Friday, August 30, 2013

'North Carolina is #10 In Terms of State Funding for Public Education!'

'What is that?' you might be saying out loud as you read this headline.
'North Carolina is #10 in funding public education? How in the world can that be? The newspapers, news media and Moral Monday protesters have been saying North Carolina is dead-last and going down faster than a lead balloon!' 
It makes you have to wonder as Plankton does in this clip from 'The Algae's Always Greener' in which he gets his dream of running the Krusty Krab:

'Is there a gas leak in here?' (at minute 6:55 of following clip)

Look. No one in their right mind will argue that public school teachers in North Carolina are OVER-paid. Because they are not. Great public school teachers are essential to not only the education of our fellow citizens so they can lead productive happy lives but also to the proper functioning of our economy and government.

There is a great bumper sticker that gets to this point:

Thomas Jefferson spoke early and often about how essential is is for a free democratic republic such as ours to have a widely-educated and properly trained citizenry.

Why? Because a better educated citizenry understands complex issues better and can therefore make better informed choices at the ballot box. They also can work in complicated industries so that jobs stay here in America and don't emigrate to India and China where well-educated and trained people are just dying to get as much business as they possibly can from Americans.

So once we can get everyone to agree to the point that North Carolina public teachers need to be paid more, we can focus on how to actually get there and do it.

Check out this report. Page 42 to be exact. This is the official National Education Association (NEA) annual report for the estimates and rankings for every state in the union in terms of what they spend on public education in their state.

Never see or heard of this report? Of course not! It doesn't play into the commonly accepted narrative chosen by the news media and advocates that the Republicans in the North Carolina state legislature are Neanderthalic ogres who hate women and children, old people, ethnic minorities and the movie 'Bambi'.

But there it is on page 41, clear as day: North Carolina is #10 in terms of the percentage of funding at 57.9% that comes from the state government for public education.

In fact, North Carolina is the 2nd largest 'big state', second only to Michigan, in terms of how much funding comes from the state legislature each year. 8 other states receive a higher percentage of funding from their state capitols but they are all relatively small states such as Delaware, Hawaii and Vermont.

There are many congressional districts in America that have more people living in them than in the entire state of Vermont (population-626,000). Vermont's state budget (sans any federal share of spending) is darn near close to being just twice that of the annual budget of the City of Charlotte North Carolina by comparison.

So why is North Carolina so near the bottom if the state ranks #10 in terms of the percentage of total spending on public education that comes from the state capitol?

Check the other charts on page 41 near the one cited above. North Carolina ranks #44 in terms of the percentage of funding (28.5%) that comes from local governments. As in the county in which you reside: Mecklenburg; Buncombe or Gates County, North Carolina.

Illinois has the highest percentage of funding for public education coming from local governments at 65.6%. Vermont comes in at a measly 5.3%, which stands to reason since they have the highest percentage coming from the state legislature in Montpelier.

So, you see, it is not quite as simple as it seems on the face of it, is it? Has the local media or the protesters taken the time to point out this fine point of state budgeting for you on the evening news?

We haven't see it yet. Forgive us if we missed it.

Which brings up the following points: 'Why AREN'T the local governments in North Carolina doing more to support funding of public education of the children who live in their jurisdiction?'

That is the question you need to be bringing to the serious attention of your local county commissioners and school boards. Check and see how much money is now being spent on new water parks or museums or other public investments in your county. And ask yourself and your elected representatives this single question:
'Is all of that local government spending more important than making sure our children have great teachers in the public schools in (name your hometown/county)?

Sure, there are some counties that are more prosperous (Mecklenburg/Wake) than others (Hyde/Watauga). That is where the state funding typically comes in to ameliorate the disparities in income and property taxes across the entire state. We all have a stake in whether the children of Sampson County receive a quality education, not just in our home county or districts.

But generally, there are 43 other states where local governments contribute a higher percentage of funding for public education than North Carolina. Maybe local governments should be expected to match the 53% share of spending as local governments in the state of Virginia?

