.

“THEY DON’T NEED ALL THAT MONEY” – This one is ironic because most of the leadership of the modern tax-and-spend crowd seem to “need” a whole lot of money themselves. Whether it’s liberal rock-star Elizabeth Warren, or Bill Clinton, both with a net worth in the tens of millions of dollars, they appear to “need” millions of dollars for themselves, while telling the rest of us that we “need” a whole lot less.

“WE NEED TO BUILD THE MIDDLE CLASS” – This is an often used, yet ironic, statement considering so few of the tax-and-spend crowd are defined as “middle-class” yet, the people they preach to, are. Doubly ironic is that President Obama has rode roughshod over our economy with a hapless class warfare agenda of new and higher taxes on income, investments, capital gains, payroll, healthcare, and more. But, with each new tax, the rich get richer and the middle class are stuck in the mud. Here’s the painful truth about why this is happening:

1) The high corporate tax is driving quality manufacturing jobs out of our country, and to countries with more reasonable tax rates. This is harming the middle-class that needs these jobs to keep pace with the increasing cost of living.

2) The compliance costs for the massive new piles of red tape regulations the Obama administration has thrown at us are costing American businesses billions of dollars. But, here’s the catch, big businesses with connections get richer because they already have massive legal departments to deal with the regulations and their smaller competitors go out of business trying to comply. Again, the middle-class and small-business owners get screwed.

3) Obamacare is decimating middle class incomes by hiking premiums while, at the same time, increasing the costs of healthcare for business owners and dramatically reducing the take-home-pay for their employees, as employee salaries stagnate to compensate for the increased healthcare costs.

In conclusion, the President will deliver his State of the Union speech this Tuesday and, at some point in the speech, will use one, if not all, of the above terms and phrases as he proposes $320 billion in NEW taxes on us. He will disguise these taxes on us in flowery, class warfare rhetoric designed to divide us into artificial groups but, he will never be able to answer the simple questions I posed above without resorting to verbal judo and linguistic gymnastics.

EDITORS NOTE: This column originally appeared in the Conservative Review. The featured is by Charles Dharapak | AP Photo.

A Year In Review for Big Government

obamacare 2Last year may have been that inflection point where it all turns around and, although nothing is permanent, I am confident that the tide of big government that has rolled upon our shores may be beginning to recede. A series of electoral and policy failures which have blackened the eyes of big government acolytes piled up in 2014, and the devastating results have made it impossible for the media to hide under the bed. Here are just a few of 2014’s big government low-lights:

  • Big government candidates running under the Democratic Party banner suffered humiliating defeats in the 2014 elections. The Republican Party will now control 54 of the 100 seats in the U.S. Senate, 247 of the 435 seats in the US House of Representatives, and 68 of the 98 partisan legislative chambers. They will also control both branches of state legislatures in 29 of the 50 states and, incredibly, will control the governorship in 33 of the 50 states, including deep-blue states such as Illinois, Massachusetts and my home state of Maryland.
  • Even the Republican losses to big government Democratic candidates in deep-blue states were extremely close. Big government Democratic Governor Dannel Molloy of Connecticut barely slipped by Republican Thomas Foley and Vermont’s big government Democrat Pete Shumlin hardly survived reelection in deep-blue Vermont, defeating Republican Scott Milne by just over one point. At the federal level, a number of big government Democrats in the U.S. House of Representatives barely slipped by their opponents, even in “safe” Democratic congressional districts. Despite winning a series of congressional elections by double-digits, New York Congresswoman Louise Slaughter defeated Republican Mark Assini by just one point.  I lost my race to unseat Maryland Democrat John Delaney by only one point in a race Delaney won by 21 points just two years ago.
  • millionaires tax quoteBig government programs are failing at an alarming rate. Obamacare has reached new lows in approval, with just 37% of Americans approving of this legislative disaster. Obamacare costs are projected to rise dramatically in the coming years as doctors drop out of the program and the new penalties and taxes are enacted. Also, the Obama administration’s takeover of the student loan industry is on the verge of collapse as forbearance requests, defaults, and requests for loan forgiveness under Obama administration programs reach catastrophic levels.
  • France, taking a lesson from outgoing Maryland Governor Martin O’Malley, instituted a “Millionaire’s Tax,” which was described by one critic as “Cuba without the sun.” Despite warnings from rational economists about its destructive effects, big government French President Francois Hollande pressed ahead with his plans to institute the 75% tax rate. After a near rebellion in the business community, a slap-down by the courts and, as happened in Maryland after their version of the “Millionaire’s Tax,” an abject failure to raise even close to the tax revenue anticipated, the tax expired and will not be renewed. As it turns out, even committed Socialist Francois Hollande’s calculator and abacus cannot make 2 + 2 = 6.
  • jobs obama last two yearsAmerican workers and businesses have finally managed to escape the yolk of big government as it appears that the economy may finally be recovering. But this is now the worst statistical recovery from a deep recession in modern American history. To reach the Reagan or Clinton-era job-production numbers, over ten million jobs would have to be created by the economy in the president’s final two years. Even if the best month of job creation under President Obama was replicated every month for his final two years, he would still be nearly 4 million jobs short. Also, it takes about 4 to 5 quarters to get through the average recession and to reach recovery, while this president took an incredible 16 quarters to reach the level of a “recovery.” President Obama’s big government ideology has managed to produce a labor participation rate (the actual number of people working) which is the lowest in 40 years, all while presiding over a government with the largest number of people ever receiving government assistance.

The good news is that 2016 is approaching and, with the right leadership, this economy is ready to explode. I am confident that the future is bright because the American people cannot be held down for long. Eventually they will rebuild their lives and their futures, in spite of big-government doing its best to anchor itself to their backs.

If you want to know where your member of Congress stands on the conservative spectrum and receive updates on the issues that matter most to conservatives, sign up for FREE HERE.ign

Rep. Vern Buchanan (R-FL 16) Busts the Budget — Votes for Amnesty and Obamacare

The Republican co-Chair of the Florida delegation is Congressman Vern Buchanan representing District 16. Buchanan’s campaign website states, “Washington’s irresponsible pattern of borrowing and spending has put our country on a road to bankruptcy.  Unbelievably, America borrows $188 million every hour.  This is simply unacceptable.”

In a December 6th email to constituents Buchanan wrote, “The national debt this week surpassed $18 trillion for the first time in our nation’s history. Since President Obama took office six years ago, the debt has ballooned by nearly $7.5 trillion. Washington’s addiction to spending is putting our nation on the path to bankruptcy.”

