Let’s Thank President Obama for Reminding Americans that They Should Distrust the IRS

Last week, while writing about the latest IRS scandal, I noted that the IRS has a long record of abusive actions.

• It has thieving employees.
• It has incompetent employees.
• It has thuggish employees.
• It has brainless employees.
• And it has victimizing employees.

So I wasn’t surprised to learn that it also has politically biased employees.

But some Americans probably are shocked. So I want to be the first to publicly thank President Obama for – at the very least – presiding over a culture that gave IRS bureaucrats the green light to engage in this kind of misbehavior.

Why am I thanking Obama? For the simple reason that this scandal means that more Americans now understand that the IRS is a venal agency. And that presumably means that more Americans now realize we should junk the internal revenue code and implement a simple and fair flat tax.

Since I’m in an expansive and sharing mood, I think we also owe some appreciation to some of the good people who are helping to publicize the IRS’s despicable behavior.

Let’s start with George Will, who is predictably – and bitingly – critical.

…the nature of Barack Obama’s administration is being clarified as revelations about IRS targeting of conservative groups merge with myriad Benghazi mendacities. …we are told that a few wayward souls in Cincinnati, with nary a trace of political purpose, targeted for harassment political groups with “tea party” and “patriot” in their titles.  …Jay Carney, whose unenviable job is not to explain but to explain away what his employers say, calls the IRS’s behavior “inappropriate.” No, using the salad fork for the entree is inappropriate. Using the Internal Revenue Service for political purposes is a criminal offense.

I also like that Will took the opportunity to criticize the worst (or at least close-to-worst) President in American history.

Time was, progressives like the president 100 years ago, Woodrow Wilson, had the virtue of candor: He explicitly rejected the Founders’ fears of government. Modern enlightenment, he said, made it safe to concentrate power in Washington, and especially in disinterested executive-branch agencies run by autonomous, high-minded experts. Today, however, progressivism’s insinuation is that Americans must be minutely regulated because they are so dimwitted they will swallow nonsense. Such as: There was no political motive in the IRS targeting political conservatives.

How painfully true. Sheep are not famous for their intelligence. And as the American people learn to be passively dependent on government, presumably we will acquire more sheep-like characteristics.

But the firestorm of protest leads me to think we’re not at that stage. At least not yet.

The lawless and abusive IRS even got Michael Gerson agitated.

…most Americans, myself included, become libertarians when a policeman is rude and swaggering during a traffic stop. Give me that badge number. It is precisely because police powers are essential to the public good that abusing them is so offensive. The same holds for overzealous or corrupt airport-security agents. And it is doubly true with IRS personnel who misuse their broad and intimidating powers. It is enough to bring out the Samuel Adams in anyone.

And here’s what my colleague Gene Healy wrote about the IRS’s history of political shenanigans.

Past presidents have found the IRS an extremely useful piece of federal machinery for that purpose. A lot of what we know about that sordid history comes from the Senate Select Committee on intelligence abuses, chaired by Sen. Frank Church, D-Idaho, in the mid-’70s. As Chris Hayes wrote in the Nation in 2006, “Church and many Democrats…soon found that presidents of both parties were culpable: “Secret documents obtained by the committee even revealed that the sainted FDR had ordered IRS audits of his political enemies.” In “The Lawless State,” his account of the Church Committee revelations, Morton Halperin noted that “the first organized political ‘strike force’ was formed within the IRS in 1961, and was directed against right-wing political groups.” In this case, I doubt there was ever a JFK or Nixon-style direct command from on high to harass the Tea Party. It’s more likely to be a case of “proactive” bureaucrats inspired by presidential railing against the Tea Party and Citizens United: “Will no one rid me of these meddlesome right-wing freaks?”

Let’s close with a couple of good cartoons.

The first one reminds me of the joke that “Service” is part of the IRS’s name, but only in the way that a bull services a cow.

The humor is a bit darker in this cartoon, but the message is the same.

P.S. Since I’m in such a good mood,  I’ll share some of my other IRS humor, including a new Obama 1040 form, a death tax cartoon, a list of tax day tips from David Letterman, a cartoon of how GPS would work if operated by the IRS, an IRS-designed pencil sharpener, two Obamacare/IRS cartoons (here and here), a sale on 1040-form toilet paper (a real product), a song about the tax agency, the IRS’s version of the quadratic formula, and (my favorite) a joke about a Rabbi and an IRS agent.

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Great Moments in Government: The IRS Apologizes for Bias while Simultaneously Denying Bias

I’m happy to bash the IRS, but I usually try to explain that our anger should be focused on the politicians who created the corrupt, 74,000-page tax code.

But sometimes the IRS deserves some negative attention. The tax collection bureaucracy has thieving employees, incompetent employees, thuggish employees, brainless employees, and victimizing employees.

The senior folks at the IRS also deserve scorn for bone-headed decisions such as squandering millions of dollars on a P.R. campaign and a scheme to regulate and control private tax preparers.

Now it seems we have another reason to condemn the tax-collection bureaucracy. The IRS is engaging in Nixon-type political harassment.

Here’s some of what the Associated Press just reported.

The Internal Revenue Service inappropriately flagged conservative political groups for additional reviews during the 2012 election to see if they were violating their tax-exempt status, a top IRS official said Friday. Organizations were singled out because they included the words “tea party” or “patriot” in their applications for tax-exempt status, said Lois Lerner, who heads the IRS division that oversees tax-exempt groups.

Heaven forbid somebody self-identify as being patriotic. Obviously a cause for investigation by the IRS.

And it’s rather ironic that the IRS felt compelled to apologize just a few days after President Obama just told us we shouldn’t listen to “voices” telling us that bad things happen in Washington.

But it’s not just that the IRS targeted groups opposing big government. The bureaucrats also violated the rules designed to protect taxpayers from IRS abuse.

…groups were asked for their list of donors, which violates IRS policy in most cases, she said. “That was wrong. That was absolutely incorrect, it was insensitive and it was inappropriate. That’s not how we go about selecting cases for further review,” Lerner said at a conference sponsored by the American Bar Association. “The IRS would like to apologize for that,” she added.

But you can put your mind at ease because senior IRS officials assure us that the targeting of Tea Party groups had nothing to do with political bias.

Lerner said the practice was…not motivated by political bias. …IRS Commissioner Douglas Shulman told Congress in March 2012 that the IRS was not targeting groups based on their political views. “There’s absolutely no targeting. This is the kind of back and forth that happens to people” who apply for tax-exempt status, Shulman told a House Ways and Means subcommittee.

Just like we’re supposed to believe that political bias had nothing to do with all the IRS harassment of conservative groups during the Clinton years. The message from the elites in Washington is “Nothing to see here, move along.”

But as the Wall Street Journal warned at the time, it seems there is a remarkable lack of curiosity about patterns of IRS abuse.

…once we agree that a politicized IRS is a dangerous thing, it is hard to understand the see-no-evil approach taken by the Congress, the press and the judiciary about serious, current allegations of exactly this. …organizations have been using the Freedom of Information Act to find out if there is anything to the extraordinary run of audits that happened to hit a number of tax-exempt organizations that might reasonably be described as Clinton enemies. …we have lots of Clinton enemies who have suffered actual audits, and very little interest in finding out whether this was simply a massive coincidence or the result of something more sinister.

And now we’re going through the same process again.

Maybe, just maybe, there’s a lesson to be learned about the dangers of giving power to politicians and bureaucrats.

Yet another argument for the flat tax. If there’s no charitable deduction, there’s no opening for a politically biased IRS bureaucracy to investigate and harass non-profit groups because of their philosophical beliefs.

P.S. On a lighter note, here’s the IRS version of the quadratic formula, and a cartoon showing how GPS would work if operated by the IRS.

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Should Politicians Be Allowed to Exempt Themselves and their Staff from Obamacare?

I get upset by a lot of what happens in the corridors of power, but two things really irk me.

First, I hate it when the rich and powerful use the coercive power of government to screw ordinary people. That’s one of the reasons I hated the TARP bailout.

Second, I hate the utter hypocrisy of the political elite exempting themselves from the bad policies that get imposed on everyone else. That’s why, for instance, it galls me that the pro-tax bureaucrats at the OECD get tax-free salaries.

Well, now we have a new example of political hypocrisy. Behind closed doors, the crooks in Washington are seeking to exempt themselves from Obamacare.

Here are some of the sordid details reported by Politico.

Congressional leaders in both parties are engaged in high-level, confidential talks about exempting lawmakers and Capitol Hill aides from the insurance exchanges they are mandated to join as part of President Barack Obama’s health care overhaul, sources in both parties said. The talks — which involve Senate Majority Leader Harry Reid (D-Nev.), House Speaker John Boehner (R-Ohio), the Obama administration and other top lawmakers — are extraordinarily sensitive, with both sides acutely aware of the potential for political fallout from giving carve-outs from the hugely controversial law to 535 lawmakers and thousands of their aides. Discussions have stretched out for months, sources said. …if Capitol Hill leaders move forward with the plan, they risk being dubbed hypocrites by their political rivals and the American public. By removing themselves from a key Obamacare component, lawmakers and aides would be held to a different standard than the people who put them in office. …There is concern in some quarters that the provision requiring lawmakers and staffers to join the exchanges, if it isn’t revised, could lead to a “brain drain” on Capitol Hill, as several sources close to the talks put it.

Well, to be thoughtful and analytical, my reaction is boo hoo and cry me a friggin’ river.