North Carolina is the 10th largest state today. There is not a ranking you can think of where North Carolina should be below #10. In fact, we think North Carolina should be #1 in every category of education, health, business climate since it is such a great place to live in the first place.

Don't you?

Normalizing local government contributions to public education funding for teachers' pay would be one monumental step forward towards achieving those rankings.

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Saturday, August 24, 2013

The Circular Firing Squad of the 'Defund Obamacare' Movement

'You don't agree 100% with me!' each of them said.
Now, you must die!'
Try as we might, we are having difficulty understanding the whole 'Defund Obamacare!' movement by those who want to use the continuing resolution to fund everything BUT Obamacare and avoid a government shutdown.

On the face of it, it may 'sound' like a good approach to the people who hate Obamacare and there are millions of them.

On further reflection, however, it will not succeed and will only add more fuel to the fire of the internal debate now gripping the Republican Party nationwide.

Here's a pretty good article that summarizes the issue in a recent edition of 'The Atlantic' by Molly Ball if you want to catch up to speed on it.

First off, let it be said that we are for virtually any effort that will reduce the size and scope of government and reduce the tax burden on hard-working Americans. We believe that 'the best government is that which governs least' as Thomas Jefferson put it because why would we want a concentrated power in Washington today to mimic the monarchical powers of the British king who ticked off our forefathers in the first place?

We also don't get how so many of the 'Anti-Establishment' hippies of the 1960's who were against 'The Man' in Washington are now so pro-'Big Government' and who love Obamacare and more regulations and laws on just about everything it seems nowadays.

Maybe this ad about 'This is your brain on drugs' really is true after all.

We have seen efforts before by opponents in Congress to try to 'defund' a measure they deemed 'unpopular' that was passed by a President of the opposite party or a previous Congress.

The very first effort came in 1795 during President George Washington's first term over the Jay Treaty with Great Britain. Try as they might, James Madison and Thomas Jefferson tried to 'defund' it probably by refusing to fund the customs offices that would regulate trade with England.

They lost. The Jay Treaty went into effect and the era of 'non-partisanship' in American politics died an ignominious death roughly 3 years into its history.

There have been numerous other efforts to 'defund' a bill here and there throughout American history. We were part of several efforts to 'defund' this or that or the other in the US House of Representatives while working with a band of revolutionaries in the 1980's under the direction of a firebrand known as Newt Gingrich and other guys such as Jack Kemp, Trent Lott and Bob Walker of Pennsylvania.

Guess what? We lost too. All of them.


Because Republicans were close to an 85-seat minority in the US House for the entire decade we were there!

We don't want to say we were entirely non-effective because some good came out of those efforts a decade later in budget terms at least. But one Texas congressman's assessment of our being about 'as useful as tits on a bull' still rings in our memory banks for some reason.

Republicans had President Reagan in the White House from 1980-1988 and GWH Bush 41 from 1988-1992 AND the majority in the US Senate for most of the time...and we still could not get anything 'defunded' even though Republicans controlled 1 House of Congress and the Executive Branch!

Republicans control only the US House today the last time we checked. They could pass any law they want to pass but unless the Senate also passes it in the same form and the President signs it, it is not going to become the law of the land. That is the way our Founders set up the government and those are the rules of the game as they say in golf. 'The rub of the green' in golfing vernacular.

The single and only time we ever saw anything of any size of substance get 'defunded' or repealed was when a bunch of little old ladies were banging their umbrellas against the hard head of Democratic Ways and Means Chairman Danny Rostenkowski of Chicago in defiance of the aptly-named 'Catastrophic Health Bill' of 1988.

They didn't want to pay the higher fees (sound familiar?) of a national health plan (familiar again?). These little old ladies vented their displeasure at senior citizens homes around the nation but especially in Chicago where news reports showed Rosty lunging into his limo to get away from these mad ladies.

The 'difference' between then and now? Unless you are willing to engage in 'civil disobedience', which is what these little old ladies were doing, kinda, and start banging your Congressman or Senator over the head with an umbrella while they are home on summer recess, these representatives will go back to Washington assuming 99.9% of their constituents don't care enough to express displeasure with Obamacare.