In a December 7th InstaPoll Buchanan asked constituents: What action do you think Congress should take to reduce the federal debt, which surpassed $18 trillion this week? Sixty-nine percent of those responding answered “reduce spending.

Buchanan wants a balanced budget amendment to reign in Congress, but in October 2013 Buchanan voted to raise the debt ceiling and now has given President Obama a victory. The victory is passing a bill that busts the budget, continues to fund pork projects, Obamnesty, Obamacare and will increase the national debt.

The Conservative Review reports:

“This 1700+ page, $1.1 trillion Omnibus spending bill granted President Obama full funding for 11 of 12 federal departments for the remainder of the fiscal year – without any congressional restrictions on his unilateral action on amnesty, Obamacare, and environmental regulations. Worse, this bill actually provided Obama with an additional $2.5 billion in funds to facilitate his executive amnesty. Most egregiously, this 1700-page bill was crafted as a backroom deal by lame duck senators who were rejected by the American public in the November election. Speaker Boehner placed the bill on the floor with only 48 hours to read all 1700 pages.” [Emphasis added]

The Conservative Review gives Buchanan an “F” rating on fiscal responsibility with a score of 53%.”

Did Congressman Buchanan read the bill or did he vote for it first to see what was in it?

Buchanan sits on the House Ways and Means Committee. Does he not understand what he did by voting for this omnibus spending bill? Is Buchanan exhibiting the very “irresponsible pattern of borrowing and spending” that he campaigned against?

Buchanan’s campaign website states, “As a businessman for 30 years, and past Chairman of the Florida Chamber of Commerce, I know what it means to balance a budget, meet a payroll, and exercise the fiscal discipline necessary to keep a business moving forward.” But Buchanan is no longer a businessman. He is a member of Congress. The only payroll he is now meeting is that of the federal bureaucrats in Washington, D.C., at the taxpayers expense.

Buchanan has not exercised “fiscal discipline”. The only thing he is moving forward is President Obama’s agenda. Is that why those in his district re-elected him? Is Buchanan “grubering” those who elected him?

Buchanan’s campaign website rightly states, “Government does not create jobs, small businesses like the thousands located in Southwest Florida create the jobs.” Buchanan has a jobs plan, but it does not help small businesses. Rather it is to provide jobs to even more Washington bureaucrats and Congressional staffers while his constituents pay higher taxes. Small businesses are harmed by Obamacare’s healthcare mandate, which kicks in in 2015. Florida continues to suffer because of omnibus spending bills like the one Buchanan and many of his fellow Republicans helped passed.

Perhaps it is time to hold the Vern Buchanan’s responsible for their irresponsibility! Buchanan ends emails to constituents with “tell me what you think.” Perhaps those who voted for him should?

Here’s a Couple Of Charts That Might Explain Why Congressmen Voted For The ‘CRomnibus’ Spending Bill from IJReview’s Kevin Boyd:

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Illegal aliens get Social Security Benefits thanks to Boehner and his RINOs

Text and Analysis of Florida Amendment 1: “The Water and Land Conservation Initiative”

Dan Peterson, Executive Director of the Coalition for Property Rights, provides the following detailed analysis of Florida Amendment 1:

BALLOT TITLE:

Water and Land Conservation – Dedicates funds to acquire and restore Florida conservation and recreation lands.

BALLOT SUMMARY:

Funds the Land Acquisition Trust Fund to acquire, restore, improve, and manage conservation lands including wetlands and forests; fish and wildlife habitat; lands protecting water resources and drinking water sources, including the Everglades, and the water quality of rivers, lakes, and streams; beaches and shores; outdoor recreational lands; working farms and ranches; and historic or geologic sites, by dedicating 33 percent of net revenues from the existing excise tax on documents for 20 years.

Amendment 1 alters SECTION 28. Land Acquisition Trust Fund to include:

a) Effective on July 1 of the year following passage of this amendment by the voters, and for a period of 20 years after that effective date, the Land Acquisition Trust Fund shall receive no less than 33 percent of net revenues derived from the existing excise tax on documents, as defined in the statutes in effect on January 1, 2012, as amended from time to time, or any successor or replacement tax, after the Department of Revenue first deducts a service charge to pay the costs of the collection and enforcement of the excise tax on documents. b) Funds in the Land Acquisition Trust Fund shall be expended only for the following purposes: 1) As provided by law, to finance or refinance: the acquisition and improvement of land, water areas, and related property interests, including conservation easements, and resources for conservation lands including wetlands, forests, and fish and wildlife habitat; wildlife management areas; lands that protect water resources and drinking water sources, including lands protecting the water quality and quantity of rivers, lakes, streams, springsheds, and lands providing recharge for groundwater and aquifer systems; lands in the Everglades Agricultural Area and the Everglades Protection Area, as defined in Article II, Section 7(b); beaches and shores; outdoor recreation lands, including recreational trails, parks, and urban open space; rural landscapes; working farms and ranches; historic or geologic sites; together with management, restoration of natural systems, and the enhancement of public access or recreational enjoyment of conservation lands. 2) To pay the debt service on bonds issued pursuant to Article VII, Section 11(e). c) The moneys deposited into the Land Acquisition Trust Fund, as defined by the statutes in effect on January 1, 2012, shall not be or become commingled with the General Revenue Fund of the state.

IMPACT ON PRIVATE PROPERTY

Amendment One departs From a Historical Philosophical Perspective of Private Property

In the first half of our nation’s history, it was the practice of the government to encourage private ownership through land grants and other such vehicles. This amendment reverses that tradition. It seems to embrace a philosophy found in this quote (a philosophy which is supported by many of the pro-conservation/sustainable development organizations):

“Land…cannot be treated as an ordinary asset, controlled by individuals and subject to the pressures and inefficiencies of the market.

Private land ownership is also a principal instrument of accumulation and concentration of wealth and therefore contributes to social injustice; if unchecked, it may become a major obstacle…

Public control of land use is therefore indispensable to its protection as an asset…”

From the Preamble, UN Conference, Vancouver, Canada, 1976

Amendment One Departs From Our Founding Fathers’ Intent For Private Property

Our Founding Fathers placed safeguards into our Constitution as a hedge or safeguard against government tyranny. As a result, America became an exceptional and unique place on earth by virtue of being founded upon the right of private citizens to own and use property.

Amendment One dangerously opens the door for government to own and control more land. That means less land is owned and control by private property owners. This amendment presents an alternative view to that intended by our founding fathers.