Obamacare is a fiscal disaster and a healthcare disaster. Our best bet to get the law repealed is to make sure the politicians and their underlings are subject to all of the law’s bad provisions. Period.

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My Heart Breaks and Tears Flow When I Read about Sequestration Being a Big Defeat for Lobbyists

I believe in the First Amendment, so I would never support legislation to restrict political speech or curtail the ability of people to petition the government.

That being said, I despise the corrupt Washington game of obtaining unearned wealth thanks to the sleazy interaction of lobbyists, politicians, bureaucrats, and interest groups.

So you can imagine my unfettered joy when reading about how this odious process is being curtailed by sequestration. Here are some cheerful details from story in Roll Call.

…sequester cuts…reflect not only Washington’s political paralysis but a bitter lobbying failure for K Street interests across the board. From university professors and scientists to cancer victims, defense contractors and federal workers, hundreds of advocacy, trade and labor groups have lobbied aggressively for months to head off the cuts. They’ve run ads, testified on Capitol Hill, staged demonstrations and hounded lawmakers, all to no avail. …the path forward could be a lobbying nightmare.

Reading the story, I recalled a Charles Addams cartoon from my childhood. Thanks to the magic of Al Gore’s Internet, I found it.

Slightly modified to capture my spirit of elation, here it is for you to enjoy.

Except I like to think I’m a bit more prepossessing than the Uncle Fester character, but let’s not get hung up on details.

What matters is that sequestration was a much-needed and very welcome victory for taxpayers. Obama suffered a rare defeat, as did the cronyists who get rich by working the system.

To be sure, all that we’ve achieved is a tiny reduction in the growth of federal spending (the budget will be $2.4 trillion bigger in 10 years rather than $2.5 trillion bigger). But a journey of many trillions of dollars begins with a first step.

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Jack Lew and Citigroup: How the Corrupt Rich Get Unjustly Richer with Crony Capitalism

If you’re an amoral person with political connections, it’s possible to make a lot of money.

Warren Buffett lined his pockets by making a government-subsidized investment in Goldman Sachs during the financial crisis.

The rest of us suffered and he got richer, but the left seems to be okay with that perverse form of redistribution because he supports class-warfare tax hikes. Sort of like buying an indulgence in the Middle Ages.

Hey, nice work if you can get it.

But Buffett may be an amateur compared to the crony capitalists at Citigroup.

The just-confirmed Treasury Secretary Jack Lew was given a huge bonus for leaving Citigroup several years ago. Did the company give Lew a bonus because they were happy to shed his $1.1 million salary after he presided over gigantic losses at the firm’s alternative investments division?

Don’t be silly. He was showered with money specifically for leaving the company to take a “high level position with the United States government”

Again, nice work if you can get it.

But Lew’s loot is pocket change compared to the $115 million that former Clinton Treasury Secretary Robert Rubin received for helping to steer the company into financial collapse.

So is this evidence that the private sector is systematically stupid?

I wish that was the explanation.

Instead, this is tragic evidence that it’s possible to “earn” a very high return when you “invest” in cronyism.

According to the Treasury Department’s Special Inspector General, Citigroup got $45 billion of TARP handouts and $301 billion of guarantees.

Not to mention an estimated $13.4 billion subsidy thanks to the government’s too-big-to-fail policy.

Since we’re talking apples and oranges, I have no idea how to compare the value of the payments to Lew and Rubin with the value of all the handouts and subsidies that Citigroup got (and is still getting) from taxpayers.

But I do know that mere mortals like you and me don’t have a prayer of “earning” the incredibly high returns that Citigroup received by “investing” in Robert Rubin and Jack Lew.

And let’s not forget what Goldman Sachs “earned” by “investing” in the previous Treasury Secretary, Tim Geithner.

Hey, nice work if you can get it.

And you can even be absolved of your sins by supporting higher taxes! What’s not to love. You get millions of dollars that you could never earn in a genuinely capitalist economy, and all you have to do is agree to give back an extra 5 percent or so if tax rates go up.

But if you’re someone like Tim Geithner, maybe you can avoid the extra burden by cheating on your taxes. Of course, you’ll be taking a risk of having your wrist slapped if you get caught. And that can really sting for 10 seconds.

Remember, rules and laws are for the peasants, not the cronyist 1 percent.

Nice work if you can get it.

And there are lots of opportunities for unjust enrichment, as explained in this video.

The moral of the story is…well, that you should be a libertarian if you want to be a decent person and not reward those who are indecent.

P.S. At least Jack Lew has now shown us that it’s perfectly fine to invest in the Cayman Islands and benefit from tax competition.

But only if you’re an insider, of course. Nice work if you can get it.

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The Corrupt Nexus of Big Business and Big Government

I did a video several years ago on the link between big government and big corruption, and I periodically revisit the issue by citing disgusting examples of sleaze and cronyism ranging from the Export-Import Bank to the racial spoils scam in Alaska.

The folks at Learn Liberty also have a great video on this topic, explaining how big government creates all sorts of unfair and corrupt advantages for politically connected large corporations.

Amen. Whether we’re talking about TARP bailouts, our loophole-ridden 72,000-page tax code, Obamacare favoritism, or green-energy scams, it seems like the federal government is a giant favor factory.

So why, then, are some people in favor of big government. Is it naiveté or are they part of the racket?

In any event, I highly recommend some other Learn Liberty videos.

• What’s better, free trade or protectionism?
• How government subsidies increase the cost of higher education.
• Is Obamacare constitutional?
• Examining how excessive federal spending is America’s real fiscal problem.

I especially like the last video since it echoes many of the points I made in my video series on the economics of fiscal policy.

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Everything that’s Wrong with the Tax System, in a Single Picture

I used to think this image was a damning indictment of the internal revenue code. Or here’s another chart showing how the tax system has become more convoluted over time.

But this new image may be the most effective of all of them. We don’t know what’s in the other 72,000 pages of tax code, but we’re all familiar with the basic 1040 tax form. Look at what the politicians have done to it over the past several decades.

The only answer, needless to say, is to throw the entire mess in the trash can and replace it with a simple and fair flat tax.

Here’s my brief explanation of how the flat tax would work and why it’s a good idea.

Tax reform would give us more growth, but it also would reduce one of the major source of corruption in Washington.

It’s also based on the notion that discrimination is wrong and that class-warfare policy should be rejected.

So what’s not to like?

P.S. I always get a lot of email and comments from people who wonder whether we should adopt a national sales tax instead. That’s fine with me, for reasons I explain here, but you better make sure to first amend the Constitution so that scheming politicians don’t pull a bait-and-switch and saddle us with both an income tax and a sales tax.

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The Link Between High Tax Rates and Corruption

I’ve been very critical of Obama’s class-warfare ideology because it leads to bad fiscal policy. But perhaps it is time to give some attention to other arguments against high tax rates.

Robert Samuelson, a columnist for the Washington Post, has a very important insight about tax rates and sleaze in Washington.

His column is mostly about Obama’s anti-tax reform agenda, but it includes this very important passage.

…many politicians support tax breaks for favored groups (the elderly, the poor, small business) and causes (homeownership, attending college, “green” industries). This enhances their power. The man who really pronounced the death sentence for the Tax Reform Act of 1986 was Bill Clinton, who increased the top rate to 39.6 percent rather than broadening the base. As the top rate rose, so did the value of generating new tax breaks. Ironically, many of the people who complain the loudest about Washington influence-peddling and lobbying are the same people who support higher tax rates, which stimulate more influence-peddling and lobbying.

The last sentence is key. Higher tax rates are good news for the politicians, interest groups, bureaucrats, and lobbyists that dominate Washington.

Here’s a simple example. Let’s pretend we have a modest tax rate of 20 percent. Now imagine you are part of an industry with $200 million in profits and you want a special tax break. How much are you willing to pay to get that loophole?

Well, with a 20 percent tax, the most you can save (assuming the loophole is huge and you wipe out all your tax liability) is $40 million.

So how much would you spend on lobbyists, campaign contributions, etc, in order to get that loophole? That’s hard to answer, because it would require some estimate of the probability of success. But one thing we can safely assume is that the industry would never spend more than $40 million.

But let’s now assume you live in a world with 50 percent tax rates. Does that change the incentive for influence peddling in Washington? Of course it does. The industry’s tax bill is now $100 million, so it now has an incentive to spend up to that amount to get special treatment.

So now let’s consider a couple of additional hypothetical questions.

• First, imagine you’re a lobbyist. Do you think you will get more business if tax rates are high, or if tax rates are low?
• Second, imagine you are a politician. Do you think you will get more campaign contributions if tax rates are high, or if tax rates are low?

The answers are obvious, and so are the implications. Yes, higher tax rates are bad for growth and competitiveness. And, yes, they are unfair and discriminatory.

But they also foment and encourage sleaze in D.C., and that’s something that honest leftists should hate as much as the rest of us.

For more information, here’s my video on the link between big government and corruption, including a section on how a loophole-ridden tax system benefits Washington insiders.

And here’s the video on the flat tax, which explains why low tax rates are good for economic performance.

Both videos have good information (at least I like to think), but kudos to Samuelson for drawing an important link between high tax rates and corruption.

P.S. Robert Samuelson is hard to pin down on the philosophical spectrum. He’s written very good columns denouncing Obama’s manipulation of welfare statistics and criticizing the President’s flirtation with the value-added tax. But he’s also had a couple of columns where he identifies a very real problem, but fails to reach the right conclusion, including this piece that should have been an argument for Austrian economics and this piece on health care inefficiency that should have pinned the blame on third-party payer.