You either defeat people at the ballot box to overturn laws in America. Or you resort to civil disobedience which we have referred to previously in another post this summer.

(One funny sidenote: A woman who later worked in our office said she was at a meeting of Republican health staffers about this time and she said: 'Well, who was the dumb bastard who came up with that bright idea?' The health care staff director at Ways and Means at the time sheepishly raised his hand and said: 'It was me'.

They were married a couple of years later. Only in Washington will such love blossom)

We see absolutely no way that this 'Defund Obamacare!' through the continuing resolution will result in any diminution of Obamacare or even delay it for a couple of months. The 2012 presidential election was the last real chance for opponents of Obamacare to vote in new people to truly 'defund' or derail Obamacare. They could have helped elect Mitt Romney to the White House and a new GOP Majority to the US Senate in sufficient numbers to do so in compliance with the dreams of some House Republicans.

But millions stayed home. Today, in one of the oddest quirks ever, Tea Party Republicans are now turning on their own Republican colleagues and urging primary challenges to them in 2014 instead of focusing all their energies in defeating Democrats in the US Senate next year! Which will do nothing to change the makeup of the US Senate. The White House can't be changed until the elections of 2016, that's a fact they have to come to grips with.

So why do this 'Defund Obamacare' right now?

A circular firing squad is an idiom for a group that is in such disagreement and disarray that they would rather kill each other off instead of uniting to defeat a common enemy.

Go into the House Republican Conference in Washington DC nowadays and you may find that it is not really an 'idiom' but a sad fact of life.

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Tuesday, August 20, 2013

'Pay No Attention To That Man Behind The Continuation Budget Curtain!'

'Pay no attention to what I want to spend,
you ungrateful creatures!'
Our last post on 'baseline' or 'continuation' budgets generated a fair amount of comment, mostly positive, simply because it pulled back the curtain on the budgeting process in North Carolina and virtually all government accounting from Washington to every state capital.

It showed just how much of a sham the 'continuation budget' really is when it comes down to it.

To recap:

Budgets must be compared against what was spent in the previous year. NOT what was 'hoped for' or expected to be spent next year by a legislative body two years ago!

How nonsensical is that? 'Continuation budgeting' is like saying you 'cut' your spending when you opted to buy a used car due to financial constraints in 2009 when your 'baseline' 'continuation' growth budget in 2007 suggested you could afford a new Mercedes instead when things we going great, or so it seemed.

You didn't 'cut' one dime of 'spending'!  You still bought a new car, 'new' to you at least. You paid out more money than you spent the year before. Just not as much as you would have had to have paid for that shiny new 2010 Mercedes.

'The Great and Mighty Wizard of Oz!' would have been mightily impressed by the machinations, subterfuges and misdirections of the media and the protesters who have thrown up such a howl over this year's legislative actions in North Carolina.

You've heard the furor and angst.  Now let's take a look at the cold hard facts as presented in a response to our previous post by someone who works in state government and understands state budgets, business and public education:
'The media says the Republicans have 'cut' education spending by $500M – really?

FACT: We increased K-thru-12 education spending by $361 million.

Again, just to reiterate, we raised public education spending in the state of North Carolina by $361M. Not cut it one dime relative to the year before.
In 2014, we will go over $8 Billion in education spending. Under the recent Republican-controlled state legislature, education spending has increased every year. 
The media says we 'cut' the K-thru-12 public education budget by $500M.  The exact number in question is $361,407,582.00.
The problem is that $361M is the increase in spending we passed. Not any decrease. 
Year-over-year from 2012, this is the amount of money we have increased public education spending in the state of North Carolina for the next biennial (2-year) budget cycle.
These are the public school funding numbers for this year and the next two years:  
$7.844,000,000 (2013),
$7.905,000,000 (2014)
$8.110,000,000 (2015). 
I did not get an 800 on my math SAT, but I am pretty sure those numbers represent an increase in planned spending - every year going forward.  These numbers represent the most the state has ever spent in public education in the history of the state.
To be fair, the media was not only off on their $500 million figure, they were off by $861 million in the correct education budget numbers!
Under the Republican-controlled NC General Assembly since 2011, we have raised the public education budget every year. 
The Democrats ran ads before the change of control four years ago, that claimed that within a period of three years under the Republicans, there would be a cut of 20,000 teacher jobs.  We have never seen total teacher jobs decline.