Today, more than 50% of the American west is owned by government. In the state of Utah, 87% of the land is owned and controlled by the federal government. Despite efforts by the state to reclaim their land, the federal government refuses to return it.

Giving government large sums of money to buy land puts Florida on a trajectory similar to Utah. The intent of this amendment is primarily land acquisition for the purpose of conservation.

IMPACT ON LOCAL GOVERNMENT BUDGETS

As the amount of government owned lands increases, two things happen fiscally:

First, the amount of private lands on the tax rolls will be decreased. Therefore, tax revenues will decrease making less funding available for things like law enforcement, first responders, local services, infrastructure maintenance, and local education. Local governments will have to raise property taxes or take the rarely seen step of cutting their budgets.

Second, more taxpayer money will need to be diverted to pay for increased maintenance costs of ever increasing amounts of conservation lands. Currently, the state lacks money to maintain the properties owned by government.

Counties with the most land in government owned conservation lands, have the highest tax rates.

IMPACT ON THE STATE BUDGET

It is the Florida Legislature’s constitutional responsibility to work with the Governor to craft an annual balanced budget to meet the needs of our state. Through the Legislature, all the needs of the state are considered, debated, and approved by elected representatives. This is designed to address in a balanced way, the comprehensive state needs.

Amendment One restricts the Legislature’s ability and flexibility to budget or allocate funding for an array of state-wide critical needs such as transportation, education, affordable housing, and economic development, etc.

The purchase of land by government is a one-time expense. But, the maintenance of government property is a growing, on-going expense to also be remembered. As government ownership of land increases, so maintenance costs increase requiring more employees (and their pensions) , more facilities, and more equipment.

IMPACT ON THE STATE ECONOMY

Nearly one-third of Florida land is used for agriculture. Agriculture, including farming and ranching, is the backbone of our state’s economy providing jobs and produce. Amendment One names both for acquisition. The majority of lands put into conservation make little to no contribution to the economy.

As private land, with its real or potential contribution to our state’s economy, is removed from production, it moves from being a producer of revenue to becoming a user of revenue. Thus, the state’s economy is weakened. Less land in production means our state is less productive and less competitive in the world.

IMPACT ON THE ENVIRONMENT

Today, more than 27% of Florida is already in conservation according to The Florida Natural Areas Inventory. Add lands for government facilities and the amount of land owned by government is more than 30%.

Florida has more land per square mile under government ownership than any other state east of the Mississippi River. The amount of government owned land will be greatly increased if a projected $18 B were to become available for additional land purchases.

Environmentalist groups have plans to purchase millions of additional acres for additional parks, wildlife refuges, wildlife corridors, forests and conservation areas, just to name a few. Amendment One supplies the cash to do so.

SUMMARY

Amendment One would be bad for Florida because it is an unneeded and harmful addition to the Florida Constitution. It will reduce the amount of privately owned property and negatively impact local revenues. It also intrudes on the legislature’s fiduciary responsibility to allocate our state’s revenues in the interests of our entire state.

Nearly one-third of our state is owned by government. Approximately another third is in agriculture. Documentary transaction stamps are already used to fund a number or environmental programs. The Florida Forever program continues to receive millions of dollars annually through the legislature to acquire conservation land. A growing economy already allows for more money to be allocated for government land purchases.

A more radical option should be considered. Doc stamps are expensive, adding significantly to the transaction costs of real estate. Why not reduce or eliminate the Doc Stamp tax altogether to help, in no small way, all Floridians to exercise their rights of property ownership?

Rave reviews for the Wealth Building Home Loan

The Wealth Building Home Loan (WBHL), a new approach to home finance, opened to rave reviews at the American Mortgage Conference held September 8-10.  Six leaders of national stature made favorable comments from the podium.

Lewis Ranieri, considered the “godfather” of mortgage finance, in his keynote address praised the WBHL:  “Fundamentally, what I find exciting is the wealth building nature of the product.  Anyone who knows me knows how concerned I am that too often the mortgage has been utilized as an ATM for a boat or big screen TV, as opposed to building equity; if we’re to meet the needs of Americans who desire a home, this type of SAFE experimentation will be critical.”

Carol Galante, FHA commissioner,David Stevens, Mortgage Bankers Association CEO and former FHA commissioner, Joseph Smith, monitor of the National Mortgage Settlement of the State Attorneys General and Lenders, and James Lockhart, former director of the Federal Housing Finance Agency also made note of the innovative approach taken by the WBHL.

Bruce Marks, CEO of the Neighborhood Assistance Corporation of America (NACA), announced that the WBHL, which provides low-income borrowers a straight, broad highway to building wealth based on a 15-year, fully amortizing, fixed-rate loan, will be available in an initial rollout undertaken by NACA and the Bank of America within 60 days.

Long-time industry observer Tom LaMalfa, in an email, stated:

“In an industry in which few agree on much, there was remarkable agreement on the value of the WBHL among an array of industry leaders speaking at the AMC this week.”

Stephen Oliner (codirector of AEI’s International Center on Housing Risk) and I announced that additional WBHL pilots are in the works with lenders around the country.

Smith spoke extensively about the challenge in providing access to credit and home ownership, particularly among low- and moderate-income borrowers.  He asked:

“[I]s the thirty year fixed-rate mortgage what we need?  Contrary to the opinion of many people whom I admire and respect, the thirty year fixed rate mortgage is neither a Constitutional nor human right…. While it is a proven ‘affordability product’ of long standing, the thirty-year fixed-rate mortgage does not build equity very quickly. Further, a lot of things can happen to a borrower over those thirty years – job loss, health problems, divorce. [a]s Monitor of the National Mortgage Settlement, I have done a lot of listening in the last two and a half years; including to distressed borrowers, the people who represent them, and public officials who deal with the fallout from increased foreclosures and bankruptcies. What I have heard confirms what I know from prior experience: that one or two of those life issues – or, in many, many cases, the trifecta – have resulted in real financial crisis on a large scale. Absent substantial home equity at the outset, the thirty-year fixed rate mortgage increases the fragility of a borrower’s overall financial position and puts the borrower at risk for a very long time.”

Smith went on:

“The traditional answer to the concerns I have just expressed is to require a substantial down payment. That’s certainly effective – for the people who can afford it. But it reduces access to credit and home ownership, particularly among low- and moderate-income borrowers.  If we want to keep homeownership an option for an expanding portion of the population, we should build some additional features into the mortgage product to reduce fragility. At the very least, we should consider the inclusion of product features that allow and even encourage early equity build-up. In that regard, I am pleased to note AEI’s Wealth Building Home Loan.”