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Question of the Week: “Have Your Views Changed on Anything?”

I’m almost too depressed to write anything today. The Georgia Bulldogs came within five yards on the final play of the game of winning college football’s national championship (the game against Notre Dame being a mere formality for the winner of the Southeastern Conference), but fell 32-28 to the Alabama Crimson Tide.

But if the Continental Army could survive a bitter winter at Valley Forge, then surely I can summon the intestinal fortitude to write a blog post while sitting in a warm hotel room (yes, perhaps I’m being a tad bit melodramatic).

So here comes the second edition of “Question of the Week.” Last weekend, I responded to a query about whether I hated Republicans.

The most interesting question this week comes from a German reader, who asks “Are there any issues where you have changed your mind since coming to Washington?”

I’m tempted to say no. I came to Washington guided by libertarian principles and I’m still motivated by a desire to increase human liberty.

But I’m not the same person I was 20 years ago. Here are three areas where my views have evolved (though I hate using that word since it usually is used to describe the views of certain Republicans who have been in town too long and have decided big government is fine and dandy).

1. I’m much more uncomfortable about the death penalty. As I explained in my post about the shooting of Congresswoman Giffords, I’ve become more distrustful about the integrity of prosecutors. I think some of these politically ambitious jackals would deliberately send an innocent man to his death if it advanced their political careers. That being said, I’m a big believer that cost-benefit analysis is appropriate for criminal justice, so the deterrent value of the death penalty presumably saves some lives. In any event, I’m torn on this issue, though it doesn’t stop me from mocking groups that claim America is a horrible country because we still have capital punishment. And I also confessed this fantasy involving the death penalty.

“The fiscal collapse will happen after I leave office, so why worry?”

2. I now think Washington is pervasively corrupt. When I first came to town, I figured there was a lot of sleaze and graft facilitated by big government. Nothing has changed about that assessment, but I now think that a bigger problem is moral and cultural corruption among the political elite. Washington is filled with people who know the system is a racket. They know that the country is on a very dangerous trajectory. Many of them even understand what needs to be done to fix the problems. But they often decide that their short-run personal and political interests are more important than the long-run interests of the nation. But it’s also important to realize that politicians almost always are a combination of good and evil. The same folks who routinely cast bad votes every so often can be persuaded to do the right thing for the right reason, as occurred when GOPers in the House voted for the Ryan budget and its desperately needed entitlement reforms.

3. I’ve learned to be more careful about being myopically fixated on fiscal policy. As I noted in this post about tax rates, there are many factors that determine a nation’s economic performance. That’s hardly a breathtaking revelation, but in the past I have sometimes neglected to incorporate that understanding in my analysis. I’ve written positively about Ireland’s corporate tax regime, for instance, but failed to include important caveats about other government policies that were a threat to prosperity. This is a disservice to readers, and it also makes it easier for critics to put forth arguments such as “you said Ireland’s low corporate tax rate was a key to growth and look what happened.” To be sure, most of those folks would make those accusation even if I produced comprehensive analysis of Ireland’s good and bad policies. But I now try to be more careful so I don’t have to engage in after-the-fact elaborations.

I’m sure there are probably other ways in which my attitudes have changed over the years, but these are the things that come to mind.

Now, if you’ll excuse me, I’m going to find a dark room and curl up in the fetal position.

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How Corrupt Is Washington?

Regular readers know that Washington is a very sleazy city. Just as rats and cockroaches are attracted to a dumpster, con artists and fraudsters are attracted to big government.

A bloated budget means many opportunities to get unearned wealth by being politically well connected. A loophole-ridden, 72,000-page tax code creates a sandbox for lobbyists. And special interest groups view Washington’s massive regulatory apparatus the way pigs view a mudbath.

You won’t be surprised to learn that politicians figure out how to get a cut of the action. Here are a few of the sordid details from a report in the Washington Post.

73 members of Congress…have sponsored or co-sponsored legislation in recent years that could benefit businesses or industries in which either they or their family members are involved or invested, according to a Washington Post analysis. The findings emerge from an examination by The Post of financial disclosure forms and public records for all 535 members of the House and Senate. The practice is both legal and permitted under the ethics rules that Congress has written for itself, which allow lawmakers to take actions that benefit themselves or their families except when they are the lone beneficiaries.

To be fair, the actions identified by the Washington Post are not necessarily immoral. A politician who supports a lower capital gains tax rate, for instance, presumably will benefit directly because of less double taxation on his investments and indirectly because of more prosperity.

I don’t view that as wrong. Indeed, the lawmakers use this kind of excuse to justify their behavior.

The legislators, in interviews and through spokesmen, said they saw no conflicts between their legislative actions and holdings. They added that they have a duty to advocate for their constituents, even when those interests align with their own.

But just because they use that excuse, that doesn’t mean their behavior is appropriate. There’s a simple way to determine what’s wrong, immoral, and corrupt.

If politicians take steps that enable everyone – including themselves – to keep more of their own money (or to earn additional money), that’s fine.

If they do something that enables anybody – including themselves – to take money or value from other people, that’s wrong.

Here’s my video explaining the connection between big government and corruption.

The moral of the story shouldn’t be that difficult to understand. Don’t take things that don’t belong to you, which is one of the rules of libertarianism that we hopefully learn in kindergarten (to see the rest of the rules, see the David Boaz quote in this post about Obama’s socialism-for-kids proposal).

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Just in Case You Need another Reason to Support the Flat Tax

I’ve done thorough blog posts highlighting the economic benefits of the flat tax, but I find that most people are passionate about tax reform because they view the current system as being unfair and corrupt.

They also don’t like the IRS, in part because it has so much arbitrary power to ruin lives.

But it’s not just that is has the power to ruin lives. That can be said about the FBI, the DEA, the BATF, and all sorts of other enforcement agencies.

What irks people about the IRS is that it has so much power combined with the fact that the internal revenue code is a nightmare of complexity that can overwhelm even the most well-intentioned taxpayer. Just spend a couple of minutes watching this video if you don’t believe me.

I’ve already shown depressing charts on the number of pages in the tax code and the number of special breaks in the tax law. To make matters worse, not even the IRS understands how to interpret the law. According to a recent GAO report, the IRS gave the wrong answers on matters of tax law more than 530,000 times in 2010.

Yet if you use inaccurate information from the IRS when filing your taxes, you’re still liable. To add insult to injury (or perhaps injury to injury is the right phrase), you’re then guilty until you prove yourself innocent – notwithstanding the Constitution’s guarantee of presumption of innocence.

Now we have some new information showing the difficulty of complying with a bad tax system.

A new report from the Treasury Department reveals that volunteers (who presumably have the best of intentions) make mistakes in more than 50 percent of cases.

Here are some key excerpts from the report.

Of the 39 tax returns prepared for our auditors, 19 (49 percent) were prepared correctly and 20 (51 percent) were prepared incorrectly. The accuracy rate should not be projected to the entire population of tax returns prepared at the Volunteer Program sites. Nevertheless, if the 20 incorrect tax returns had been filed: 12 (60 percent) taxpayers would not have been refunded a total of $3,996 to which they were entitled, one (5 percent) taxpayer would have received a refund of $303 more than the amount to which he or she was entitled, one (5 percent) taxpayer would have owed $165 less than the amount that should have been owed, and six (30 percent) taxpayers would have owed an additional total of $1,483 in tax and/or penalties. …The IRS also conducted 53 anonymous shopping visits during the 2012 Filing Season. Volunteers prepared tax returns for SPEC function shoppers with a 60 percent accuracy rate.

So here’s the bottom line. We have a completely corrupt tax system that is impossibly complex. Yet every year politicians add new provisions to please their buddies from the lobbyist community.

Wouldn’t it be nice if we could rip up all 72,000 pages and instead have a simple and fair tax system?

Sadly, tax reform is an uphill battle for four very big reasons.

• Politicians don’t want tax reform since it reduces their power to micro-manage the economy and to exchange loopholes for campaign cash.
• The IRS doesn’t want tax reform since there are about 100,000 bureaucrats with comfy jobs overseeing the current system.
• Lobbyists obviously don’t want to reform since that would mean fewer clients paying big bucks to get special favors.
• And the interest groups oppose the flat tax because they want a tilted playing field in order to obtain unearned wealth.

But there are now about 30 nations around the world that have adopted this simple and fair system, so reform isn’t impossible. But it will only happen when voters can convince politicians that they will lose their jobs if they don’t adopt the flat tax.

P.S. I’ll also take a national sales tax, like the Fair Tax, as a replacement. But since I don’t trust politicians, that option requires that we first replace the 16th Amendment with something so ironclad that not even Chief Justice John Roberts would be able to rationalize that an income tax was permissible.

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No, I’m Not Corrupt, but It’s a Fair Question

I get criticized all the time, usually because of my support for limited government (though sometimes because people think I’m not sufficiently radical).

Sometimes I even get attacked because I cite someone else’s work, as happened when a bunch of Keynesians went after me for posting some data on Reaganomics vs. Obamanomics put together by Richard Rahn.

Just last week, though, I was attacked from a completely different perspective. Some guy named Stan Sewitch, in an article for the San Diego Daily Transcript, questioned my motives rather than my views.

He started out with an innocuous description of a speech I gave.