Last year alone we added 3,000 new teacher positions.  We are doing such a terrible job over the past 4.5 years that high school graduation rates went over 80% for the first time in state history this past year.'
Now, that all being said, there are plenty of opportunities to discuss the composition of these public education budgets. Those are the types of debates we should be having in polite company.

Should teachers be paid more? Should every teacher be expected to be part-counselor, administrator, public safety officer, psychologist for every student in his/her class? How about the number of administrative positions now in abundance in public education? What would happen if they were cut in half and that money was reallocated to bolstering North Carolina teaching salaries?

How many more reforms are needed to really inject our public school system with the energy and positive motivation that every student will use to become as educated as he or she wants to become?

If you want to talk about raising taxes, shouldn't the first thing you discuss is how to squeeze every single efficiency out of the existing budget before doing so? Why raise taxes if you think there is 5%, 10%, or even 50% of the existing budget that is not producing optimal results? That would be like flushing hard earned tax money down the drain, wouldn't it?

In any $8 billion budget, there are top-tier #1 priority line-items and there are many lower-tier line-items that get tucked away in it year after year after year...and never get examined or taken out. That is the nature of government. Ronald Reagan once compared government programs to 'the closest thing on earth to eternal life'.

So, can we get past the argument of whether there were any 'cuts' or not in the NC state public education budget and get onto the main burning question at hand:
'How are we as a functioning society going to educate and train our young people in the state of North Carolina so they can live healthy, productive lives and compete in a world economy?'
The Chinese and Indian brainiacs in their fast-growing economies could care less whether we use a 'continuation' budget or not to fund public education in North Carolina. They want to know if they are going to have to compete against North Carolina students for the jobs of the 21st century and whether the Tar Heel students will be any good or not at the things they choose to do.

We will either meet that challenge or we won't.

Who is ready for that debate to begin instead of this mudfight we have witnessed lately?

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Saturday, August 17, 2013

How Is The North Carolina State Budget Like The US Federal Budget?

'Hey! I was only kidding! I thought
I was telling the truth!'
Both are deceptively misleading. Like almost all government budgeting.

We swear:

'If the US and state budgeting process was audited by some reputable private accounting firm under Generally Accepted Accounting Principles (GAAP), everyone would be going to jail!'

(That is presuming that every accounting firm is honest and truthful, mind you. Some of the largest accounting firms in the nation have succumbed to the same temptations of greed and falsification of documents at times. There are crooked accountants, you know)

However, assuming that we could be like Diogenes and actually find an honest accountant, what would they find digging into governmental accounting that was so 'misleading'?

For one thing, 'baseline budgeting'. The bane of all true public policy budget wonks.

We have written about this before. It seems as if baseline budgeting in DC has spawned progeny in North Carolina where they call it the 'continuation budget'.

What do both terms mean?

They both mean that if the current legislature basically does nothing but 'continue' existing policies, 'baseline' or 'continuation' budgets would look like their projections in coming years.

Imagine putting the budgets on autopilot. And then sending every elected member home. Forever. That is what our budgets would become in the future if baseline or continuation budgets are strictly adhered to: unstoppable expansions of budgets with inflation expectations built in annually.

Why would we ever need elections? Just set the budget on 3% annual growth, 5%, 10% and then go home. No need for any oversight. No investigations. No adjustments to priorities.

That is how silly using baseline or continuation budgets can really be.

Don't fall for the hype, hyperbole and sometimes outright hysteria you may hear on the evening news about the 'draconian' budget cuts by the Republicans now in full control of the North Carolina state legislature.

It is simply not true.

The media and activists who want more government spending at your expense love baseline and continuation budgets! Why? Simply because they give them the chance to howl at the moon and scream at the top of their lungs if anything is ever cut from those automatically inflated baselines:
'Those nasty and mean ole Republicans are cutting our budgets! They will throw children, old people and handicapped people out into the street where the wolves will devour them!