Steve and I created the WBHL to serve the twin goals of providing a broad range of homebuyers – including low-income, minority, and first-time buyers – a more reliable and effective means of building wealth than currently available under existing policies, while maintaining buying power similar to a 30-year loan.

A WBHL has a much lower foreclosure risk because of faster amortization and common-sense underwriting. Its monthly payment is almost as low as 30-year, fixed-rate loan while providing the buyer with more than 90 percent of the buying power. It requires little or no down payment and has a broad credit box, meaning sustainable lending for a wide range of prospective homebuyers. While the WBHL is designed to reduce default risk for all borrowers, this is a critical importance for borrowers with FICO scores in the range of 600-660.

The WBHL will help these borrowers reliably and sustainably build wealth.

EDITORS NOTE: The featured image is courtesy of SNMC.

Happy Capital Day? Why not? by Lawrence W. Reed

Any good economist will tell you that as complementary factors of production, labor and capital are not only indispensable but hugely dependent upon each other as well.

Capital without labor means machines with no operators, or financial resources without the manpower to invest in. Labor without capital looks like Haiti or North Korea: plenty of people working but doing it with sticks instead of bulldozers, or starting a small enterprise with pocket change instead of a bank loan.

Capital can refer to either the tools of production or the funds that finance them. There may be no place in the world where there’s a shortage of labor but every inch of the planet is short of capital. There is no worker who couldn’t become more productive and better himself and society in the process if he had a more powerful labor-saving machine or a little more venture funding behind him. It ought to be abundantly clear that the vast improvement in standards of living over the past century is not explained by physical labor (we actually do less of that), but rather to the application of capital.

Harmony of Interest

This is not class warfare. I’m not “taking sides” between labor and capital. I don’t see them as natural antagonists in spite of some people’s attempts to make them so. Don’t think of capital as something possessed and deployed only by bankers, the college-educated, the rich, or the elite. We workers of all income levels are “capital-ists” too—every time we save and invest, buy a share of stock, fix a machine, or start a business.

And yet, we have a “Labor Day” in America but not a “Capital Day.”

Perhaps subconsciously, Americans do understand to some extent that those who invest and deploy capital are important. After all, most people would surely have an easier time naming the “top ten capitalists” in our history than the “top ten workers.” We take pride in the kids in our neighborhoods when they put up a sidewalk lemonade stand. President Obama continues to be roundly excoriated for his demeaning remark, “You didn’t build that; somebody else made that happen.”

Bad Eggs

That’s not to say there aren’t bad eggs in the capitalist basket. Some use political connections to get special advantages from government. Others cut corners, cheat some customers or pollute a stream. But those are the exception, not the rule, in a society that values character. Workers are not all saints either—who among us doesn’t know of one who stole from his employer, called in sick when he wasn’t, or abused the disability or unemployment compensation rules? Those exceptions shouldn’t diminish the importance of work or the nobility of most workers.

Like most Americans, I’ve traditionally celebrated labor on Labor Day weekend—not organized labor or compulsory labor unions, mind you, but the noble act of physical labor to produce the things we want and need. Nothing at all wrong about that!

But this year on Labor Day weekend, I’ll also be thinking about the remarkable achievements of inventors of labor-saving devices, the risk-taking venture capitalists who put their own money (not your tax money) on the line and the fact that nobody in America has to dig a ditch with a spoon or cut his lawn with a knife. Indeed, what could possibly be wrong about having a “Capital Day” in odd numbered years and a “Labor Day” in the even-numbered ones?

Labor Day and Capital Day. I know of no good reason why we should have just one and not the other.

EDITORS NOTE: This article first ran on September 3, 2012.

larry reed new thumbABOUT LAWRENCE W. REED

Lawrence W. (“Larry”) Reed became president of FEE in 2008 after serving as chairman of its board of trustees in the 1990s and both writing and speaking for FEE since the late 1970s. Prior to becoming FEE’s president, he served for 20 years as president of the Mackinac Center for Public Policy in Midland, Michigan. He also taught economics full-time from 1977 to 1984 at Northwood University in Michigan and chaired its department of economics from 1982 to 1984.

INFOGRAPHIC: How Unions Are Chewing Through Taxpayer Dollars

Nicole Rusenko and Kelsey Harris write and graphically display on The Daily Signal:

Did you know your tax dollars are financing unions?

Thanks to what the federal government calls “official time,” government workers spent 2.4 million hours on union work in 2010. In fact, the Internal Revenue Service alone has 286 full-time employees who work exclusively for the National Treasury Employees Union.

Check out the infographic below for more details on whose special interests (and pockets) your money is going.

WARNING: This infographic may upset your stomach and shrink your wallet.

OfficialTime_Infographic_Rusenko-011

COMMENTARY BY

Portrait of Nicole Rusenko Nicole Rusenko@ncrusen20

Nicole Rusenko is a senior designer at The Heritage Foundation.

 

Portrait of Kelsey Harris

Kelsey Harris
Kelsey Harris is the visual editor at The Daily Signal and digital media associate at The Heritage Foundation.

Tragedy of the Healthcare Commons: The Affordable Care Act contributes to an already unsustainable situation by D.W. MacKenzie

Recent difficulties with implementing the Affordable Care Act have increased opposition to the program. A majority of Americans now oppose it. Problems with the healthcare.gov website are in all likelihood temporary. However, there are serious long-term problems, particularly considering long-term finance and labor-supply issues. Give the mounting difficulties with and growing concerns about the ACA, it is worthwhile to reconsider the main issues regarding this program.

The Congressional Budget Office (CBO) recently published a report examining some of these problems. It contains nothing new. Many commentators have discussed the projection of lower labor-force participation. Obamacare subsidies will allow lower-income Americans to work less. People do in fact work less if their costs are shared. The tendency of people to withhold work from collective undertakings is known among economists as a tragedy of the commons.

Reduced labor-force participation means both lower total tax revenue and higher spending on government benefits. The CBO’s long-term forecasts report serious imbalances between tax revenues and federal spending. Federal deficits are projected to remain high, but “manageable,” for about a decade.