These days, the harbingers of doom no longer include hippies or even youth. The “protest” movement that may be growing in our country now is known for its natty fashion sense and belief in free markets… It winds its way to the offices of lobbyists and politicians. It acts a great deal behind the scenes, and uses the educated, articulate voices of “think tank” gurus to make the points. Daniel Mitchell is a senior fellow at the Cato Institute, a nonprofit economics and policy research organization that promotes “libertarian” philosophies, i.e., small government, free markets and individual rights. I heard him speak recently about how the United States could avoid “becoming the next Greece.” As he described the lengthening list of ills that our country has inflicted upon itself, Mitchell acknowledged that neither party has a consistent track record of doing the “right thing” to keep our gross domestic product growing faster than our government spending rate. …In that sense, the Cato Institute does seem to represent a nonpartisan view of our national and international state of affairs.

Since I think America faces a very grim fiscal future in the absence of entitlement reform, and since I also blame Bush as much as I blame Obama, I can’t quibble with anything he wrote.

But then he starts to speculate about my (grossly inadequate) salary.

But as he continued to describe the litany of calamity that will befall us under current conditions, I asked myself, “Gee, I wonder who pays Mitchell’s salary? Can’t be cheap.” So I did a little looking on the Web, and I found the 2011 annual report for the Cato Institute. They brought in about $33 million in revenue last year, spent about $22 million and showed net assets of $63 million. Well, it looks like they practice what they preach, spending less than they earn. And they earn a lot.

Where’s he going with this, I wonder. But I suppose I could have guessed that he would focus on rich people and corporations.

The Cato Institute doesn’t list its individual benefactors or corporations that provide the funding, but their board of directors includes David and Charles Koch. The Kochs founded the Cato Institute and have contributed millions to it. Combined, the Koch brothers are worth roughly $50 billion. Their company, Koch Industries, generates about $100 billion in annual revenue and is the second-largest private company in the United States. Other like-minded, wealthy individuals undoubtedly make up the financial support for the Cato Institute, along with corporations, the sale of Cato Institute books and the speaking fees that Cato scholars receive for their expert punditry.

My Sewitch obviously doesn’t know that Cato hasn’t received support from the Kochs in recent years, much less that the Cato Board and the Koch brothers had a big fight about the future of Cato, but that’s an understandable mistake since the average person would have no reason to follow a squabble inside the libertarian movement.

But his point is generically true. Occasional large contributions from wealthy people can play a non-trivial role in the budget of any non-profit group.

So what’s the point? Well, here’s where he gets to the part about my motives.

Whether or not one subscribes to the shiny and attractive ideals of small government, free markets and individual liberty, one has to follow the money, the economics of any given viewpoint to be able to evaluate the veracity of the opinion. The money behind Mitchell’s capacity to publicly opine comes from business people who want to affect policy at the federal and state level toward outcomes that they believe are in the collective best interests. It also doesn’t hurt that those same people benefit personally and financially from the promoted policies and research results that the Cato Institute generates. …So if someone is earning their living by preaching, whether for God or free markets, I have to find out who’s paying them to tell me this stuff, and I immediately discount the value of the sermon by 84 percent.

Gee, I guess I should be happy that my opinions are worth 16 percent rather than zero.

But now for my serious point. Washington is filled with people who say things, write things, and do things solely because they’re getting paid. I often write about the sleazy behavior of such people, particularly Republicans who do the wrong thing just to fatten their bank accounts.

So I can’t complain when someone questions my motives. Everyone in Washington should be viewed with suspicion. It is, after all, a pervasively corrupt town.

That being said, I invite the world to comb through everything I’ve ever done, everything I’ve ever said, and everything I’ve ever written to find the slightest shred of evidence that I am motivated by anything other than a principled belief in liberty.

Do I get paid to do all these things? Of course, which is why I consider myself to be a very lucky person. I’m getting a salary to do what I would be doing anyhow.

And if we count the non-pecuniary satisfaction of fighting for liberty, I’m one of the richest people in DC.

You can’t deposit non-pecuniary satisfaction in a bank, to be sure, but I wouldn’t trade places with any of the multimillionaire lobbyists. That would be like watching It’s a Wonderful Life and wanting to be like Mr. Potter instead of George Bailey.

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Middle-Class and Poor People Shouldn’t Subsidize the Mortgages of Rich People

I don’t like coercive redistribution. But I really hate redistribution from ordinary people to rich and powerful vested interests, and I even developed an “ethical bleeding heart” rule to express my disdain for this approach.

Especially since programs that redistribute from the poor to the rich almost always involve corruption – often involving morally bankrupt Republicans.

For whatever reasons, the housing sector has a disproportionate amount of this type of redistribution. Here are some sordid details from a Reuters report about how housing subsidies are lining the pockets of the rich.

In Santa Clara County, the center of the global tech industry and one of the wealthiest places in the United States, most home buyers get help from the government, an analysis of government lending data shows. The same is true in other wealthy enclaves such as Nassau County, outside New York, and Arlington County, outside Washington, the analysis of more than 50 million loans finds. ..What the analysis by Reuters makes clear is the extent to which government programs have helped some of the nation’s most well-to-do communities.

The story provides an example, showing how the government is coercing the rest of us into subsidizing rich people.

Julie Wyss earns $330,000 a year selling real estate in Silicon Valley. When the time came to look for a new home for herself, Wyss settled on a four-bedroom, three-bathroom house in Los Gatos, California, an enclave of young technology entrepreneurs. It has about 2,400 square feet of floor space, four sets of French doors and a price tag of $1.45 million. When she bought the house in June, her main financing was a $625,500 mortgage from Wells Fargo guaranteed by government-backed Fannie Mae. The benefit to Wyss was an interest rate, of 4.125 percent, that was lower than she could have gotten on a loan that was not guaranteed by the government. “It’s a totally sweet deal,” Wyss said.

As happens so often, the government expanded bad policy when problems developed as a result of previous bad policy – sort of Mitchell’s Law on steroids in the case of housing.

Before the financial crisis, the limit on loans guaranteed by Fannie Mae and Freddie Mac was $417,000. But in 2008, …Congress changed the rules so that the companies could back mortgages of up to $729,750 in high-priced areas like Santa Clara. The result is that the government guaranteed 89 percent of U.S. mortgages taken out in the first half of 2012, up from 85 percent in 2011 and 30 percent in 2006, according to data compiled by Inside Mortgage Finance. Big banks still offer mortgages without government backing, but interest rates are higher, standards are more stringent and most people don’t even consider them, said Dave Walsh, a realtor based in San Jose, California. …In 2006, the two entities guaranteed only about one-third of new mortgages in the 20 highest-income mortgage markets in the country. By 2010, that share had risen to about three in four, the data showed.

In other words, we have lots of rich people now sucking on the government teat. This is bad housing policy, bad fiscal policy, and bad social policy (and, as this cartoon illustrates, you eventually hit a point when there’s nothing left to steal).

I have nothing against rich people. But I utterly despise people who get rich using the state. If they earn their money honestly, I’ll defend them to my last breath and I’ll fight against those who want to seize their earnings via class-warfare tax policy.

Sadly, we may be getting to the point where there are more of the wrong kind of rich people in America. That may represent a very dangerous turning point for society, sort of a bizarre version of the famous riding-in-the-wagon cartoons.

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A Primer on the Flat Tax and Fundamental Tax Reform

In previous posts, I put together tutorials on the Laffer Curve, tax competition, and the economics of government spending.

Today, we’re going to look at the issue of tax reform. The focus will be the flat tax, but this analysis applies equally to national sales tax systems such as the Fair Tax.

There are three equally important features of tax reform.

1. A low tax rate – This is the best-known feature of tax reform. A low tax rate is designed to minimize the penalty of work, entrepreneurship, and productive behavior.
2. No double taxation of saving and investment – All major tax reform plans, such as the flat tax and national sales tax, get rid of the tax bias against income that is saved and invested. The capital gains tax, double tax on dividends, and death tax are all abolished. Shifting to a system that taxes economic activity only one time will boost capital formation, thus facilitating an increase in productivity and wages.
3. No distorting loopholes – With the exception of a family-based allowance designed to protect lower-income people, the main tax reform plans get rid of all deductions, exemptions, shelters, preference, exclusions, and credits. By creating a neutral tax system, this ensures that decisions are made on the basis of economic fundamentals, not tax distortions.

All three features are equally important, sort of akin to the legs of a stool. Using the flat tax as a model, this video provides additional details.

One thing I don’t mention in the video is that a flat tax is “territorial,” meaning that only income earned in the United States is taxed. This common-sense rule is the good-fences-make-good-neighbors approach. If income is earned by an American in, say, Canada, then the Canadian government gets to decide how it’s taxed. And if income is earned by a Canadian in America, then the U.S. government gets a slice.

It’s also worth emphasizing that the flat tax protects low-income Americans from the IRS. All flat tax plans include a fairly generous “zero-bracket amount,” which means that a family of four can earn (depending on the specific proposal) about $25,000-$35,000 before the flat tax takes effect.

Proponents of tax reform explain that there are many reasons to junk the internal revenue code and adopt something like a flat tax.