It sounds so good on the news channels.  It is an easy accusation to make. It appeals to the basic human instincts of 'unfairness!' and 'injustice!'

Those tirades are simply wrong. In some cases, in embarrassing ways. In many cases, it is just plain sad to see facts so dramatically distorted simply for political gain and posturing.

Take a good hard look at this chart detailing the differences between the 2012 budget, the continuation budget, the 2013 budget and 2014 budget and Governor Pat McCrory's proposed budget.

We dare you to find where the 'mean old Republicans' have 'eviscerated' the social safety net or 'bludgeoned the education budget to death!' or 'gutted' the transportation budget or any other function of state government. (Granted, the Cultural Resources funding for Roanoke Island, down 57%, looks like it means a lot more people are going to have to drive way out to Manteo to see 'The Lost Colony' from here on out)

North Carolina state taxpayer funding for education has gone UP, not down as naysayers want you to believe. Overall spending has gone up, not down, as critics would have you to believe.

What they are doing is trying to get you to believe that budgets have been 'cut' from the 'continuation' budget, not the actual spent dollars figures of 2012-2013! An increase of 1.7% from the previous year is not a cut, people! It is an 'increase' in every other walk of life. 

Except politics and government, of course.

We can have a civil debate about whether teachers deserve a raise or not. We can have a civil debate about whether our roads need to be repaved or the Rural Center needs to be funded. (It is not being funded due to millions being spent wastefully on crony projects in the past)

The one thing we do know beyond a shadow of a doubt is that the state has to get a firm rein on Medicaid spending growth as evidenced by the $500 million spent this year and $500 million allocated for 2013-2014 simply because Medicaid costs have grown that fast over projections just a year ago under the Perdue Administration.

Virtually every dollar that goes to Medicaid in supplemental fashion comes out of the budget primarily for education. That is the choice lawmakers face whether people want to admit it or not.

What we can't do is have people throwing mud who have simply never read the entire state budget. Budgets are designed to force decision-makers to make decisions and set priorities. Cameron Morrison wanted to be known as 'The Good Roads Governor' of North Carolina so they spent more money on building quality roads under his term. Terry Sanford was known as 'The Good Education Governor' of North Carolina so the legislature spent more money on public education under his Administration.

Choices had to be made as to how much money would be spent on each initiative. There is not an unlimited amount of money we can spend in the state since we can't make money up out of thin air like the Federal Reserve does in Washington. The Republicans in Raleigh are not going to raise the level of tax collection above what it is today relative to state GDP.

So there you have it. The stark naked truth about the North Carolina state budget. When the economy rebounds and more tax revenue flows into the state coffers, there will be time to argue about how much to increase these line-items in the budget.

Just don't lie about it is all we ask.

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Sunday, August 4, 2013

'Shutting Down the Government' and/or 'Defunding Obamacare': Which To Do?

'And I Can't Go To The Port-A-
Potties on the Washington Mall!'
The most recent talk by GOP freshman US Senators Mike Lee, Marco Rubio and Ted Cruz about 'shutting down the government!' as the way to 'stop funding Obamacare!' reminds us of the one riveting memory we have of the last time the government was shut down in 1995 and 1996 when Newt Gingrich was playing chicken with President Clinton.

We were working on some legislative issues in Congress when we heard what sounded like a herd of elephants storming the legislative buildings on both sides of Capitol Hill. The noise was deafening in the almost perfect echo chambers of Capitol Hill hallways, people running and screaming and cussing all which way.

'What are they so mad about?' we had to ask.

'The Clinton Administration just shut down the port-a-potties at the Washington Monument. These people who drove in for a vacation with their kids from Iowa went to the Washington Mall and all the museums and bathrooms were closed due to the government shutdown.'

'Oh' was about all you could hear yourself say. 3 days later, the shutdown was lifted. For obvious reasons.

These Senators might stop the funding of Obamacare.  But they will also close the monuments and the bathrooms and all those other things constituents like to get from their federal government nowadays. You don't get a line-item veto as a US Senator or Congressman, or President for that matter.