The costs of entitlements, along with regular budget items (defense and non-defense), are relevant to any discussion of the ACA’s affordability. The retirement of the baby boomers, though, will result in steadily rising costs for older entitlement programs. Taxpayers are already legally responsible for a national debt of $17 trillion (which  will hit $20 trillion by the time Obama leaves office). Interest payments on the national debt are low for the time being, but they won’t stay that way forever. The Medicare trustees have admitted to a long-term deficit of $34 trillion, but independent estimates run much higher. Social Security has an unfunded liability of more than $12 trillion. These costs pile on top of the current regular budget of $3.5 trillion, not to mention projected growth in this budget. Taxpayers are also responsible for the ACA’s cost overruns. Section 1342 of the ACA makes taxpayers responsible for bailing out insurance companies if the need arises.

Taxpayers are legally obligated to finance all of the above-mentioned expenditures, debts, and unfunded liabilities. People who believe in individual liberty reject the idea that people are morally obliged to fund ever-rising Federal expenditures. But the dispute over whether American taxpayers should fund projected federal spending is rendered academic by the fact that younger Americans will not be able to afford to pay for all of it. The commons created out of the New Deal and the Great Society is collapsing.

Economist Larry Kotlikoff estimates that average rates of taxation would have to rise 56 percent to cover projected increases in federal expenditures. Kotlikoff’s estimate may be high, but even a lower figure would leave Americans in dire financial straits. Taxpayers simply will not be able to fund all projected increases in all current federal programs. Bond investors will not finance our rising national debt in unlimited amounts. The ACA’s increased spending and lower labor-force participation, on top of these increases, makes national bankruptcy that much more likely.

National bankruptcy is not inevitable. The U.S. government is heading toward bankruptcy superficially because politicians have failed to set rational budget priorities, and fundamentally because citizens expect far too much of the public sector. The ACA was created out of concern that financial considerations bar access to healthcare to many people. And Americans do spend a large percentage of national income on healthcare.

The good news is that “we” have a substantial amount of leeway to save money on healthcare. Data on the overall effectiveness of public healthcare spending is clear, but not nearly as well known among voters. For example, The RAND Corporation conducted a health insurance experiment from 1974 to 1982, which showed that making healthcare “free,” or available at no personal marginal cost, does lead people to buy more. Much of this extra healthcare is inappropriate or largely unneeded, however. When people pay for more of their healthcare out of pocket, they tend to waste less money. The RAND study concluded, “In general, the reduction in services induced by cost sharing had no adverse effect on participants’ health.” Many other studies cast doubt on the effectiveness of providing healthcare at no private cost. According to another study, “Medicare enrollees in higher-spending regions receive more care than those in lower-spending regions but do not have better health outcomes or satisfaction with care.” Studies of people with health savings accounts (HSAs), as compared with people with plans like PPOs, show HSA holders control premium inflation better than their PPO counterparts.

Having people pay deductibles or bear other out-of-pocket costs causes us to economize on healthcare. Health insurance pools risks and creates a type of commons, whether done privately or publicly. The private commons of insurance companies does, however, have limits. Private insurance companies deny some types of coverage, depending on how much insurance people contract for in the first place. In other words, private insurance is not an open commons—it specifies the extent to which each policy holder can draw out of the insurance pool.

Public insurance programs lure people in by promising more benefits than private insurance plans offer. Yet public programs ultimately run into the basic problem of scarcity. The ACA pushes people out of very basic insurance plans into plans with higher levels of coverage, but excessive coverage is a major source of high healthcare costs. Americans spend a sizable portion of GDP on health expenses (17.9 percent in 2011). The overconsumption of healthcare by overinsured Americans is both a major source of excessive costs and a cost that can be cut with little adverse effect.

The tendency of people to waste money in open-access healthcare financing is simply going to produce another tragedy of the commons. Too few young people have been signing up at Healthcare.gov because younger Americans are mostly smart enough to avoid paying into a commons. Americans are signing up mainly because they expect to draw subsidies out of this commons.

Problems with managing a commons in healthcare financing are serious. Once someone enters into a life-threatening medical condition, they and their family will want every possible available step taken to save this person—provided that “someone else” pays. Passing costs onto someone else is, aside from being morally dubious, unworkable in the aggregate because we are each “someone else” to everyone else.

There are many costs associated with government intervention into the healthcare industry: administrative and regulatory compliance costs, elevated costs of litigation and court rulings, lobbying costs, costs of perverse incentives. The perversities associated with treating health as an open-access and politicized commons have, along with other, government spending programs, created an unsustainable fiscal situation. The unaffordability of the Affordable Care Act leaves us with two main options: Congress can repeal the ACA immediately through the legislative process, or we can all wait for the repeal process of national bankruptcy.

ABOUT D.W. MACKENZIE

D. W. MacKenzie is an assistant professor of economics at Carroll College in Helena, Montana.

EPA Still Wants to Garnish Your Wages Without a Court Order

A few weeks ago, EPA quietly tried to reinterpret its authority and wanted to garnish wages from those who owe it a debt. After a storm of criticism from Members of Congress and the public, EPA pulled back.

However, the agency is still trying to grant itself this power, only this time it’s going through the standard notice-and-comment process that most federal regulations go through.

What’s is the problem EPA wants to solve by having the ability to dig to go after your wallet? Will this stop polluters? Is EPA inundated with deadbeats?

Apparently not, according to Catrina Rorke and Sam Batkins at the American Action Forum who looked at EPA’s data.

They point out that, over the past six years, EPA has imposed more than $2.3 billion in “non-major” fines against companies and individuals that committed “infractions that do not involve large facilities emitting tons of toxic pollutants annually.”

However, Rorke and Batkins found, “the majority of fines for individuals involve paperwork infractions – not environmental contamination.” Individuals or businesses were fined for failing to file notification or reports with EPA.

And as for a delinquency problem, here’s their key finding:

[T]he average length of time that individuals were delinquent paying EPA was zero quarters. In other words, people generally pay their fines on time.

So why does EPA want to be able to garnish an individual’s wages? Based on its data, it’s not to ensure a cleaner environment nor solve delinquency problems. Roark and Batkins conclude (correctly in my view):

EPA’s proposal to grant itself wage garnishment authority more closely resembles a power grab than an appropriate administrative step to rectify an observed issue in their fine repayment process.

Stay tuned.

CLICHES OF PROGRESSIVISM #5 – Warren Buffett’s Federal Tax Rate Is Less than His Secretary’s

The Foundation for Economic Education (FEE) is proud to partner with Young America’s Foundation (YAF) to produce “Clichés of Progressivism,” a series of insightful commentaries covering topics of free enterprise, income inequality, and limited government.

