Janaury, 2014 Political Class Insanity, Part 3: Failure In Economics, Failure In World Peace, Failure In Tax Policy and More

This is our third post this month that will be covering yet more political class insanity, idiocy, and ineptness. It is a shame that these people do not work in the private sector because if they did, they would have been jobless long ago. But alas, they work for the government, where failure is accepted, tolerated, and often rewarded at the expense of our wealth and liberty.

1) The first piece of insanity if both as good news and bad news story. Good news in that the Washington political class has finally gotten around to terminating a number of stupid, special interest tax breaks and credits. The bad news is twofold: why were these tax breaks ever created in the first place and why were they allowed to go on so long?

The following idiotic, wasteful spending examples that have finally expired come from the January 5, 2013 issue of the Tampa Bay Times:

• At an annual taxpayer cost of $50 million, the first tax break, labeled the NASCAR loophole, allowed anyone who builds a racetrack to receive a tax benefit through accelerated depreciation. Supposedly it was put into place to give NASCAR a better chance of competing with theme parks. But why should NASCAR get a tax break and theme parks not get the benefit at the expense of the American taxpayer? Stupid, narrow, and unneeded tax stupidity, given the billions and billions of dollars NASCAR generates by itself.
• At an annual taxpayer cost of $75 million, Hollywood studios will longer be able to deduct up to a whopping $15 million of their movie production if more than 75% of the movie’s production work took place in the United States. They could get 80% of they produced the film in low income communities.
• At an annual cost of $9 billion, large banks and other financial giants will longer be able to take advantage of a tax break called the “Active Financing Exception To Subpart F.” This tax break, in effect since 1997, allowed companies to defer taxes on overseas income when they use special types of financing. Critics of the tax break probably are correct when they point out that this tax break actually encouraged U.S. companies to invest overseas rather than domestically. Still, the banking and financial giants are howling about losing the tax break, claiming it allowed them to better compete overseas. As an American taxpayer, I would suggest they take that tax break money form their shareholders, the ones that truly benefit form competing overseas, not the American taxpayer.. At $9 billion a year over 17 years, we are probably looking at a ghastly $150 billion that the American taxpayers used to subsidize companies like JP Morgan, General Electric, and others.
• At an annual taxpayer cost of $240 million, American rum drinkers will no longer have to pay for the $13.50 Federal tax per gallon that was levied on all rum made in or imported into the country. That tax money was then given to the rum companies in Puerto Rico and Virgin Islands to support their competitiveness. This tax has been hassling rum drinkers since 1917, meaning that it probably cost American citizens billions of dollars in corporate welfare over the past 97 years it was in effect.

A few other tax beaks expired but these above are the most inane. Why American citizens should have to subsidize banks, financial institutions, NASCAR racetracks, rum producers, etc. is idiotic. In a capitalistic society, these companies should survive, thrive, or die on the merits of their own intelligence, work ethics, and business decisions. Taxpayers should not be responsible for their success.

Unfortunately, there are probably thousands of other such corporate welfare programs and tax breaks that still exist, mostly as a result of campaign donations to incumbent politicians.

2) We already have reported that the Federal government has spent upwards of a billions on a substandard website for Obama Care. We have already reported that well over 90% of large Federal government information systems efforts over the past few years have either collapsed under their own failure or came nowhere close to fulfilling their initial objectives. 

Thus, given this heritage of massive spending for minimal results as it relates to data systems management and development, it should come as no surprise that the Department of Justice is about to spend well over half a million dollars to enhance its brand image and positioning on the Linkedin business networking system. This outrageous expense was reported on January 2, 3014 by the Washington Free Beacon.

And this expense is not even for the whole Justice Department, if for only the criminal division which has less than one thousand employees. Supposedly this expense will help the division recruit highly talented professionals and interns.

The actual development cost of the Linkedin presence is $544,388 but there is also an monthly, ongoing cost of $719.95 a month. Doing some math, over the first five years, the cost of the presence would be about $587,000. If the division hired 100 people over that timeframe, not unreasonable since the Federal government sees very little turnover in their employee base, each one of those hire would have cost at least $58,700 each just to cover the Linkedin expense. Does not seem like a very efficient way to get candidates for a very small division within the Federal government.

And given the history of Federal government systems management, want to bet those costs go much higher before all is said and done? Remembers, user access to Linkedin is free, why the government has to spend hundreds of thousands of dollars to access a free site is certainly questionable.

3) An interesting economic study was recently reported by Dean Stansel, a professor at Florida Gulf Coast University, and Fred McMahon of the Fraser Institute. They conducted an analysis where they measured a variety of components to determine economic freedom levels by North American jurisdiction.