There are other ways to defund Obamacare, both of which are constitutional in process, nature and by rights as an American citizen.

John Jay wrote to George Washington a pretty succinct outline of what the new government should look like when Mr. Jay urged His Excellency, General Washington to attend the Philadelphia Convention in 1787:

'Let Congress legislate. Let others execute. Let others judge.' 

Precisely! It sounds so simple now. Would that it be so simple in actual practice!

Obamacare was a cornerstone of President Obama's 2008 presidential campaign. He helped sweep in overwhelming majorities in the House and Senate in the process. In March of 2010, Obamacare was 'legislated' and passed by Congress. President Obama signed it into law and is now 'executing' the wishes of Congress by writing 20,000+ pages of rules and regulations to implement it by this October. The Supreme Court has 'judged' it to be constitutional with their monumental decision in May of 2012.

That is about as constitutional as it gets in America, doesn't it?

Proponents of Obamacare get mad at the Republicans in Congress for trying to block the implementation of Obamacare. They say things such as Alison Grimes said about Senator Mitch McConnell at Fancy Farm (pretty funny actually): 

“If a doctor told Sen. McConnell he had a kidney stone, he’d refuse to pass it,”

They say: 'Republicans are not interested in compromise! They are not playing fair!'

However, they have forgotten one thing: The Republicans took back the House in 2010, mainly on the back of a tsumani wave of anti-Obamacare sentiment in the mid-term elections.

Does each successive Congress have to abide by the wishes and dreams of any previous Congress? No, of course not. If that were the case, we would still have slavery in the South. That is one of the beauties of the American democratic republican system: It changes with the times and with each election.

What about the responsibility of President Obama to 'faithfully execute the laws' of this nation? Doesn't that mean compromising with Republicans at any juncture on the implementation of Obamacare?

He has already 'compromised' with himself, that is, by unilaterally delaying the employer mandate to after the 2014 elections in a blatant political attempt to help Democrats next year by not having them run on one of the most controversial parts of Obamacare.

Can a President 'just do that' unilaterally? Shouldn't Congress have been asked to concur with that decision instead of announcing it on the day after July 4 on a blog written by a junior deputy undersecretary somewhere in DC?

Why doesn't President Obama delay the individual mandate as well? Are companies and corporations more important to him than the millions of individuals who are going to be socked with a tax penalty this year if they don't have insurance?

One constitutional way to 'de-fund' Obamacare would be this: The Republicans will just have to win 60 seats in the Senate and 280 seats in the House in 2014, pass bills to de-fund or eliminate Obamacare and override President Obama's expected veto.

That is 'the name of the game' and 'the rules of the road' when it comes to constitutional government, you know. If they articulate their positions and plans in a clear enough way, and convince enough people in the nation as to the dangers inherent in Obamacare, they can do so and be successful.

There is another, pretty uniquely 'American' way to 'de-fund Obamacare'. It is as old as the Republic itself, older, in fact, since it started in 1773 when a bunch of patriots dressed as Mohawk Indians tossed all that tea into Boston Harbor.

(You do realize that had they not done so 250 years ago, Starbucks would be known for its tea today in America, not its coffee)

'Civil disobedience'. The Boston Tea Party was a case of 'civil disobedience' as in: 'We are not going to pay this tax no matter what the King tells us to do!'

Martin Luther King preached 'peaceful civil disobedience' as he led the civil rights movement for millions of African-Americans close to 100 years after the Civil War ended.

How would 'civil disobedience' show up in the fight against Obamacare? Pretty much in the same way as the spirit of the Boston Tea Party and the civil rights movement:

'Businesses and individuals would just refuse to pay the tax on their income tax returns each year.'

Granted, that would take a certain amount of kahunas and chutzpah to do so, individually, that is. However, what is the Obama Administration and the IRS going to do if hundreds of thousands of business owners and individuals refuse to pay the Obamacare tax, throw them all in prison?

What about if it becomes millions of recalcitrant business owners and individuals marching in the streets such as Martin Luther King and his followers did in the '60s?