Our society is inundated with half-truths and misconceptions about the economy in general and free enterprise in particular. The “Clichés of Progressivism” series is meant to equip students with the arguments necessary to inform debate and correct the record where bias and errors abound.

The antecedents to this collection are two classic FEE publications that YAF helped distribute in the past: Clichés of Politics, published in 1994, and the more influential Clichés of Socialism, which made its first appearance in 1962. Indeed, this new collection will contain a number of essays from those two earlier works, updated for the present day where necessary. Other entries first appeared in some version in FEE’s journal, The Freeman. Still others are brand new, never having appeared in print anywhere. They will be published weekly on the websites of both YAF and FEE: www.yaf.org and www.FEE.org until the series runs its course. A book will then be released in 2015 featuring the best of the essays, and will be widely distributed in schools and on college campuses.

See the index of the published chapters here.

20140414_Clichesofprogressivism (1)

#5 – Warren Buffett’s Federal Tax Rate Is Less than His Secretary’s

In August 2011, Warren Buffett wrote an opinion piece in the New York Times in which he made the assertion that his 2010 “federal tax rate” of 17.4 percent was 18.6 percentage points less than the 36.0 percent average rate paid by the 20 other workers in his office.

Buffett’s piece garnered substantial media attention and, in the months since its publication, his “federal tax rate” assertion has been woven into the fabric of American politics. His analysis was the basis for the “Buffett Rule,” a tax plan proposed by President Obama that would implement measures under which everyone making more than $1 million in income per year would pay a minimum effective tax rate of 30 percent.

Clearly, given Buffett’s status as a legendary businessman and investor (the “Oracle of Omaha”), his tax analysis carried a great deal of credibility and, as such, it was never challenged. Adding to the unchallenged acceptance of Buffett’s assertion was the fact that Buffett never released (a) his 2010 federal tax return, (b) the federal tax returns of his office workers, or (c) the analysis underlying his “federal tax rate” assertion.

In truth, Buffett’s assertion is completely inaccurate and is based on a fundamentally flawed analysis of basic federal taxation principles. In reality, he pays a much higher relevant “federal tax rate” than any of his office workers.

First of all, payroll taxes (Social Security and Medicare) are totally irrelevant for this type of analysis. Because these taxes were not assessed on non-wage income (prior to 2013), and because Social Security taxes were only assessed on the first $106,800 of wage income in 2010, the amount Buffett paid into these programs was very close, in dollar terms, to the amounts paid into them by each of his office workers. But because Buffett had total taxable income of almost $40 million, the amount of Social Security and Medicare taxes he paid in 2010 represented only a tiny fraction of his total taxable income. For most of his office workers, these taxes represented 7.65 percent of their taxable income (even though they paid roughly the same amount as Buffett did in dollar terms). This 7.65 percent payroll tax differential is part of the 18.6 percent differential cited by Buffett in his op-ed piece.

But what Buffett failed to mention is that Social Security and Medicare benefits are capped as well. Upon retirement, Buffett will receive almost exactly the same Social Security and Medicare benefits (in dollar terms) that his office workers will receive. There is very little differential between Buffett and his office workers in terms of what they pay into the Social Security and Medicare programs and what they will receive in benefits. As such, the 7.65 percentage point “federal tax rate” differential between Buffett and his co-workers arising from the existing Social Security and Medicare taxing mechanism is simply not relevant and is a mirage.

A second flaw in Buffett’s analysis has to do with the fact that he included employer-paid payroll taxes in coming up with his and his office workers’ “federal tax rates.” The obvious problem here is that Buffett’s coworkers do not pay these taxes. Rather, Buffett does as a partial owner of their employer, Berkshire Hathaway. Buffett’s inclusion of these taxes in his analysis was clearly incorrect, and it distorts the rates he cited. Of course, he included employer-paid payroll taxes to double the 7.65 percent “federal tax rate” differential mirage identified in the previous paragraph.

Buffett himself owns 33.9 percent of Berkshire Hathaway, a publicly traded corporation with taxable income of $19.1 billion in 2010. Assuming a very conservative corporate federal tax rate of 25 percent, Berkshire will ultimately pay $4.76 billion in federal corporate income taxes on this taxable income. Corporate taxes are borne by shareholders of the corporation, in that these taxes reduce the amount of cash available for (a) dividend payments (Berkshire has not historically paid dividends to its shareholders), or (b) reinvestment into the corporation in order to increase shareholder value.

Given his ownership stake in Berkshire, Buffett bore 33.9 percent of the $4.77 billion in federal corporate taxes, or $1.61 billion. Buffett ignored this tax amount in compiling his “federal tax rate” analysis. If Buffett’s share of corporate taxable income and corporate taxes paid are factored into his analysis, his overall 2010 “federal tax rate” increases by 7.56 percentage points, from 17.4 percent to 24.96 percent.

As an employer, Berkshire matches the Social Security and Medicare taxes paid by its employees. These taxes are borne by the shareholders of Berkshire for the same reasons corporate income taxes are. Using reasonable assumptions and data gleaned from the company’s 2010 SEC filings, Buffett’s share of these taxes was approximately $400 million in 2010. If these taxes are included (and they certainly should be), his 2010 “federal tax rate” increases by 6.16 percentage points to 31.12 percent.

Let’s do the math. Buffett, in his analysis, overstated his office workers’ “federal tax rate” by including irrelevant payroll taxes (7.65 percent) and employer-paid payroll taxes (7.65 percent). In actuality, his office workers’ relevant 2010 “federal tax rate” was 20.7 percent, not 36.0 percent, while Buffett’s was actually 31.12 percent, not 17.4 percent.

Bottom line: Buffett’s 2010 relevant “federal tax rate” was actually at least 10.4 percentage points higher than the average rate paid by his office workers.

Who knew?

It is quite troubling that Buffett’s original Times op-ed piece, based upon such a flawed and incomplete analysis, has gained such unchallenged visibility and credibility within the landscape of American politics. While Buffett should be chastised for putting out such an inaccurate and misleading analysis, political commentators on the right should be faulted for not doing their research and for not effectively raising a challenge against the flawed thinking underlying Buffett’s op-ed.