• Improve growth – The low marginal tax rate, the absence of double taxation, and the elimination of distortions combine to create a system that minimizes the penalties on productive behavior.
• Boost competitiveness – In a competitive global economy, it is easy for jobs and investment to cross national borders. The right kind of tax reform can make America a magnet for money from all over the world.
• Reduce corruption – Tax preferences and penalties are bad for growth, but they are also one of the main sources of political corruption in Washington. Tax reform takes away the dumpster, which means fewer rats and cockroaches.
• Promote simplicity – Good policy has a very nice side effect in that the tax system becomes incredibly simple. Instead of the hundreds of forms required by the current system, both households and businesses would need only a single postcard-sized form.
• Increase privacy – By getting rid of double taxation and taxing saving, investment, and profit at the business level, there no longer is any need for people to tell the government what assets they own and how much they’re worth.
• Protect civil liberties – A simple and fair tax system eliminates almost all sources of conflict between taxpayers and the IRS.

All of these benefits also accrue if the internal revenue code is abolished and replaced with some form of national sales tax. That’s because the flat tax and sales tax are basically different sides of the same coin. Under a flat tax, income is taxed one time at one low rate when it is earned. Under a sales tax, income is taxed one time at one low rate when it is spent.

Neither system has double taxation. Neither system has corrupt loopholes. And neither system requires the nightmarish internal revenue service that exists to enforce the current system.

This video has additional details – including the one caveat that a national sales tax shouldn’t be enacted unless the 16th Amendment is repealed so there’s no threat that politicians could impose both an income tax and sales tax.

Last but not least, let’s deal with the silly accusation that the flat tax is a risky and untested idea. This video is a bit dated (some new nations are in the flat tax club and a few have dropped out), but is shows that there are more than two dozen jurisdictions with this simple and fair tax system.

P.S. Fundamental tax reform is also the best way to improve the healthcare system. Under current law, compensation in the form of fringe benefits such as health insurance is tax free. Not only is it deductible to employers and non-taxable to employees, it also isn’t hit by the payroll tax. This creates a huge incentive for gold-plated health insurance policies that cover routine costs and have very low deductibles. This is a principal cause (along with failed entitlement programs such as Medicare and Medicaid) of the third-party payer crisis. Shifting to a flat tax means that all forms of employee compensation are taxed at the same low rate, a reform that presumably over time will encourage both employers and employees to migrate away from the inefficient over-use of insurance that characterizes the current system. For all intents and purposes, the health insurance market presumably would begin to resemble the vastly more efficient and consumer-friendly auto insurance and homeowner’s insurance markets.

P.P.S. If you want short and sweet descriptions of the major tax reform plans, here are four highly condensed descriptions of the flat tax, national sales tax, value-added tax, and current system.

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Is Sicily the California of Italy, or Is California the Sicily of the United States?

Considering the spectacular incompetence of the Italian government, I’m not surprised that the Italian people take extraordinary steps to protect their income from the tax police.

But I have a hard time cheering their actions, since they routinely vote for corrupt politicians and also seek to mooch off the government that they don’t want to pay for.

Sicily is a useful example. Here are key passages from a New York Times report.

…one region in particular has been in the spotlight: Sicily, which some fear has become “the Greece of Italy” and is at risk of defaulting on its high public debts. …an official in the Sicily branch of Italy’s leading industrialists association called for the island to be put into receivership by the central government to clean up its finances. …Sicily highlights the challenges that Mr. Monti is facing in trying to use pressure from European leaders and international markets to push Italy’s politicians to cut costs. Those expenses have ballooned after decades of a patronage system in which the state has been the primary means of employment in Sicily.

We know there’s a mess. And, to give credit where it’s due, the New York Times does discuss the bloated bureaucracy in Sicily.

…critics say Italy — and Sicily in particular — has been driven into dire financial straits not by austerity but by the rampant public spending of the past, the product of an entrenched jobs-for-votes system that helped keep Italian governments in power and Sicilians employed. Today, Sicily’s regional government has 1,800 employees — more than the British Cabinet Office — and the island employs 26,000 auxiliary forest rangers; in the vast forest lands of British Columbia, there are fewer than 1,500. Out of a population of five million people in Sicily, the state directly or indirectly employs more than 100,000 of them and pays pensions to many more. It changed its pension system eight years after the rest of Italy. (One retired politician recently won a case to keep an annual pension of 480,000 euros, about $584,000.)

Not surprisingly, the political class doesn’t want to fire any of the deadwood, which means an enormous burden on taxpayers and lots of suffering for young people.

“Of course that’s too many,” Mr. Lombardo said of the forest rangers. But he said it was difficult to cut back because state workers have job protection. “We have to wait for them to retire.” That system has come at a cost. Last month, Italy’s audit court issued a scathing report saying that Sicily had 7 billion euros, about $8.5 billion, of liabilities at the end of 2011 and showed “signs of unstoppable decline.” Sicily’s unemployment rate is 19.5 percent, twice the national average, and 38.8 percent of young people do not have jobs.

Lombardo must have spent time in Chicago

By the way, the head of the Sicilian government is a very accomplished politician. It’s not uncommon for lawmakers to go to prison after a stint in government, but it takes a special politician to then go back into “public service.”

Mr. Lombardo, who belongs to the Movement for Autonomy — which believes that Sicily should secede from the Italian state, as unlikely as that is to happen — said he would step down as agreed. (He is under investigation for Mafia ties. He denies the accusations and has not been formally charged. He was jailed on corruption charges in the early 1990s, though he was later acquitted.)

At least some residents have figured out how the political system works.

Many Sicilians, for their part, take a world-weary view of the political class. “If I steal a little, I go to jail; if I steal a lot, I advance my career,” Gioacchino De Giorgi, 34, said as he worked in a tobacco shop in downtown Palermo.

Needless to say, this story is yet another example of why bailouts are a bad idea. As I’ve explained before, governments will only make the right reforms as a final option. Bailouts, by contrast, simply give politicians more time to delay, while also making the debt bubble even bigger as reforms are postponed.

This is true, regardless of whether bailouts come from national governments, the European Commission, or international bureaucracies such as the International Monetary Fund.

And it’s true whether we’re talking about an Italian province, or an American state that also is governed by short-sighted and corrupt politicians. Like California.

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Louisiana’s Sensible Rule on Political Corruption

Citing sleazy examples such as the Export-Import Bank, I’ve offered some serious analysis about controlling political corruption by shrinking the size and scope of the federal government.

But perhaps the Louisiana approach is the right way. Here’s a cartoon sent to me by a buddy from the Pelican State.

Though I wonder whether Louisiana is the right example. Illinois has a pretty impressive group of recent governors who have gone to prison, leading to some amusing jokes from Conan and Leno.

For general abuse of politicians (which is almost always a good thing), here’s a good collection of humor, including this one showing the mindset of a politician, this one about why it’s easy to operate on politicians, this one about a politician visiting flyover country, this one about a politician in a bar, this one about Little Johnny copying politicians, and this one showing the relationship between people and elected officials.

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Obamacare’s Corrupt Conception, Sleazy Gestation, and Tawdry Birth

One of my very first blog posts was about the link between big government and big corruption.

For the rest of my life, I can now cite the Obamacare travesty as an example.

Here’s some of what Tim Carney wrote for the Washington Examiner.

Chief Justice John Roberts’ judicial sleight of hand, transforming Obamacare’s mandate into a tax, was a fittingly twisted save for a law of such grisly provenance. Born of tawdry liaisons between industry lobbyists and political hacks, passed through naked logrolling and legislative skullduggery, Obamacare wasn’t finalized until Thursday, when the chief justice, in effect, amended the bill so that it would become constitutional.

Tim recounts some of the sleaze and corruption that allowed Obamacare to move through Congress.

…within weeks of his inauguration, Obama started playing the game. An early Obamacare confab was held at the headquarters of the Democratic Senatorial Campaign Committee — showing how this was a political exercise as much as a policy one. At this April 2009 meeting, top lobbyists from the drug industry and White House Deputy Chief of Staff Jim Messina hammered out a deal — exposed by recently released emails — whereby the drug industry would pay for pro-Obamacare ads basically written by the White House. Big Pharma would also spend big to re-elect Democrats who voted for the bill. …The Senate bill was authored mostly by Finance Committee Chairman Max Baucus and Majority Leader Harry Reid, probably the two senators most notoriously cozy with lobbyists. To win over wavering Democrats, Reid loaded the bill up with special favors. Nebraska’s Ben Nelson got the “Cornhusker Kickback,” and Reid bought Mary Landrieu’s vote with the “Louisiana Purchase” — both deals giving those states extra Medicaid money. … Democratic staffers who wrote the bill cashed out to K Street nearly immediately, becoming health industry lobbyists. Democratic Reps. Bart Stupak and Earl Pomeroy, who both lost their seats (Stupak retired, Pomeroy was defeated) thanks to their votes for Obamacare, were also rewarded with lobbying gigs for health care companies.

The combination of a politically motivated Chief Justice and a tawdry legislative process led Tim to this conclusion.

If this is how a bill becomes a law, our kids are going to need new civics textbooks.

Since this is a very depressing topic, we need to add some levity. I already did a post with several good Obamacare cartoons, but I can’t resist adding this one.

Returning to our unpleasant topic, Richard Epstein opined last Friday in the New York Times about the Obamacare decision and explained (as I noted last week as well) that the power to tax does not create a power to spend.

