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I’ve complained many times about government intervention in the financial sector.

The financial and housing crisis, for instance, was largely a consequence of the Federal Reserve’s easy-money policy, combined with the system of corrupt subsidies put in place by Fannie Mae and Freddie Mac.

But there’s another government-imposed cost that burdens the financial sector.

Writing for the Wall Street Journal, Paul Kupiec of the American Enterprise Institute reveals some very sobering – and disturbing – data on pay levels for both the financial industry and its regulators.

Most banks in this country are small businesses and pay employees modest salaries. The Bureau of Labor Statistics reports that the average annual salary of a bank employee was $49,540 in 2012, not much higher than the average annual across all occupations, $45,790.

In other words, there are some very well paid people working for big banks, but most employees in the financial sector earn modest incomes.

But notice that I wrote “most employees.” That’s because there is a big group that is very well paid.

But they aren’t in the business of making loans, allocating credit, and helping to finance future growth.

That’s because these highly compensated folks aren’t in the private sector. They are regulatory bureaucrats.

…one group in banking stands out as highly paid—federal bank regulators. Before the Dodd-Frank Act, the average employee of a federal bank regulatory agency received 2.3 times the average compensation of a private banker. By 2013 this ratio increased to more than 2.7—and in some cases considerably more.

Kupiec provides details on how these bureaucrats get paid much more than wealth creators.

The average compensation at the Office of the Comptroller of the Currency (OCC), the Federal Deposit Insurance Corp. (FDIC) and the Consumer Financial Protection Bureau (CFPB) exceeded $190,000 in 2012. The staff at the Federal Reserve is likely even better compensated, but the Fed refuses to release employee salaries. You might think high-paying jobs at these agencies require special skills. Not so. At the OCC, secretaries make on average $79,182 per annum. Motor vehicle operators (the agency’s limo drivers) at the FDIC earn $82,130. Human resources management trainees at the CFPB make $110,759 a year. Averages tell only part of the story. In 2012, 68% of FDIC and CFPB staff—and 66% at the OCC—earned above $100,000 a year. Nearly 19% of the CFPB and OCC staff earn more than $180,000 a year. At the OCC, 10.5% of workers earn above $200,000 a year, at the FDIC 9.3%. Fewer than 7% of employees in any of these regulatory agencies earned less than $50,000. In other words, 93% of the employees in these federal bank regulatory agencies earned more than the average banker’s salary in 2012.

So what’s the rationale for overpaid bureaucrats?

Defenders of the status quo claim that high pay is necessary to attract skilled professionals.

Needless to say, that’s not true.

Instead of raising salaries to attract and retain employees for specialized, hard-to-fill jobs, federal bank regulatory agencies have increased the salaries of all employees. Ironically, the hard-to-fill jobs that require substantial education or professional experience—such as attorneys and economists with banking experience—have the smallest premiums over comparable private positions. Salary premiums are especially large for easy-to-fill jobs that require no specialized, hard-to-hire skills.

But here’s the bottom line. Consumers and taxpayers are paying higher fees and receiving fewer benefits because so much money is being diverted from the industry to finance the bureaucracy.

Who pays for these generous salaries? Bank shareholders pay directly through insurance premiums on deposits and examination fees levied by the bank regulatory agencies. These costs are passed on in higher customer fees and loan rates. The high compensation of CFPB employees is funded by taxpayers through the Federal Reserve. The runaway labor costs of these regulator agencies are not subject to congressional control, and they add up. Employee compensation accounts for about 80% of the operating costs of bank regulatory agencies. If the average regulatory employee’s compensation were equalized between bankers and regulators, the direct cost of bank regulation would fall by more than 50%.

At the risk of adding more bad news, the numbers for the financial sector are just the tip of the iceberg.

This video explains how the people who pay taxes get far less compensation than America’s bureaucrat class.

P.S. Lest I leave people a bit depressed, I want to share some good news.

I wrote back in 2011 about a motorist getting nailed for flashing his headlights to warn other drivers about a speed trap.

Here is an excerpt from a report in the Atlanta Journal Constitution about a Judge throwing out a similar charge.

Chris Hill noticed a sheriff’s deputy behind him and flashed his lights to warn a UPS driver coming the other way. The deputy pulled over Hill on U.S. Highway 140 in White City and handed him a $260 ticket for improperly using his headlights, saying another deputy had seen the flashing lights from behind the UPS truck and alerted him to stop the log truck because of the signaling. Outraged, Hill decided to fight the ticket, and on Wednesday, a Jackson County Justice Court judge dismissed the citation, finding that motorists flashing their headlights amounts to speech protected by the Oregon Constitution.