George P. Harbison

Executive Vice President and Chief Financial Officer
Trident University International, LLC
Cypress, California

Summary

  • Warren Buffett created a new tax metric by combining individual income taxes and payroll taxes into one “federal tax rate.”  He then asserted that his 2010 “federal tax rate” of 17.4 percent was 18.6 percentage points lower than the 36.0 percent average “federal tax rate” paid by his office workers.
  • The Social Security and Medicare taxing mechanisms in place in 2010 were inherently fair.  Ascribing a “federal tax rate” differential to employee-paid payroll taxes, as Buffett did, is analytically incorrect. This 7.65 percentage point “federal tax rate” differential is a mirage.
  • Incredibly, Buffett included employer-paid (matching) payroll taxes in his calculations as well, thus doubling the 7.65 percentage point differential.
  • Buffett ignored, in his calculations, the roughly $1.6 billion in corporate income taxes he bore in 2010 as a one-third owner of Berkshire Hathaway. He also ignored his share (roughly $400 million) of Social Security and Medicare matching taxes that Berkshire Hathaway paid to employees.
  • The analytically correct comparison, excluding individual payroll taxes and including corporate income and payroll taxes, shows that Buffett’s “federal tax rate” was actually over 10 percentage points higher than the average rate of his office workers in 2010.
  • For further information, see http://tinyurl.com/mn4z9rrhttp://tinyurl.com/kt8kcds,http://tinyurl.com/lzdg7ym, and http://tinyurl.com/lxdrfac.

Editor’s Note: This essay originally appeared on Forbes.com in October 2013.

ABOUT GEORGE P. HARBISON

George P. Harbison is the Executive Vice President and Chief Financial Officer of Trident University International, LLC.

For the Love of Money? by Gary M. Galles

Money at the margin, not everything for money.

It’s not unusual to hear market systems criticized for relying too much on money, as if this comes at the expense of the altruistic relationships that would otherwise prevail. Ever heard the phrase “only in it for the money”? It’s as if self-interest has a stink that can corrupt transactions that generate benefits for others, turning them into offenses. So this line of thinking suggests reliance on market systems based in self-ownership would be tantamount to creating a world where people only do things for money, and lose the ability to relate to one another on any other terms.

People Don’t Do Everything for Money

One need not go far to see the falsity of the claim that everything is done for money in market systems. My situation is but one example: I have a Ph.D. in economics from a top graduate program. It is true that, as a result, I have an above-average income. But I did not do it all for the money. One of my major fields was finance, but if all I cared about was money—as my wife reminds me when budgets are particularly tight—I would have gone into finance rather than academia and made far more. But I like university students. I think what I teach is important, and I value the ability to pass on whatever wisdom I have to offer. I like the freedom and time to pursue avenues of research I find interesting. I enjoy the ability to tell and write the truth as I see it (particularly since I see things differently from most) and I prefer a “steady job” to one with far more variability.

Every one of those things I value has cost me money. Yet I chose to be a professor (and would do it again). While it’s true that the need to support my family means that I must acquire sufficient resources, many things beyond just money go into choosing what I do for a living. And the same is true for everyone.

Ask any acquaintances of yours who they know that only does things for money. What would they say? They would certainly deny it about themselves. While they might apply this characterization to people they don’t know, beyond Dickens’s Ebenezer Scrooge and his comic book namesake, Scrooge McDuck, they would be unable to provide a single convincing example. If market critics performed that same experiment, they would recognize that they are condemning a mirage, not market arrangements.

Confusing Ends and Means

Beyond the fact that all of us forego some money we could earn for other things we value, the fact that every one of us gives up money we have earned for a vast multitude of goods, services, and causes also reveals that individuals don’t just do things for the money. Each of us willingly gives up money up to further many different purposes we care about. Money is not the ultimate end sought, but a means to a vast variety of possible ends. Mistakenly treating money as the end for which “people do everything” is fundamentally flawed—both for critics of the market and for the participants in it.

To do things for money is nothing more than to advance what we care about. In markets, we do for others as an indirect way of doing for ourselves. This logic even applies to Scrooge. His nephew Fred’s assertion that he doesn’t do any good with his wealth is false; he lends to willing borrowers at terms they find worth meeting, expanding the capital stock and the options of others.

That an end of our efforts is to benefit ourselves, in and of itself, merits neither calumny nor congratulations. Money’s role is that of an amoral servant that can help us advance whatever ends we ultimately pursue, while private property rights restrict that pursuit to purely voluntary arrangements. Moral criticism cannot attach to the universal desire to be able to better pursue our ends or to the requirement that we refrain from violating others’ rights, only to the ends we pursue.

To do things for money in order to achieve world domination could justify moral condemnation. But the problem is that your intended end will harm others, not the fact that you did some things for money, benefitting those you dealt with in that way, to do so. Using money to build a leprosarium, as Mother Teresa did with her Nobel Prize award, does not justify moral condemnation. Similarly, using money to support your family, to live up to agreements you made with others, and to try not to burden others is being responsible, not reprehensible. Further, there is nothing about voluntary arrangements that worsens the ends individuals choose. But by definition, they place limits on ends that require harming others to achieve them.

It is true that money represents purchasing power that can be directed to ends others object to. Money is nothing more than a particularly powerful tool, and all tools can be used to cause harm. Just as we shouldn’t have to forego the benefits of hammers because somebody could cause harm with one, there’s no reason to think society would be better off without money or the market arrangements it makes possible just because some people can use those things for harmful ends. And if the ends aren’t actually causing harm, then the objections over them come down to nothing more than disagreements about inherently subjective valuations. Enabling a small class of people to decide which of these can be pursued and which can’t makes everyone worse off.

Those who criticize people for doing everything for money also do a great deal for money themselves. How many campaigns have religious groups and nonprofit organizations run to get more money? How much of government action is focused on getting more money? Why do the individuals involved not apply the same criticism to themselves? Because they say they will “do good” with it. But every individual doing things for money also intends to do good, as he or she sees it, with that money. And if we accept that people are owners of themselves, there is no obvious reason why another’s claims about what is “good” should trump any “good” that you hold dear, or provide for another in service through exchange.

Criticizing a Straw Man

Given that the charge that “people do everything for money” in market systems is both factually wrong and logically lame, why do some keep repeating it? It creates a straw man easier to argue against than reality, by misrepresenting alternatives at both the individual and societal level.

At the individual level, this assertion arises when people disagree about how to spend “public” resources (when we respect private property, this dispute disappears, because the owner has the right to do as he or she chooses with it, but cannot force others to go along with or allow it; “public” resources are obtained by force). The people who wish to spend other people’s confiscated resources in ways the original owners disagree with claim a laundry list of caring benefits their choice would provide, but foreclose similar consideration of the harms that would be caused to those they claim care only about money. That, in turn, is used to imply that the purportedly selfish person’s claims are unworthy of serious attention. (Something similar happens when politicians count “multiplier effects” where government money is spent, but ignore the symmetrical negative “multiplier effects” radiating from where the resources are taken.)