These components included the size of government, discriminatory taxation, regulation, the legal system and property rights, sound money policy, and freedom to trade internationally. They found via their methodology that the province of Alberta, Canada, ranks highest for economic freedom, followed by the province of Saskatchewan iin North America. The state of Delaware is third, followed by Texas and Nevada. Other U.S. states in the top 10 states and provinces are Wyoming, South Dakota, and Colorado. 

New Mexico was determined to be least economically free entity, followed by West Virginia. Other U.S states in the bottom 10 are Mississippi, Vermont, Maine, Kentucky, Montana, Arkansas, Hawaii, and Rhode Island. 

But what is really the big news from their study is that these ten states, the ones with the lowest economic freedom, have an average per-capita GDP of $40,014. That GDP measure is nearly $10,000 less than the other 40 states: $40,014 compared to $49,355. Imagine how much lower it would be if compared just to the top states that are the most economically free such as Delaware, Texas, Nevada, etc. The GDP gap would be much wider.

Conclusion: the less taxes, the fewer regulations, the least government interference in citizens' economic freedom results in greater prosperity for those citizens. However, the Washington political class seem to think and act just the opposite, especially those within the Obama White House since their actions lead to more taxation, more regulations, more interference and as we have seen, less and less prosperity for all Americans. Insanity.

4) There was great hope for world peace when President Obama took office. He had a sky high approval rating both domestically and across the world. He gave a hopeful, peace themed speech to university students in Cairo. His brand was “hope and change.” He won a Nobel Peace prize for simply breathing. He was going to be the breakout world leader who settled things down and brought peace in our time.

Five years later, not so much. Maybe it was his inability to wind down the Afghanistan war. Maybe it was his indiscriminate killing of civilians, adults and children with drone attacks in Pakistan, Yemen and elsewhere. Maybe it was his assertion that he could assassinate American citizens without putting them on trial first. Maybe it was his dangerous and stupid intervention in the Libyan civil war. Maybe it was his threat to send armed forces into Syria as a result of a purported chemical attack by government forces. Maybe it was his alleged assertion that he “was very good at killing people.” Maybe it was his stationing of U.S. Marines in Australia.

Whatever the reasons or reasons, a recent survey by pollster Win/Gallup International across 65 nations found that the United States was viewed as the most dangerous nation the face of the earth. Not China, not Russia, not Iran, not North Korea, the United States. Detailed results from the survey include the following depressing findings:

• The U.S. topped the list of the most dangerous country in the world with an aggregate of 24% of respondents.
• The runner-up threat country, Pakistan, was way behind at eight percent, one third the perceived threat as the U.S., China was third at six percent, followed by North Korea, Iran and Israel at five percent each.
• In Russia, 54% of respondents said the U.S. was the greatest threat to peace and in China 49% of respondents said the U.S. was the greatest threat to peace.
• But our allies were not quite happy with us either since NATO partners Greece and Turkey (45% each), and Pakistan (44%), which is also a top recipient of U.S. aid were also sure that we were the top threat to world peace.
• In Latin America, Argentina (46%), Mexico (37%), Brazil (26 percent) and Peru (24%) also viewed the U.S. as the top threat to world peace.

The list and findings go on but you get the idea. The Obama administration has failed miserably in actions, words and promises to bring about a world political and military environment that is compatible for world peace. In fact, we are still viewed as the biggest threat to world peace. 

So much for hope and change on the international front from this version of the Washington political class. Maybe the fact that we have hundreds of thousands of troops stationed around the world and spend more on military forces than the rest of the world combined might also have a bearing on the hostility towards us.

Whatever the reason, certainly a failure of leadership from Washington in general and the White Hose specifically.

Failure on the world stage, failure to rein in stupid tax breaks, failure to efficiently spend information systems dollars, and failure to understand economic freedom concepts. Sounds about right for this set of political class members. More buffoonery tomorrow.

Our book, "Love My Country, Loathe My Government - Fifty First Steps To Restoring Our Freedom And Destroying The American Political Class" is now available at:

www.loathemygovernment.com

It is also available online at Amazon and Barnes and Noble. Please pass our message of freedom onward. Let your friends and family know about our websites and blogs, ask your library to carry the book, and respect freedom for both yourselves and others everyday.