I’m in favor of being tough on crime, but only when laws are just.

So kudos to the Judge in this case. And hopefully jurors around the nation will use their nullification power to block similar cases of government over-reach.

About one year ago, I decided to create a “Moocher Hall of Fame” to highlight how certain people went above and beyond the call of indolence in their efforts to sponge off taxpayers.

This award isn’t for ordinary deadbeats. You have to do something really special (the bad kind of special) to get recognized.

* Like convincing a government to give you “disability” benefits so you can satisfy your diaper-wearing fetish.

* Such as cutting off your own foot to maintain handouts from the state.

* Or trying to impregnate 12-year old girls to increase household welfare payments.

* And how about plotting to kill the people who are subsidizing your laziness.

We have a new candidate for the MHoF.

Or perhaps I should say candidates. Our contestants are a husband and wife who enjoyed a first class lifestyle at taxpayer expense. Here are some passages from a Fox News report.

A Minnesota couple who allegedly lived in expensive homes and owned a yacht while taking more than $160,000 in state welfare benefits has been arrested. …Court documents allege the pair illegally obtained food stamps and other benefits from 2005 to 2012. According to the criminal complaints, over the years, the Chisholms received medical assistance, welfare payments and food stamp benefits. …When they first applied for welfare benefits, the couple allegedly listed their residence as Andrea Chisholm’s mother’s home in Minneapolis. Shortly after getting approved, they moved to Florida, according to court documents. They remained in that state for at least 28 months, first on their $1.2 million yacht, and then moving to a house, officials said. They collected welfare from Florida, as well as Minnesota during that time, which is prohibited, according to court documents.

So why should the Chisholms win an award?

Well, I thought it was supposed to be difficult for married adults to sponge off taxpayers, particularly if there was an able-bodied male in the household, yet that didn’t stop the Chisholms from raking in the cash.

I guess you could consider them to be the older – and American – version of Danny and Gina (though I don’t know if that deadbeat couple is/was married).

But that’s not why the Chisholms deserve to be in the MHoF. What caught my attention is that they financed a yacht with welfare payments. That’s going above and beyond the call of indolence.

P.S. I have to confess that Mr. Chisholm reminded me of Rand Paul, at least at first glance.

Separated at birth?

Though I feel like apologizing for implying any connection. After all, Senator Paul has been kind enough to give me credit for jokes I steal from other people. More important, he defends taxpayers.

Whereas Mr. Chisholm likes to steal from taxpayers.

That’s a big difference.

I’m in favor of free markets.

That means I’m sometimes on the same side as big business, but it also means that I’m often very critical of big business.

That’s because large companies are largely amoral.

Depending on the issue, they may be on the side of the angels, such as when they resist bad government policies such as higher tax rates and increased red tape.

But many of those same companies will then turn around and try to manipulate the system for subsidies, protectionism, and corrupt tax loopholes.

Today, I’m going to defend big business. That’s because we have a controversy about whether a company has the legal and moral right to protect itself from bad tax policy.

We’re dealing specifically with a drugstore chain that has merged with a similar company based in Switzerland, which raises the question of whether the expanded company should be domiciled in the United States or overseas.

Here’s some of what I wrote on this issue for yesterday’s Chicago Tribune.

Should Walgreen move? …Many shareholders want a “corporate inversion” with the company based in Europe, possibly Switzerland. …if the combined company were based in Switzerland and got out from under America’s misguided tax system, the firm’s tax burden would drop, and UBS analysts predict that earnings per share would jump by 75 percent. That’s a plus for shareholders, of course, but also good for employees and consumers.

Folks on the left, though, are fanning the flames of resentment, implying that this would be an example of corporate tax cheating.

But they either don’t know what they’re talking about (a distinct possibility given their unfamiliarity with the private sector) or they’re prevaricating.

Some think this would allow Walgreen to avoid paying tax on American profits to Uncle Sam. This is not true. All companies, whether domiciled in America or elsewhere, pay tax to the IRS on income earned in the U.S. 

The benefit of “inverting” basically revolves around the taxation of income earned in other nations.

But there is a big tax advantage if Walgreen becomes a Swiss company. The U.S. imposes “worldwide taxation,” which means American-based companies not only pay tax on income earned at home but also are subject to tax on income earned overseas. Most other nations, including Switzerland, use “territorial taxation,” which is the common-sense approach of only taxing income earned inside national borders. The bottom line is that Walgreen, if it becomes a Swiss company, no longer would have to pay tax to the IRS on income that is earned in other nations. 