By giving Congress independent powers over taxation and other revenue sources, the Constitution ended that dependency. But as a quid pro quo, the Constitution also restricted the use of these revenues to classical public goods — benefits that must be given to all citizens, if given to any — like paying off national debts and paying for the nation’s defense. General welfare, mentioned in parallel with these two phrases, is best read as covering only matters that advance the welfare of the United States as a whole. The redistribution of income, or “transfer payments” among citizens, like those mandated under the Affordable Care Act, doesn’t qualify for taxation in this originalist reading of the Constitution. Through the early 20th century, the Supreme Court was cognizant of this tight relationship between the power to regulate an activity directly and to the power to tax it. The basic idea relies on a simple economic insight: taxation and regulation are close substitutes, so a limitation on one power matters little if the other power is still available. There is no practical difference between ordering an action, and taxing or fining people who don’t do that same thing. If the Constitution limits direct federal powers, it must also limit Congress’s indirect power of taxation.

Unfortunately, Supreme Court Justices sometimes don’t care what the Constitution says.

P.S. This is the second time the Obamacare Frankenstein monster has appeared on this blog. He was with his twin brother last time.

P.P.S. This is a post about the unseemly genesis of Obamacare, but I’m a fiscal policy wonk, so I want to remind everyone that this new entitlement will be a budget buster.

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Powerful – but Deeply Flawed – Leftist Imagery

I have given the left credit many times for clever humor, even when their satiric efforts target libertarians.

• A video portraying Somalia as a libertarian paradise.
• Two cartoons, one on libertarian ice fishing and the other showing libertarian lifeguards.
• A montage showing 24 types of libertarians.
• Six different perceptions of libertarians.

Well, it’s time to give the left credit again. I don’t know whether to call this satire, humor, or if I should just lump it in the catch-all category of social commentary, but it is effective. It’s visually powerful and leaves a clear message.

Even the small touches are clever, including Bush and the Pope on the TV, as well as the IMF sticker on the IV pole (though I’m surprised, given the bureaucracy’s statist track record, that the left thinks the IMF is the enemy).

But I’m not sharing this image out of pure appreciation for effective imagery. I also think it reveals two themes of left-wing thought, one foolish and the other legitimate.

1. The foolish theme is that rich nations are rich because poor nations are poor. This is the same mentality that you find among leftists such as Obama, who assume that rich people in America are rich because they somehow deprived the poor.

2. The accurate theme is that bigwigs sometimes use the coercive power of government to obtain unearned wealth. And in some cases, that unearned wealth comes from corrupt deals with politicians from third-world governments.

I address both of these points in this interview, pointing out that true capitalism generates an expanding economy so that the rich and poor both benefit, but that cronyism enables the politically well-connected to rip off taxpayers and/or consumers.

If we want to promote liberty, it would help to enlist the help of those leftists who legitimately want to make the world a better place (as opposed to the union thugs, political hacks, grievance mongers, and others who use statism as a racket to achieve wealth and power).

We need to educate the honest left about why they’re wrong about the first theme and why we’re on their side regarding the second theme.

The challenge is to teach them that good intentions sometimes don’t lead to good results, so that we can fix the mentality displayed in this cartoon.

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Wonderfully Nasty Humor about Elizabeth Warren, a.k.a., Soul Woman

Elizabeth Warren is a left-wing hack running for the United States Senate in Massachusetts. For a while, her only claim to fame was that she got statists all excited when she asserted that rich people only became wealthy because of government.

Professor Russ Roberts of George Mason University demolished that silly claim, pointing out that the vast majority of federal government spending is not for genuine public goods that help a market economy function.

And who can forget the hilarious parody showing what Warren’s redistributionist philosophy would mean if applied to attractive women.

But now Ms. Warren has become infamous for a different reason. It seems that she lied about having American Indian heritage in order to gain preferential status for teaching positions at law schools. This has generated new displays of humor, including this wicked video (featuring a cameo appearance by Anthony Weiner!).

This video was made by some Republicans, so they obviously have a partisan agenda, but there’s a very good point about Warren exploiting indigenous people for personal gain.

Indeed, there was something vaguely familiar about this entire kerfuffle. And then it hit me. Elizabeth Warren is the 21st Century version of “Soul Man”!

As you can see from this movie trailer, “Soul Man” was a 1986 film about a white kid who pretends to be black to gain a scholarship to Harvard Law School.

I don’t want to spoil the film, but I will say that the kid learns a very important lesson and gives up his scholarship to a real black person. Sadly, Elizabeth Warren does not have the same moral character. So in this 2012 version of the film, “Soul Woman” has dug in her heels (moccasins?) and is refusing to behave honorably and resign her position and apologize.

I suppose there’s a lesson in this story about racial preferences, particularly the way they have corrupted higher education.

But that’s secondary. This is an issue of individual integrity. If we assume that Harvard Law School wanted to hire a minority to satisfy the diversity crowd, then Elizabeth Warren did take a job that otherwise would have gone to someone else. The same is true about her previous teaching positions.

Hollywood, at least in the 1980s, knew that was wrong and made a movie mocking that kind of scam.

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New York Times Columnist Bumps into Reality, Learns Nothing

The pro-statism crowd routinely argues that we need more government. Every so often, though, one of them inadvertently stumbles on the truth. But they then refuse to draw the logical conclusion. For instance.

• One of President Obama’s health appointees noted that quality increases and prices fall when markets are allowed to operate – yet he concluded that we should further restrict market forces in health care.
• The IRS Commission admitted the tax code is a complicated mess and that he pays someone else to compile his tax return – yet he dodged a question about whether Congress should fix the mess with something like a flat tax.
• A New York Times reporter produced a chart showing that the only successful budget deal in recent decades was the one in 1997 that included tax cuts – yet he then complained that we can’t deal with red ink because Republicans won’t agree to a tax increase.

We now have another example to add to the list. Thomas Friedman is a columnist for the New York Times, where he specialize in ponderous columns that reflect the views of the left-wing establishment. Today, he has a column complaining about gridlock in America. Here are some key excerpts.

Does America need an Arab Spring? …has American gone from a democracy to a “vetocracy” — from a system designed to prevent anyone in government from amassing too much power to a system in which no one can aggregate enough power to make any important decisions at all? …A system with as many checks and balances built into it as ours assumes — indeed requires — a certain minimum level of cooperation on major issues between the two parties, despite ideological differences. Unfortunately…several factors are combining to paralyze our whole system.

This is remarkable, in part because he is stunningly wrong. The political class in Washington manages to spend about $4 trillion per year and churn out tens of thousands of pages of new regulation annually.

The politicians also manage to enact dozens of new laws every year, almost all of which expand the size and scope of the federal government. If that’s gridlock caused by “vetocracy,” then I shudder to think what activist government looks like.

But the part that really shocked me was that Friedman basically acknowledged that the problem is big government.

…the huge expansion of the federal government, and the increasing importance of money in politics, have hugely expanded the number of special-interest lobbies and their ability to influence and clog decision-making.

This is a facepalm moment. Friedman begins his column by complaining that our system is sclerotic and that this makes it hard for politicians to enact more laws, yet he then admits that our system is sclerotic because government is too big already. And it goes without saying (but I’ll say it anyway) that Friedman wants to make government even bigger – which is why he’s complaining about gridlock in the first place!

By the way, I can’t resist correcting some of Friedman’s sloppy analysis in the final excerpt above. He complains about role of money and special interests in politics, but he fails to connect the dots. If he did, he would understand that political money and interest groups are inevitable consequences of a bloated public sector.

As I explain in this video, big government facilitates and encourages corruption. To put it in colloquial terms, if you create a big pile of garbage in your living room, don’t be surprised when you get infested by rats and roaches.

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A Nauseating Example of Cronyism, Sleaze, and Corruption at the Export-Import Bank

One of my first posts on this blog featured this video showing how big government breeds corruption.

I’ve periodically provided examples of how this process works, citing Alaska, Chicago, Wall Street, and Washington.

Here’s another example, explicitly showing how big business and big government get in bed together to rape and pillage taxpayers. The sleazy details have been reported by Bloomberg.

Exxon Mobil Corp. and its partners in a $15 billion Papua New Guinea gas project last year paid the travel expenses for employees of the U.S. Export-Import Bank as it considered whether to help fund the venture. The four workers ran up $97,367 in bills traveling to London, Tokyo and the South Pacific, according to data compiled by the bank. They flew business class, viewed the project’s route by chartered aircraft and were entertained by costumed villagers. Eleven months later, the bank approved $3 billion in financing for the liquefied natural gas facility, the biggest transaction in the agency’s 75 years.

I posted last month about why it’s important to shut down the corrupt subsidies at the Export-Import bank. This story is a good example of why handouts for big companies are a carousel of sleaze.

Pay close attention to this issue. When the votes happen, you’ll be able to tell which Republicans understand the difference between free markets and cronyism – much as a pair of votes last year showed which Republicans believed in free markets instead of government subsidies for well-heeled housing interests.

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Revolt of the Irish Tax Slaves

I wrote last year about a backlash from long-suffering Greek taxpayers. These people – the ones pulling the wagon rather than riding in the wagon – are being raped and pillaged by a political class that is trying to protect the greedy interest groups that benefit from Greece’s bloated public sector.

We now have another group of taxpayers who are fighting back against greedy government. My ancestors in Ireland have decided that enough is enough and there is widespread civil disobedience against a new property tax.

Here are the key details from an AP report.