This general line draws support from a misquotation of the Bible. While more than one recent translation of 1 Tim 6:10 renders it “the love of money is a root of all sorts of evils,” the far less accurate King James Version rendered it, “the love of money is the root of all evil.” When one simply omits or forgets the first three words, it becomes something very different—“money is the root of all evil.” Portray those who disagree with your “caring” ends as simply loving money more than other people, and they lose every argument by default. Naturally, it’s a seductive strategy.

At the societal level, criticizing market systems as tainted by the love of money implies that an alternate system would escape that taint and therefore be morally preferable. By focusing attention only on an imaginary failing of market systems that would be avoided, it allows the implication of superiority to be made without having to demonstrate it. This is a version of the Nirvana fallacy.

By blaming monetary relationships for people’s failings, “reformers” imply that taking away markets’ monetary nexus will somehow make people better. But no system makes people angels; all systems must confront human flaws and failings. That means a far different question must be addressed: How well will a given system do with real, imperfect, mostly self-interested people? And it shouldn’t be necessary, but most political rhetoric makes a second question nearly as important: Does the given system assume that people are not imperfect and self-interested when they have power?

Given that the utopian alternatives offered always involve some sort of socialism or other form of tyranny, an affirmative case for them cannot be made. Only by holding the imaginary “sins” of market systems to impossible standards, while holding alternatives to no real standards except the imagination of self-proclaimed reformers, can that fact be dodged. But there’s nothing in history or theory that demonstrates that overwriting markets with expanded coercion makes people more likely to do things for others. As Anatole France noted, “Those who have given themselves the most concern about the happiness of peoples have made their neighbors very miserable.” And as economist Paul Heyne wrote, “Market systems do not produce heaven on earth. But attempts by governments to repress market systems have produced . . . something very close to hell on earth.”

Money at the Margin

Money is not everything. But changes in the amounts of money to be earned or foregone as a result of decisions change our incentives at the many margins of choice we face, and so change our behavior. Such changes—money at the margin—are the primary means of adjusting our behavior in the direction of social coordination in a market system.

Changes in monetary incentives are how we adapt to changing circumstances, because whatever their ultimate ends, everyone cares about commanding more resources for those purposes they care about. It is how we rebalance arrangements when people’s plans get out of synch, which is inevitable in our complex, dynamic world. In such cases, changing money prices allow each individual to provide added incentives to all who might offer him assistance in achieving his ends, even if he doesn’t know them, doesn’t know how they would do so, and doesn’t think about their wellbeing (in fact, it applies even if he dislikes those he deals with, as long as the benefits of the arrangements exceed his perceived personal cost of doing so).

For instance, consider a retail gas station faced with lengthy lines of cars. That reflects a failure of social cooperation between the buyers and the seller. Those in line are revealing by their actions that they are willing to bear extra costs beyond the current price to get gas, but their costs of waiting do not provide benefits to the gas station owner. So the owner will convert those costs of waiting in line, which are going to waste, into higher prices (unless prevented by government price ceilings or antigouging directives) that benefit him. That use of money at the margin benefits both buyers and sellers and results in increased amounts of gasoline supplied to buyers.

Further, people can change their behavior in response to price changes in far more ways than “outsiders,” unfamiliar with all the local circumstances, realize. This makes prices, in turn, far more powerful than anyone recognizes.

Consider water prices. If water prices rose, your first thought might well be that you had no choice but to pay them. You might very well not know how many different responses people have already had to spikes (ranging from putting different plants in front yards to building sophisticated desalinization plants). Similarly, when airline fuel prices rose sharply, few recognized in advance the number of changes that airlines could make in response: using more fuel-efficient planes, changing route structures, reducing carry-on allowances, lightening seats, removing paint, and more.

If people recognized how powerful altered market prices are in inducing appropriate changes in behavior, demonstrated by a vast range of examples, they would recognize that the cost of abandoning money at the margin, which enables these responses by offering appropriate incentives to everyone who could be of assistance in addressing the problem faced, would enormously exceed any benefit.

Massive Improvements in Social Cooperation

If we could just presume that individuals know everyone and all the things they care about and the entirety of their circumstances, we could imagine a society more focused on doing things directly for others. But in any extensive society, there is no way people could acquire that much information about the large number of people involved. Instead, this would extend the impossible information problem that Hayek’s “The Use of Knowledge in Society” laid out in regard to central planners. You can care all you want, but that won’t give you the information you need. Beyond that insuperable problem, we would also have to assume that people cared far more about strangers than human history has evidenced.

Those information and other-interestedness requirements would necessarily dictate a very small society. But the costs of those limitations, if people recognized them, would be greater than virtually anyone would be willing to bear.

Without a broad society, the gains from cross-pollination of ideas and different ways of doing things would be hamstrung. The gains from comparative advantage (areas and groups focusing on what they do best, and trading with others doing the same thing) would similarly be sharply curtailed. A very small society would eliminate the incentive for large-scale specialization (requiring more extensive markets) and division of labor that makes our standard of living possible. Virtually every product that involves a large number of separate arrangements—such as producing cars or the gasoline to power them—would disappear, because the arrangements would be overwhelmed by the costs of making them without money as the balance-tipper. As Paul Heyne once put it,

The impersonal transactions that constitute the market system . . . have, over the course of a few centuries, enormously expanded our ability to provide [for] one another . . . while at the same time vastly extending our freedom both by offering us a multitude of options and by freeing us from arbitrary restrictions on our choice of life goals and on the means to further those goals. To reject impersonal transactions as unethical amounts to rejecting the foundation of modern life.

Conclusion

A pastiche of false premises leads many to reject out of hand what Hayek recognized as the “marvel” of market systems, which, if they had arisen from deliberate human design, “would have been acclaimed as one of the greatest triumphs of the human mind.” This is great for those who seek power over others—they have an endless supply of bogeymen to promise to fight.

But it’s a disaster for social coordination. The record of disasters inflicted on society demonstrates what follows when voluntary arrangements are replaced by someone else’s purportedly superior vision.

But it’s often forgotten. We must continue to make the case.

ABOUT GARY M. GALLES

Gary M. Galles is a professor of economics at Pepperdine University.

EDITORS NOTE: The featured image is courtesy of FEE and Shutterstock.