It’s worth noting, by the way, that all major pro-growth tax reforms (such as the flat tax) would replace worldwide taxation with territorial taxation. So Walgreen wouldn’t have any incentive to redomicile in Switzerland if America had the right policy.

And this is why I’ve defended Google and Apple when they’ve been attacked for not coughing up more money to the IRS on their foreign-source income.

But I don’t think this fight is really about the details of corporate tax policy.

Some people think that taxpayers in the economy’s productive sector should be treated as milk cows that exist solely to feed the Washington spending machine.

…ideologues on the left, even the ones who understand that the company would comply with tax laws, are upset that Walgreen is considering this shift. They think companies have a moral obligation to pay more tax than required. This is a bizarre mentality. It assumes not only that we should voluntarily pay extra tax but also that society will be better off if more money is transferred from the productive sector of the economy to politicians.

Needless to say, I have a solution to this controversy.

…the real lesson is that politicians in Washington should lower the corporate tax rate and reform the code so that America no longer is an unfriendly home for multinational firms.

For more information, here’s the video I narrated on “deferral,” which is a policy that mitigates America’s misguided policy of worldwide taxation. And you’ll see (what a surprise) that the Obama Administration wants to make the system even more punitive.

P.S. On this topic, click here is you want to compare good research from the Tax Foundation with sloppy analysis from the New York Times.

P.P.S. Many other companies already have re-domiciled overseas because the internal revenue code is so punitive. The U.S. tax system is so bad that companies even escape to Canada and the United Kingdom!

P.P.P.S. It also would be a good idea to lower America’s anti-competitive corporate tax rate.

It’s easy to get discouraged if you believe in small government and individual liberty.

It seems that the burden of the public sector is always expanding and that politicians and bureaucrats are always figuring out new ways to restrict our freedoms.

But let’s not lose hope.

We still have a lot of economic liberty, particularly if you count non-fiscal policy factors.

And we still have the Second Amendment.

Heck, we don’t just have the right to keep and bear arms, we exercise that right in massive numbers.

Take a look at this impressive graphic. We’re #1 in some bad ways, but it seems we’re also #1 in a very good way.

Make sure to share this graphic with your statist friends and colleagues. It’s guaranteed to put them in a glum mood for the rest of the day!

And when you share this with your misguided acquaintances, ask them why guns don’t cause murder in nations such as Switzerland and Finland. Maybe you’ll have a breakthrough and they’ll confess that gun control isn’t the solution.

Incidentally, in addition to having lots of guns in America, we also are quite ready to defy the government if politicians try to take them away.

What’s happening in Connecticut is merely one example of this wonderful form of civil disobedience.

Since we’re on the topic of gun ownership vs. gun control, here’s another image that will cause heartburn for your leftist friends.

Schindler guns

Same theme as the 4th image in this post.

And let’s not forget the best-ever poster on gun control.

Last but not least, here’s a poster sent to me by the PotL.

photo1

It’s the same message found at the top of this post and at the bottom of this post.

If you want more info – both serious and humorous – on gun control, click here.

If you had to pick the most inane, pointless, and intrusive example of government stupidity, what would you pick?

We have lots of examples of regulators running amok.

But we also have really absurd examples of wasteful spending.

We even have examples of government stupidity that can be characterized as a combination of wasteful spending and foolish regulation, such as one part of the government squandering money on research about how to encourage condom use by providing prophylactics of different sizes while another part of the government has regulations preventing the private sector from providing prophylactics of different sizes.

Today’s post, however, could win a prize for the most profound and disturbing example of government stupidity. It mixes foolish red tape with over-the-top political correctness.

Here are some jaw-dropping details of the federal government running amok in Michigan.

A set of seating is being torn down outside the Plymouth Wildcats varsity boys’ baseball field, not long before the season begins, because the fields for boys’ and girls’ athletics must be equal. A group of parents raised money for a raised seating deck by the field, as it was hard to see the games through a chain-link fence. The parents even did the installation themselves, and also paid for a new scoreboard. But, after someone complained to the U.S Education Department’s Office for Civil Rights, an investigated by the department determined the new addition was no longer equal to the girls’ softball field next door, which has old bleachers and an old scoreboard.

This is utterly absurd for several reasons, most notably that the federal government shouldn’t have any role in education, much less efforts to micro-manage high school sports facilities.

But even if one accepts that Washington bureaucrats should interfere in such matters, it’s important to understand that it is bureaucratic lunacy to interpret “Title IX requirements to offer equal athletic opportunities to both boys and girls” to somehow mean equal seating.

Sexist bleachers?!?

What happens if there are fewer people who want to watch female sports? Should there be a requirement to build bleachers that are mostly empty?