Politicians respond to massive displays of discontent and civil disobedience. Ever see the movie 'Gandhi' with the great Ben Kinsley as Gandhi run circles around the British Imperials merely by getting millions of Indians to stop going to work or to sit and meditate for long periods of time during the work day? 

Add in the fact that the IRS can only officially audit about 1% of all tax returns each year (although this Administration seemed to find a way to delay virtually 100% of all conservative non-profit applications starting in 2010, right?) which makes it exceedingly slim that they could actually enforce the Obamacare tax if they wanted to in the first place.

So there are two alternatives to 'shutting the government down!' this time around. We like to be able to see the endgame in anything we do in the political/governmental world and we do not see how shutting down the government in Washington can be achieved with control of only one House of Congress when it couldn't be done in 1995 and 1996 when the GOP held control of both Houses of Congress.

'Win the 2014 elections overwhelmingly!' or 'Engage in civil disobedience'.

Which characteristically American solution do you choose to do? The first requires a lot of hard work and lots and lots of money. The second requires a lot of guts.

Choose your weapon, take 10 paces, turn and fire.  It is up to you to decide what to do next.

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Thursday, August 1, 2013

How About A Real Radical And Revolutionary Tax Reform Plan?

Sam Adams 'Sons of Liberty' flag, 1765
With some muted talk coming out of Washington, D.C about 'tax reform' again (for about the 10,000th time since who knows when...1913 probably), we thought we would take this opportunity to talk about what 'real' tax 'reform' would really mean.

Let's see what Webster's Dictionary and others have to say about the word 'reform', what it means and where it came from:
The word 'reform' seems to have arisen around the year 1300, "to convert into another and better form," from Old French 'reformer' meaning to "rebuild, reconstruct, recreate"; from Latin 'reformare' meaning "to form again, change, transform, alter," from re- "again" (see re-) + formare "to form" 
Whatever President Obama was talking about Tuesday  when he announced his 'corporate tax reform' package, well, that just didn't cut the mustard of even coming close to being considered true 'reform' in any way, shape, fashion or package. His proposal doesn't 're-build' or change anything. Same old same old.

In short, his proposal is a waste of time to even discuss. Not even close to a true 'reform' of the US tax code.

Now, if you really want to talk about 'tax reform' in the context of what the word 'reform' really means: 'to bring about change from an evil form of corruption' as it exists today, let's talk about adding two words familiar to the Founders of our nation:

'Revolution' and 'Radical'.

The fellas who started the War Against Britain were 'crazy'. Flat-out 'nutcases'. There was absolutely no common sense reason why a bunch of backwoods farmers and hunters could or should stand up to the most powerful military and King in the world at the time and say this: 'We think you are wrong and we don't want to be part of your kingdom any more!'

But they wanted their freedom and independence. When you want something bad enough, sometimes you do the craziest things to get it. Such as attacking the most powerful military the world had ever known to that time.

They believed in the words 'revolution' meaning roughly 'to turn or roll back' and 'radical' which means 'going back to the roots' of a situation.

Washington, Jefferson, Madison, Franklin..they were all 'radical revolutionaries'. They wanted to change the status quo tax-wise at the time.

So the Revolution came. And they won.

What has that got to do with 'tax reform' in the 21st century?

Everything it seems. Getting back to the core reasons why we have taxation in the first place might help us finally really reform the income system in America.

Taxes are supposed to be collected from the citizenry to pay for the collective needs of the nation. Not to punish one group or another. Not to provide special tax benefits to one group versus another. Not to engage in relentless class warfare, which President Obama doesn't seem to mind doing since he was first elected. Not to do anything other than to provide the revenue to pay for on-going government services so we don't have to borrow money from future generations to consume today.

We need tax revenue to pay for the basic core functions of government. National defense is certainly one of them. Unless we move 100% to an electronic toll road system, we need to have good roads and bridges on which to travel and conduct business. The Erie Canal, for example, helped triple the GDP of the USA after completion in a matter of years, not decades. A certain level of social safety net has become part of the American social fabric so that needs to be funded as well.

What would a true tax 'reform' plan look like if introduced in Congress?