Please visit the following sites for freedom:

Term Limits Now: http://www.howmuchworsecoulditget.com
http://www.reason.com
http://www.cato.org
http://www.robertringer.com/
http://www.youtube.com/watch?v=08j0sYUOb5w

A Nation Should Have A Tax System That Looks Like Someone Designed It On Purpose

The title for today's post comes from William Simon who long ago served as the U.S. Treasury Secretary, from 1974 to 1977 under both Nixon and Ford. He was being sarcastic when he coined the phrase, realizing that even decades ago, the United States did not have a tax system that looked like an intelligent being designed it on purpose. Such a system would be easy to comply with, easy to understand, and not a burden on the economy.

Over time, the political class has continuously used the tax system to reward both constituents and reelection campaign donors and tried to manage social and political changes by manipulating the tax code to advantage those changes. As a result, we have ended up with a tax system that is anything but fair, easy to understand, efficient, and easy to comply with.

Consider the following factoids about our nation's tax system:

- I first started out trying to find out a basic fact: how many pages are in the Title 26 Federal Tax Code? The answers I found were never exactly the same but were pretty consistent, most around 70,000 pages. However, most of the estimates were prior to 2011, they probably did not take into account the additional Federal tax changes that Obama Care seeks to put into place so at least 70,000 pages seems like a solid number

How long is 70,000 pages? If you were reading my three volume edition of J.R.R. Tolkien's "Lord Of The Rings" tome, which measure about 5 inches across, you would have to read it about 70 times. If you bought the King James version of the Bible that is currently available on Amazon, you would have to read it about 46 times. And both of these examples are probably much easier reads than 70,000 pages of tax code.

- An online article from U.S. News and World Report in April, 2010 also estimated 70,000 pages but provided some additional, fascinating, and depressing statistics:

• Americans spend about 7.6 billion hours a year just preparing their tax returns.
• This is the equivalent of placing 3.8 million Americans into full time jobs.
• Using this criteria, the tax preparation effort in this country is six times larger than the auto making industry in this country.
• The original Federal tax code published in 1913 was 400 pages long, making it about .6% the size of what we deal with today.

- According to a Business Week article from its Insider report for Spring, 2011, there is a $345 billion gap between what U.S. taxpayers are supposed to pay in Federal taxes and what they actually pay. This gap theoretically places an additional tax burden of about $3,000 on each U.S. household, all because the political class and the government it runs does not know how operate an efficient tax collection system. The size and complexity of our 70,000 page tax code probably has a lot do to with tax evaders being so proficient at hiding the taxes the owe.

- According to a short article in the December 12, 2011 issue of Business Week, 51 Federal tax breaks were expected to expire at the end of 2010. A sampling of these 51 tax breaks give a good indication of how convoluted and needlessly complex our tax system has become (remember these are the tax components that went away, there are probably thousands and thousands of other similar ones that did not go away and which take up the 70,000 pages):

1. Special expensing rules for certain film and television productions.
2. Mine rescue team training credit.
3. Temporary increase in limit on cover over of rum excise tax revenues to Puerto Rico and Virgin Islands.
4. Credit for electric-drive motorcycles, three-wheeled vehicles, and low speed vehicles.
5. Seven year recovery period for motor-sports entertainment complexes.
6. Look through treatment of payments between related controlled foreign corporations under the foreign personal holding company rules.
7. American Samoa economic development credit.
8. Tax credit for first time DC home buyers.

These were some of the 51 tax components that I understood. Many of the other ones are complicated and apparently narrowly focused. Few, if any of these 51, apply to the vast number of ordinary Americans. They were likely developed and inserted into the tax code at the behest of  Washington politicians to support a narrow geographic, personal, or business interest.

Did any politicians personally make use of that tax credit to buy DC home and real estate? Did Hollywood interests kick in some political campaign donations for those special expensing rules? How many Americans qualify for the mine training credit? Special rules for special political people all of which add to the complexity of our tax code, favor special interests, and cost ordinary Americans more in their own tax bill.

- A March 21, 2011 article in Business Week magazine reported how American corporations are holding $1 TRILLION worth of profits and cash overseas since it is a better business, financial, and economic decision to do so than to bring that wealth back to the United States and have it heavily taxed.

$1 TRILLION is about 25% more than what the Obama administration spent on its economic stimulus program. Dumping $1 TRILLION back into the U.S. economy, would have to have a positive economic on our unemployment situation. Wouldn't it be nice if we had a tax code that encouraged American companies to bring money and wealth back into America for investment in America which would generate jobs for Amercians?

- A recent Wall Street Journal article, that was summarized in the April 29, 2011 issue of The Week magazine, estimated that U.S. taxpayers expend about $431 billion a year to comply with the complexity of the U.S. tax code. This money could be so much better spent on productive expansion of the economy and employment rather than tax paperwork.