The Serfs Fight Back

Ireland is facing a revolt over its new property tax. The government said less than half of the country’s 1.6 million households paid the charge by Saturday’s deadline to avoid penalties. And about 5,000 marched in protest against the annual conference of Prime Minister Enda Kenny’s Fine Gael party. Emotions ran raw as police backed by officers on horseback stopped demonstrators from entering the Dublin Convention Centre. …One man mistakenly identified as the government minister responsible for collecting the tax had to be rescued by police from an angry scrum. Kenny said his government had no choice, but to impose the new charge as part of the nation’s efforts to emerge from an international bailout. …The charge this year is a flat-fee €100 ($130) per dwelling, but is expected to rise dramatically next year once Ireland starts to vary the charge based on a property’s estimated value. Anti-tax campaigners have urged the public to ignore the tax demand, arguing that the government doesn’t have the power to collect it.

What makes this new tax so outrageous is that Irish taxpayers already have been victimized with higher income tax rates and a more onerous value-added tax. Yet they weren’t the ones to cause the nation’s fiscal crisis. Ireland is in trouble for two reasons, and both deal with the spending side of the fiscal equation.

1. The burden of government spending exploded last decade, more than doubling in less than 10 years. This wiped out all the gains from fiscal restraint in the 1980s and 1990s.

2. Irish politicians decided to give a bailout not only to depositors of the nation’s failed banks, but also to bondholders. This is a grotesque transfer of wealth from ordinary people to those with higher incomes – and therefore a violation of Mitchell’s Guide to an Ethical Bleeding Heart.

It’s worth noting that academic studies find that tax evasion is driven largely by high tax rates. This makes sense since there is more incentive to hide money when the government is being very greedy. But there is also evidence that tax evasion rises when people perceive that government is wasting money and being corrupt.

Heck, no wonder the Irish people are up in arms. They’re being asked to cough up more money to finance a bailout that was both corrupt and wasteful.

Let’s close by looking at American attitudes about tax evasion. Here’s part of a column from Forbes, which expresses surprise that Americans view tax evasion more favorably than behaviors such as shoplifting and littering.

A new survey suggests Americans consider cheating on their taxes more socially acceptable than shoplifting, drunk driving or even throwing trash out the window of a moving car. …only 66% of  the participants said they “completely agree” that “everyone who cheats on their taxes should be held accountable”  and only 72% completely agreed that “it’s every American’s civic duty to pay their fair share of taxes”–suggesting, as the Shelton study does, that perhaps disapproval of tax evasion is not as strong as, say, disapproval of stealing from private businesses.

I’m not sure, though, why anybody would be shocked by these results. We have a government in Washington that is pervasively corrupt, funneling money to corrupt scams like Solyndra.

These same people want higher tax rates, which will further encourage people to protect their income.

If we really want to promote better tax compliance, whether in the U.S., Ireland, or anywhere in the world, there are two simple answers. First, enact a simple and fair flat tax to keep rates low. Second, shrink government to its proper size, which will automatically reduce waste and limit opportunities for corruption.

But none of this is in the interests of the political class, so don’t hold your breath waiting for these reforms.

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Based on Where the Top 1 Percent Lives, the Occupy Crowd Should Be Protesting Against Big Government

I’ve written before about how big government is enriching people in the Washington metropolitan area. This is for two reasons.

First, bureaucrats are paid too much, getting twice as much compensation, on average, as people in the productive sector of the economy.

Second, lobbyists, contractors, and interest groups have figured out how to get lucrative positions at the federal trough.

A new report from MSN Money illustrates how the political elite is getting very rich by plundering honest Americans. America has 3,033 counties, and they identified the 15 richest jurisdictions from that list.

Of those 15 super-elite counties (the top 1/2 of one percent), 10 are in the Washington metropolitan area. I’ve identified them with stars in the map.

You may be wondering, by the way, about the location of the other counties in the top 15. Well, four of them are suburbs of New York City, meaning that they are home to rich Wall Street people who mooched from the taxpayers thanks to TARP bailouts and other subsidies.

So if you really want to be cynical, you could count them as auxiliary counties of Washington, DC. That’s probably an unfair conclusion, but TARP was unfair to honest and hard-working people, so I don’t feel too guilty.

As far as I can tell, the only untarnished jurisdiction in the top 15 is Douglas County, Colorado. And given that these are the folks who are implementing a good school choice plan, it seems that we have a group of productive people who also believe in doing the right thing.

For more information about the overcompensation of bureaucrats, this video is loaded with information.

Most important of all, remember that any proposals to increase government spending will further widen the income gulf between the political elite and regular Americans. And any initiative to boost the tax burden would lead to the same result.

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Anti-Republican Humor (With an Important Exception)

When I first saw this picture, I thought it must have been created by a Ron Paul fan. And since Congressman Paul is the closest to my views according to the Reason political quiz, it’s easy to see why I would jump to that conclusion.

But maybe the person who created this image wasn’t really trying to boost Ron Paul, but was instead taking a swipe at other Republicans?

Since I’ve dinged Newt Gingrich, Rick Santorum, and Mitt Romney, that also appeals to me.

But what really matters is that corporatism is morally and economically odious, regardless of the party. That’s why the TARP bailout was reprehensible. It’s why Fannie Mae and Freddie Mac subsidies are disgusting. And it’s why industrial policy in the tax code is corrupt.

So regardless of how you interpret this picture, enjoy the humor and remember the lesson.

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Is Warren Buffett’s Support for Higher Taxes a Way of Paying Back Politicians for Big-Government Policies that Line His Pockets?

President Obama, echoed by the establishment media, routinely trumpets Warren Buffett’s support for higher taxes.

If this rich guy is willing to pay more, the story goes, then surely the rest of us peasants should just roll over and acquiesce to the President’s class-warfare tax policy.

Well, one reason we shouldn’t surrender is that Buffett is either stupid or dishonest. In previous posts, I’ve exposed his fiscal innumeracy and explained that he is understating his own tax rate.

I also posted a video exposing the hypocrisy of rich leftists, who refuse to write checks to Uncle Sam notwithstanding their self-proclaimed willingness to pay more. As far as I’m aware, this also describes Buffett.

But maybe all this tax talk is a distraction. Perhaps the real story is that Buffett is a clever political manipulator and that his support for higher taxes is a way for him to pay back the politicians who have enacted policies to line his pockets.

Here are some very revealing passages from a new Reason column by Peter Schweizer. We start with the image that Buffett is creating for himself.

He frequently takes to the nation’s op-ed pages with populist-sounding arguments, such as his August 2010 plea in The New York Times for the government to stop “coddling” the “super-rich” and start raising their taxes.

Schweizer than puts forth an alternative hypothesis.

Warren Buffett is very much a political entrepreneur; his best investments are often in political relationships. In recent years, Buffett has used taxpayer money as a vehicle to even greater profit and wealth. Indeed, the success of some of his biggest bets and the profitability of some of his largest investments rely on government largesse and “coddling” with taxpayer money.

Buffett’s self-interested behavior during the Wall Street bailout is especially revealing.

…on September 23 that he became a highly visible player in the drama, investing $5 billion in Goldman Sachs, which was overleveraged and short on cash. Buffett’s play gave the investment bank a much-needed cash infusion, making a heck of a deal for himself in return: Berkshire Hathaway received preferred stock with a 10 percent dividend yield and an attractive option to buy another $5 billion in stock at $115 a share. Wall Street was on fire, and Buffett was running toward the flames.

What’s remarkable is that Buffett basically admitted he was investing money in the expectation that Uncle Sam was going to make his investment profitable.

 But he was doing so with the expectation that the fire department (that is, the federal government) was right behind him with buckets of bailout money. As he admitted on CNBC at the time, “If I didn’t think the government was going to act, I wouldn’t be doing anything this week.”

According to Schweizer’s analysis, Buffett very much needed a pipeline to the Treasury because of his investments in Goldman Sachs and other financial institutions.

Buffett needed the bailout. In addition to Goldman Sachs, which was not as badly leveraged as some of its competitors, Buffett was heavily invested in several other banks, such as Wells Fargo and U.S. Bancorp, that were also at risk and in need of federal cash. So it’s no surprise that Buffett began campaigning for the $700 billion Trouble Asset Relief Program (TARP) that was being hammered out in Washington. …Buffett received better terms for his Goldman investment than the government got for its bailout. His dividend was set at 10 percent, while the government’s was 5 percent. Had the bailout not gone through, and had Goldman not been given such generous terms under TARP, things would have been very different for Buffett. As it stood, the arrangement with Goldman Sachs earned Berkshire about $500 million a year in dividends. “We love the investment!” he exclaimed to Berkshire investors.

The same was true for his investment with General Electric.

The General Electric deal also was profitable. As Reuters business columnist Rolfe Winkler noted on his blog in August 2009: “Were it not for government bailouts, for which Buffett lobbied hard, many of his company’s stock holdings would have been wiped out.” …Buffett did very well with Goldman Sachs and GE too after they received their bailout money. His net gain from General Electric as of April 2011 was $1.2 billion. His profits from the Goldman deal by then had exceeded the gains of July 2009, reaching as high as $3.7 billion. He had bet on his ability to help secure the bailout, and the bet paid off.

I don’t know whether the $1.2 billion and $3.7 billion profits were for Berkshire Hathaway of for Buffett, but he still would be accumulating lots of additional wealth even if it was the former.

It also seems that Buffett’s support for the faux stimulus may have been for pecuniary reasons, or at least has a self-interested component.