Or maybe we can blend Obamacare to Title IX and create a mandate that parents and others in the community have to attend female sporting events 50 percent of the time?

Actually, I shouldn’t even joke about such an idea, lest some bureaucrat think it’s a serious proposal.

P.S. The Keynesians will be happy. They like it when wealth and/or capital is destroyed since that supposedly forces “stimulative” rebuilding exercises.

I’m ecumenical on tax reform. I’ll support any plan that rips up the internal revenue code and instead lowers tax rates, reduces double taxation, and cuts out distorting loopholes.

And as I explain in this interview, both the flat tax and national sales tax have a low tax rate. They also get rid of double taxation and they both wipe out the rat’s nest of deductions, credits, exclusions, preferences, and exemptions.

You’ll notice, however, that I wasn’t very optimistic in the interview about the possibility of replacing the IRS with a simple and fair tax system.

But perhaps I’m being needlessly gloomy. New polling data from Reason-Rupe show that there’s very strong support for reform. At least if you favor a flat tax.

This doesn’t mean we can expect genuine tax reform tomorrow or the next day.

President Obama is viscerally committed to class-warfare tax policy, for instance, and special interest groups would vigorously resist if there was a real possibility (they would say threat) of scrapping the current tax code.

But it does suggest that tax reform – at least in the form of a flat tax – could happen if there was real leadership in Washington.

So maybe my fantasies will become reality!

And one of the best arguments for reform is that the internal revenue code is an unfair mess.

Consider how rich people are treated by the tax code. The system is so complicated that we can’t tell whether they’re paying too much (because of high rates and pervasive double taxation) or paying too little (because of special preferences and tax shelters).

Regardless, we do know that they can afford lots of lobbyists, lawyers, and accountants. So even though they are far more likely to be audited, they have ample ability to defend themselves.

But the real lesson, as I explain in this CNBC interview, is that the right kind of tax reform would lead to a simple system that treats everyone fairly.

I’m also glad I used the opportunity to grouse about the IRS getting politicized and corrupted.

But I wish there had been more time in the interview so I could have pointed out that IRS data reveal that you get a lot more revenue from the rich when tax rates are more reasonable.

And I also wish I had seen the Reason-Rupe poll so I could have bragged that there was strong support for a flat tax.

Unfortunately, I wouldn’t have been able to make the same claim about the national sales tax. I haven’t seen any recent public opinion data on the Fair Tax or other similar plans, but a poll from last year failed to find majority support for such a proposal.

And a Reason-Rupe poll from 2011 showed only 33 percent support for a national sales tax.

That won’t stop me from defending the national sales tax. After all, it is based on the same principles as a flat tax.

But the polls do suggest (as do anecdotes from the campaign trail) that a flat tax is a more politically viable option for reformers.

The moral of the story is that it makes more sense to push for the flat tax. After all, if I have an easy route and a hard route to get to the same destination, why make life more difficult?

Though the ultimate libertarian fantasy is shrinking government back to what the Founding Fathers had in mind. Then we wouldn’t need any broad-based tax of any kind.

P.S. Here’s my choice for the strangest-loophole award.

P.P.S. Since I shared a poll today with good news, I may as well link to a tax poll that left me somewhat depressed.

P.P.P.S. Let’s end with some IRS humor.

If Obamacare is a success, as the White House and establishment media would like us to believe, then why is the Obama Administration so anxious to hide the numbers?

After all, surely we haven’t set the bar so low that the Administration can claim victory simply because it has coerced and/or bribed a few million people into an Obamacare plan?

Here’s some of what the Wall Street Journal recently wrote about a very suspicious change in the way the government measures health insurance coverage.

Out of the blue, the Census Bureau has changed how it counts health insurance—at the precise moment when ObamaCare is roiling the insurance markets. Since 1987, the Current Population Survey, or CPS, has collected information on the health-insurance coverage status of Americans. …But this year the Census revamped the CPS household insurance questions, muddying comparisons between the pre- and post-ObamaCare numbers. …Robert Pear of the New York Times obtained internal Census documents that note that the new CPS system produces lower estimates of the uninsured as an artifact of how the questionnaire is structured. …For changes this substantial, standard procedure would be to ask the new and old questions concurrently. With an overlap, researchers could study changes over time using the long-term historical information without introducing bias, as well as interpret emerging developments with new tools. …this sudden change will undermine public trust in the supposedly nonpartisan institutions of government. Muddying a useful source of information about ObamaCare’s results is definitely unfortunate, but our guess is that it wasn’t coincidental.