Simple. Expand and rename the payroll tax as a 'graduated flat income tax' and do away with every other tax in service today. The payroll tax is essentially the only 'flat-tax' in existence today in America. Everyone from the pauper to the president of GM, Apple and Microsoft pays it on the wages they earn. The payroll tax tops out at $113,700 in earned income for Social Security; it is unlimited for the Medicare share of the payroll tax so there is precedent for a 'flat-tax' across all income levels right there today in the US tax code.

Call it an 'income' flat tax and apply it against all forms of income a person can make during a year from labor, wages, salaries, tips, stock dividends, bond interest, capital gains and any other form of income you can think of.

People now living have had some form of this 'flat tax' concept in payroll taxes paid for their entire lives. It is a concept that can be used to move to a new truly reformed tax system.

We are still in the tank for moving completely to a consumption-based tax for many reasons. However, moving from our existing system to a full consumption-based tax plan would be like the Wright Brothers saying after their historic flight at Kitty Hawk in 1903:

'Hey! Why don't we plan on landing on the moon 66 short years from now in 1969?' 
'One giant step leap for mankind;
next stop, The Moon!'

A consumption tax may replace our income tax system one day. But moving to a modified flat-rate tax plan first would make it easier to move to a consumption-based tax plan later.

How would the modified flat-tax rate plan work?

Here's what it would look like:

  1. Keep the 7.5% tax now in place for FICA but don't call it a payroll tax any longer. (People think it goes into a fund to fund their retirement and health care but it doesn't. Never has. Never will)
  2. Apply the new flat-rate to everyone's reported income on their annual income tax return each year.
  3. Remove every tax deduction for every favored provision in the current tax code. Mortgage interest deduction; charitable deduction; health care premium deduction paid for by the corporation and the individual.
  4. Graduate the flat-rate tax slightly for income levels over $50,000 to say 12% from $50,000 to $200,000 and maybe 22% from $200,000 and above. These would have to be 'effective tax rates' on the whole amount of income you made during the year, not marginal tax rates. Otherwise, the rates have to be higher.
Why could this work?

Because with all of the tax deductions eliminated from the tax code, both individual and corporate, hundreds of billions of dollars will now be exposed to taxation. Lower tax rates and a far simpler tax return each year could be achieved and still produce roughly the same amount of tax revenues as under current law.

Spending still needs to come down substantially in the federal budget. This will not raise trillions in new tax revenues somehow magically to cover all of the excess costs we have incurred since President Obama was elected in 2008.

We as a nation are not under-taxed. We are over-spent. In reckless, shameful, wasteful ways in many cases.

CBO estimates at least $1 trillion per year in tax revenue is now not collected due to our generous tax-deductions in the tax code. (see 'Tax Expenditures') Exposing all of everyone's revenue to taxation would help offset the lower tax rates on wealthy individuals (who hire crafty tax lawyers and accountants and don't pay the full amount based on higher tax rates now)

The new modified flat-rate effective tax rates of 7.5%, 12% and 22% judiciously administered would generate roughly the same amount of income tax revenue as today. You simply can't get there with one single tax rate unless you set an effective tax rate of 14% on every taxpayer and eliminate every single tax deduction there is today.

There are 94 million tax returns filed each year under the gross income level of $50,000. 94 million taxpayers (more like 130 million people since couples file jointly) ain't gonna pay double the income taxes they paid last year under the old plan so you can forget about that happening. Ever.

Shifting to a modified flat-tax plan would be 'radical' tax reform. It would be 'revolutionary' tax reform. It would also be a 'fair' tax reform since everyone would be paying something and there would be no such thing as anyone not paying any taxes in any given year. We would all be in this together as a nation as opposed to our current dilemma of one sector trying to game the system while another sector is engaging in class warfare.

Who knows? Let's see how CBO would score this proposal.

Feel free to comment and debate as much as you want. We need 'real ' tax reform coming out of this White House and this Congress and we aren't getting it right now.

The Founders felt the same way about King George III, didn't they? They put forward a pretty bold radical revolutionary plan back in 1776. Why not do the same thing today?

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