- Another Busines Week article in the Spring, 2011 issue had some interesting facts regarding corporate tax realities. According to the article, although the top U.S. corporate tax rate is 35%, that rate is applied haphazardly and grossly unfairly against different companies and different industries:

• For the business quarter that ended on December 31, 2010, Proctor and Gamble had an effective tax rate of 17.9%.
• Other the past three years, Walmart has had an effective tax rate of 33.6%, about twice the tax rate of Proctor and Gamble.
• But wait! Over that same time frame, General Electric had an effective U.S. tax rate of 3.6% even though it had billions in revenue and profits, about one ninth the rate of poor Walmart.

Looks like Walmart needs to significantly improve its Washington lobbying effort, given how poorly the tax code treats it vs. how well the same tax code treats General Electric. You cannot say you have a fair and balanced tax code when different sections of the economy are treated radically different from each other.

- Let's stay with General Electric for a while to show how ridiculous our 70,000 page tax code is. According to November news reports, the latest General Federal tax filing, if it had been printed out rather than submitted electronically, would have been about 57,000 pages in length.

In other words, just one company's one year tax filing would have been about 80% the length of the entire tax code. To make it more tangible, these 57,000 pages, if stacked one on top of another, would be about 19 feet tall.

Think about how many GE resources went into compiling a 57,000 page, one year tax return. Think about how much more productively GE could have used those resources to create new products and expand the economy.

Think about how many government resources will have to be expended to go through one 57,000 page tax return. Think about how easy it is for GE to cheat on its 57,000 page tax return, which I am definitely not saying it did,  since I doubt even the Federal government has the resources to thoroughly go through all 57,000 pages to determine if the filing was accurate.

Think about how much better those government resources could be used if we had a simpler tax system, possibly diverting those resources to go  after the criminals and fraudsters that rip off Social Security, Medicare, and Medicaid of hundreds of billions of dollars every year.

Details of the GE 57,000 page, 19 feet tax filing can be found at http://www.weeklystandard.com/blogs/ge-filed-57000-page-tax-return-paid-no-taxes-14-billion-profits_609137.html

The details of how unproductive a 70,000 page tax code be is now pretty obvious. It creates an incredibly complex process that makes tax cheating and tax evasion so easy. It allows politicians to use the tax code to reward their financial backers or to personally enrich themselves.

It wastes time, resources, and wealth, all of which could be used for far more productive purposes, either reducing government fraud and waste or allowing individuals and companies to focus on expanding their businesses and lives. Replacing non-productive tax activities with productive economic activities would certainly go a long way to reducing unemployment in this country.

How do we get to this new view that taxes should be simple, fair, compassionate and not a drain on the economy? Believe it or not, the first step has to be installing term limits (Step 39 from "Love My Country, Loathe My Government) into our political processes. Our current set of politicians, in both parties, are not interested in simplifying the tax code. If they did, they would lose a primary source of political and financial power. They need to be replaced and the only way to do that is via a Constitutional amendment that imposes a "one and done" term limit restriction on all Federal politicians.

In the mean time, we will propose a simplified tax code approach within the next week that is fair, easy, effective, and efficient. It is not hard to do if you use reason, logic, and a little math, three attributes that constantly appear to elude most of Washington's political class. Until then, consider two paragraphs about GE that we reported on in our July 6, 2011 post:

"Let's look at General Electric for a business example. They recently announced they had 2010 profits of $5.1 billion on their U.S. operations. [Note: GE also had about $9 billion worth of overseas earnings] Very impressive. However, more impressive is that they paid no Federal income tax on those profits. Even more impressive, they were able to legally work the complexity of the tax code so that they actually received a $3.2 billion tax credit from the United States government.


This is really nice work if you can get it. Earn billions of dollars, pay no taxes on those billions, and the government will give you billions more."

If this is not the poster child for fair and efficient tax reform, I do not know what is. More on our plan next week.



Our book, "Love My Country, Loathe My Government - Fifty First Steps To Restoring Our Freedom And Destroying The American Political Class" is now available at www.loathemygovernment.com. It is also available online at Amazon and Barnes and Noble. Please pass our message of freedom onward. Let your friends and family know about our websites and blogs, ask your library to carry the book, and respect freedom for both yourselves and others everyday.


Please visit the following sites for freedom:

http://www.cato.org/
http://www.robertringer.com/
http://realpolichick.blogspot.com/
http://www.flipcongress2010.com/
http://www.reason.com/
http://www.repealamendment/