Allow me to re-phrase that last sentence. The disingenuous change to the Census data on insurance is about as coincidental as the Administration’s efforts to re-define poverty and about as random as the IRS’s decision to only undermine and attack the political rights of Tea Party groups.

But there’s more to say about Obamacare than merely pointing out dishonest manipulation of government data.

We also have some very bad news for taxpayers.

Here’s what Chuck Blahous wrote for E21, starting with an observation of how the media wants to boost Obama.

Earlier this month there was tremendous press attention to new data indicating that enrollment in the Affordable Care Act (ACA)’s health insurance exchanges had surpassed 7 million. …much of the press, desperate to write something positive after months of reporting on website glitches and insurance plan cancellations, characterized the milestone as good political news for ACA supporters.

I’ve already explained that the supposed good news is actually bad news, but Chuck has some very important details on how taxpayers are especially vulnerable.

…what is unfolding before our eyes is a colossal fiscal disaster, poised to haunt legislators and taxpayers for decades to come.It is quite possible that the ACA is shaping up as the greatest act of fiscal irresponsibility ever committed by federal legislators. …the ACA is a commitment to permanently subsidize comprehensive health insurance for millions who could not otherwise afford it, which the federal government has no viable plan to finance. Moreover, experience shows that it is very difficult to scale back such spending once large numbers of Americans have been made dependent.

The article includes a graph that compares the early costs of major entitlement programs.

As you can see, Obamacare’s fiscal burden is second only to Medicare.

Chuck then explains that the costs in the early years for new entitlements are just a drop in the bucket.

…after these initial rollouts, Social Security, Medicare and Medicaid costs grew far faster than originally envisioned, sometimes due to subsequent legislation, sometimes due to unanticipated healthcare cost growth. It wouldn’t be surprising for either factor to affect the ACA, which would be even more problematic… We do know that the ACA’s financing mechanisms are already falling apart. The ACA’s much-reported website glitches and enrollment shortfalls had actually suggested an upside; if enrollment continued to fall short of previous projections, it was possible that some of the fiscal damage could be contained. But if enrollment has picked up as the law’s financing mechanisms disintegrate, the fiscal damage will be worse than anticipated.

Needless to say, this is hardly shocking news.

Entitlements inevitably become fiscal swamps and the costs almost always are far higher than the early estimates.

Here’s an oldie-but-goodie video I narrated on the topic of ever-climbing taxpayer burdens for health entitlements.

I’d like to claim that this video proves I have great insight and brilliance, but that would be akin to claiming superior ability for predicting that Chicago is warmer in July than in February.

P.S. Since we’re on the topic of government-run healthcare, I recently wrote about Vermont’s plans for a single-payer system.

Except I didn’t really write about the Green Mountain State’s experiment with socialism. Instead, I used the opportunity to discuss third-party payer, which is America’s real government-created healthcare problem.

Now it’s time to say something specifically about what’s happening in Vermont. Though, to be more accurate, all I really need to do is quote Megan McArdle’s column from Bloomberg.

Of the plans that states have hatched for the Affordable Care Act, none has been bolder than that of Vermont, which wants to implement a single-payer health-care system, along the lines of what you might find in Britain or Canada.

Except Vermont politicians haven’t bothered to find a way to pay for this boondoggle.

Vermont needs to find some way to pay for it. Although Act 48 required Vermont to create a single-payer system by 2017, the state hasn’t drafted a bill spelling out how to raise the additional $1.6 billion a year (based on the state’s estimate) the system needs. The state collected only $2.7 billion in tax revenue in fiscal year 2012, so that’s a vexingly large sum to scrape together. …Paying for this program would likely make Vermont the highest-taxed state in the nation, by quite a lot.

Megan thinks the cost would so high that Vermont will abandon the scheme. And she has a very optimistic assessment on what this means nationally.

…this is going to be expensive. So expensive that I doubt Vermont is actually going to go forward with it. This should be instructive for those who hope — or fear — that Obamacare has all been an elaborate preliminary to a nationwide single-payer system. It isn’t. The politics are impossible, and even if they weren’t, the financing would be unthinkable.

I very much hope she’s right, and I’ve actually expressed optimism that Obamacare has changed (in a favorable way) the political dynamics on the healthcare issue.

But I’m still not quite as hopeful as Megan.

Leftists are too clever to make an all-or-nothing push for single-payer on the national level. They know that’s too risky.

But they have been quite adept at incremental changes to expand the role of government and undermine markets.

And if they ever get a new source of revenue, like an energy tax, financial transactions tax, or a value-added tax, then they’ll be able to push for even more statism.

P.P.S. If you want some fun reading about single-payer, check out these horror stories about the system in the United Kingdom.

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