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Archive for January 30th, 2013

Last year, I explained with considerable relief that President Obama would never be as bad as Franklin Roosevelt.

Yes, Obama has imposed a class-warfare tax hike, pushed through Obamacare, and squandered $billions on a faux stimulus (perfectly captured by this cartoon). But that’s trivial compared to the damage caused by FDR (and Hoover).

“I’ve tried, but it’s time for me to admit I’m not as bad as FDR”

Obama’s policies, to be sure, have contributed to an extremely weak expansion.

That’s bad, but FDR’s statism helped extend the Great Depression – by an additional seven years according to scholarly research! That’s a much worse track record.

But that doesn’t mean Obama doesn’t want to be as bad as FDR. Indeed, one of his top advisers seems very happy that the President’s second inaugural address was reminiscent of Roosevelt’s so-called Second Bill of Rights.

Here’s some of what Cass Sunstein wrote for Bloomberg.

Obama is updating Franklin Delano Roosevelt’s Second Bill of Rights. …Roosevelt announced the Second Bill of Rights in his State of the Union address in 1944. With the Great Depression over, and the war almost won, FDR declared that we “have come to a clear realization of the fact that true individual freedom cannot exist without economic security and independence.” …Then he listed them:

  • The right to a useful and remunerative job in the industries or shops or farms or mines of the nation.
  • The right to earn enough to provide adequate food and clothing and recreation.
  • The right of every farmer to raise and sell his products at a return which will give him and his family a decent living.
  • The right of every businessman, large and small, to trade in an atmosphere of freedom from unfair competition and domination by monopolies at home or abroad.
  • The right of every family to a decent home.
  • The right to adequate medical care and the opportunity to achieve and enjoy good health.
  • The right to adequate protection from the economic fears of old age, sickness, accident and unemployment.
  • The right to a good education.

…the Second Bill was meant to specify the goals of postwar America… Obama took more such steps. …Obama’s second inaugural did not refer explicitly to the Second Bill of Rights, but it had an unmistakably Rooseveltian flavor. …Obama emphasized “that a great nation must care for the vulnerable, and protect its people from life’s worst hazards and misfortune.” …Having helped America to survive its greatest economic challenge since the 1930s, the current occupant of that office is giving new meaning to those commitments, and making them his own.

I guess we have to give Sunstein credit for chutzpah. We’re suffering through the weakest expansion since the end of World War II, and he wants us to be grateful for Obama’s policies since they supposedly “helped America to survive.”

Wow, I’d hate to see his idea of failure.

But here’s the good news. America will have gridlock for the next two years, and probably the next four years.

The bad news is that we won’t take necessary steps to reform entitlements, but the good news is that we won’t make things worse with the kind of statist policies outlined in FDR’s fake Bill of Rights.

Yes, I expect Republicans to screw up on some of the small issues and give the White House a few minor victories, but I can’t imagine them approving any big Obama initiatives, even if their opposition is driven only by partisanship rather than principle.

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I’m at Hillsdale College in Michigan for a conference on taxation. The event is called “The Federal Income Tax: A Centenary Consideration,” though I would have called it something like “100 Years of Misery from the IRS.”

I’m glad to be here, both because Hillsdale proudly refuses to take government money (which would mean being ensnared by government rules) and also because I’ve heard superb speeches by scholars such as Amity Shlaes (author of The Forgotten Man, as well as a new book on Calvin Coolidge that is now on my must-read list) and George Gilder (author of Wealth and Poverty, as well as the forthcoming Knowledge and Power).

My modest contribution was to present “The Case for the Flat Tax,” and I was matched up – at least indirectly, since there were several hours between our presentations – against former Congressman John Linder, who gave “The Case for the Fair Tax.”

I was very ecumenical in my remarks.  I pointed out the flat tax and sales tax (and even, at least in theory, the value-added tax) all share very attractive features.

  • A single (and presumably low) tax rate, thus treating taxpayers equally and minimizing the penalty on productive behavior.
  • No double taxation of saving and investment since every economic theory agrees that capital formation is key to long-run growth.
  • Elimination of all loopholes (other than mechanisms to protect the poor from tax) to promote efficiency and reduce corruption.
  • Dramatically downsize and neuter the IRS by replacing 72,000 pages of complexity with simple post-card sized tax forms.

For all intents and purposes the flat tax and sales tax are different sides of the same coin. The only real difference is the collection point. The flat tax takes a bite of your income as it is earned and the sales tax takes a bite of your income as it is spent.

That being said, I do have a couple of qualms about the Fair Tax and other national sales tax plans.

First, I don’t trust politicians. I can envision the crowd in Washington adopting a national sales tax (or VAT) while promising to phase out the income tax over a couple of years. But I’m afraid they’ll discover some “temporary” emergency reason to keep the income tax, followed by another “short-term” excuse. And when the dust settles, we’ll be stuck with both an income tax and a sales tax.

As we know from the European VAT evidence, this is a recipe for even bigger government. That’s a big downside risk.

I explore my concerns in this video.

To be sure, there are downside risks to the flat tax. It’s quite possible, after all, that we could get a flat tax and then degenerate back to something resembling the current system (though that’s still better than being France!).

My second qualm is political. The Fair Tax seems to attract very passionate supporters, which is admirable, but candidates in competitive states and districts are very vulnerable to attacks when they embrace the national sales tax.

On dozens of occasions over the past 15-plus years, I’ve had to explain to reporters that why anti-sales tax demagoguery is wrong.

So I hope it’s clear that I’m not opposed to the concept. Heck, I’ve testified before Congress about the benefits of a national sales tax and I’ve debated on C-Span about how the national sales tax is far better than the current system.

I would be delighted to have a national sales tax, but what I really want is a low-rate, non-discriminatory system that isn’t biased against saving and investment.

Actually, what I want is a very small federal government, which presumably could be financed without any broad-based tax, but that’s an issue for another day.

Returning to the issue of tax reform, there’s no significant economic difference between the flat tax and the sales tax. What we’re really debating is how to replace the squalid internal revenue code with something worthy of a great nation.

And if there are two paths to the same destination and one involves crossing an alligator-infested swamp and the other requires a stroll through a meadow filled with kittens and butterflies, I know which one I’m going to choose. Okay, a slight exaggeration, but I think you get my point.

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