In late 2009, Buffett made his largest investment ever when he decided to buy Burlington Northern Santa Fe Railway (BNSF). It was not just an endorsement of the railroad industry’s financials; it was also a huge bet on the budget priorities of his friend Barack Obama. …the railroad industry saw Buffett’s involvement as very helpful, precisely because he was so politically connected. “It’s a positive for the rail industry because of Buffett’s influence in Washington,” Henry Lampe, president of the short-haul railroad Chicago South Shore & South Bend, told the Journal. …After Buffett took over the railroad company, he dramatically increased spending on lobbyists. Berkshire spent $1.2 million on lobbyists in 2008, but by 2009 its budget had jumped to $9.8 million, where it more or less remained. Pouring money into lobbying is perhaps the best investment that Buffett could make. …Buffett also owns MidAmerican Energy Holdings, which received $93.4 million in stimulus money. General Electric, in which he owns a $5 billion stake, was one of the largest recipients of stimulus money in the country.

By the way, Bloomberg reported that the President’s decision to kill the Keystone Pipeline was a boon to Burlington Northern.

Was it part of a quid pro quo? We don’t know, but Schweizer’s conclusion is right on the mark.

Warren Buffett is a financial genius. But even better for his portfolio, though worse for the rest of us, he is a political genius.

And if you want more info on Buffett’s unseemly connections with Washington, the invaluable Tim Carney has a column about how the political elite coddles Warren Buffett and another looking at how Buffett profits from bailouts.

The bottom line is simple. When people get rich by providing goods and services in a competitive market, that’s capitalism. When they get rich because of subsidies, bailouts, preferences, and handouts provided by the ruling class, that’s Argentina.

I have no idea whether Buffett is corrupt, but I know he is benefiting from a corrupt system. So it’s understandable that people like me suspect that his endorsement of higher taxes is not because of a mistaken view of fiscal policy, but rather because he wants to do something nice for the politicians who rig the rules to give him more wealth.

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Is an Ex-Congressman Lobbyist Capable of Shame?

I’ve written before about the sleazy and corrupting impact of earmarks.

And I’ve debunked the lobbyist arguments in favor of earmarks.

Heck, I’ve even done NPR interviews about this unseemly Washington practice.

So I like to think I’m reasonably knowledgeable about the system. But even I’m shocked to learn how a former Massachusetts Congressman has taken graft to the next level.

And I’m slightly happy that he’s been caught with his hand in the cookie jar and feels compelled to give up his share of the loot.

Here are some excerpts from a report in the New York Times.

A former congressman who became a lobbyist has abandoned his plans to collect $90,000 from working on an energy project that he helped finance through Congress. …An apologetic Mr. Delahunt told town officials he wanted to eliminate the “black mark” created by questions of a possible financial conflict, Patrick Cannon, chairman of the Hull Light Board, said on Saturday. …Mr. Delahunt, a Democrat who retired from Congress last year, had faced criticism for the last week from legal and ethics specialists over the unusual lobbying arrangement he had struck with the town, which is seeking federal help to build an offshore wind energy plant at a cost of more than $60 million. While in Congress, Mr. Delahunt earmarked $1.7 million for the same project, and he was to be paid 80 percent of his monthly consulting fees out of that same pot of money. …Mr. Delahunt and executives at his firm did not respond to e-mails Saturday seeking further comment on the decision.

Wow. For all intents and purposes, Congressman Delahunt directly pilfered the Treasury for personal gain.

This is amazing. But what’s remarkable isn’t that he stole money. After all, the federal budget is largely a big scam enabling various groups of people to obtain unearned loot.

The noteworthy thing about this story is that he didn’t launder the money.

In most cases, politicians do earmarks as part of a corrupt quid pro quo. They direct money to a certain group of beneficiaries and, in exchange, get campaign contributions from both the lobbyists who facilitated the deal and the interest groups that receive the taxpayer funds.

But Delahunt cut out one of the middlemen. He created an earmark, and then became one of the lobbyists pocketing the cash.

So it is poetic justice that this unsavory deal has become public knowledge and the former Congressman has been shamed into giving up his fees.

But don’t be deluded into thinking this is a victory.

The earmark is still there. Money is still being wasted. Delahunt is still a lobbyist. Government is still too big. And corruption is still rampant.

And if you think the former Congressman is genuinely apologetic….well, please get in touch with me. I’m selling a bridge in Brooklyn and need a gullible buyer – i.e., the kind of person who doesn’t think there’s anything wrong with this unseemly example of sleaze.

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Government Insiders Rip Off Taxpayers…Again

I’ve written many times about politicians and bureaucrats screwing taxpayers with lavish compensation packages, but this story from Philadelphia is jaw dropping.

Councilwoman Marian B. Tasco is retiring Friday, but only so she can collect a $478,057 pension check and return to work Monday, when she will be sworn in for her seventh term. Tasco was one of six Council members to enroll in the city’s controversial Deferred Retirement Option Plan, better known as DROP. She did not immediately return a request for comment. …When DROP was introduced during the Rendell administration, it was thought that it would cost little or nothing. But a study by the administration of Mayor Nutter said DROP had cost the city $258 million over 10 years.

Remember stories like this every time ones of these reprehensible politicians claim that spending has been cut to the bone and taxes have to be raised.

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The Poisonous Combination of Wall Street and Washington

Kevin Williamson of National Review is always worth reading, whether he’s kicking Paul Krugman’s behind in a discussion about the Texas economy, explaining supply-side economics, or even when he’s writing misguided things about taxation.

But I’m tempted to say that anything he’s written to date pales into insignificance compared to his analysis of the corrupt relationship between big government and Wall Street. Here are some excerpts, but read the entire article.

He starts out with a strong claim about the Obama Administration being in the back pocket of Wall Street.

…it’s no big deal to buy a president, which is precisely what Wall Street did in 2008 when, led by investment giant Goldman Sachs, it closed the deal on Barack Obama. For a few measly millions, Wall Street not only bought itself a president, but got the start-up firm of B. H. Obama & Co. LLC to throw a cabinet into the deal, too — on remarkably generous terms. …the real bonus turned out to be Treasury secretary Tim Geithner, who came up through the ranks as part of the bipartisan Robert Rubin–Hank Paulson–Citigroup–Goldman Sachs cabal. Geithner, a government-and-academe man from way back, never really worked on Wall Street, though he once was offered a gig as CEO of Citigroup, which apparently thought he did an outstanding job as chairman of the New York Fed, where one of his main tasks was regulating Citigroup — until it collapsed into the yawning suckhole of its own cavernous ineptitude, at which point Geithner’s main job became shoveling tens of billions of federal dollars into Citigroup, in an ingeniously structured investment that allowed the government to buy a 27 percent share in the bank, for which it paid more than the entire market value of the bank. If you can’t figure out why you’d pay 100-plus percent of a bank’s value for 27 percent of it, then you just don’t understand high finance or high politics.

Since I’ve compared Tim Geithner to Forest Gump, I’m not going to argue with this assessment.

Later in the article, Kevin makes a case that politicians are engaging in widespread insider trading.

Nancy Pelosi and her husband were parties to a dozen or so IPOs, many of which were effectively off limits to all but the biggest institutional investors and their favored clients. One of those was a 2008 investment of between $1 million and $5 million in Visa, an opportunity the average investor could not have bought, begged, or borrowed his way into — one that made the Pelosis a 50 percent profit in two days. Visa, of course, had business before Speaker Pelosi, who was helping to shape credit-card-reform legislation at the time. Visa got what it wanted. The Pelosis have also made some very fortunate investments in gasand energy firms that have benefited from Representative Pelosi’s legislative actions. The Pelosis made a million bucks off a single deal involving OnDisplay, the IPO of which was underwritten by investment banker William Hambrecht, a major Pelosi campaign contributor. …Besting Nancy Pelosi, Rep. Gary Ackerman (D., N.Y.) got in on the pre-IPO action, without putting up so much as one rapidly depreciating U.S. dollar of his own assets, when a political supporter — who just happened to be the biggest shareholder of the firm in question — lent him $14,000 to buy shares in the private company, which he then sold for more than a hundred grand after the firm went public. There wasn’t so much as a written loan agreement. On and on and on it goes: Sen. John Kerry invested aggressively in health-care companies while shaping health-care legislation. Rep. Spencer Bachus (R. Ala.) was a remarkably apt options trader during the days when he had a front-row seat to Congress’s deliberations on the unfolding financial crisis.

I wish I had known these details when I went on TV to discuss congressional corruption earlier this year.

Kevin also explained how Warren Buffett made a boatload of money thanks to insider knowledge about bailouts.

…during the financial crisis, a big piece of Goldman Sachs was bought by Warren Buffett, who stacked up a lot of cash when the government poured money into that struggling investment bank with the support of Barack Obama. When the federal government bought into Goldman Sachs, it negotiated for itself a 5 percent dividend. Warren Buffett got 10 percent — on top of the benefit of having Washington inundate his investment with great rippling streams of taxpayers’ money.

No wonder Buffett’s willing to lie in order to help his buddies in Washington raise taxes.

There’s a lot more in the article, but here’s a final excerpt that sums up Kevin’s article.

Wall Street can do math, and the math looks like this: Wall Street + Washington = Wild Profitability. Free enterprise? Entrepreneurship? Starting a business making and selling stuff behind some grimy little storefront? You’d have to be a fool. Better to invest in political favors. …hedge-fund titans, i-bankers, congressional nabobs, committee chairmen, senators, swindlers, run-of-the-mill politicos, and a few outright thieves (these categories are not necessarily exclusive) all feeding at the same trough, and most of them betting that Mitt Romney won’t do anything more to stop it than Barack Obama did. …Free-market, limited-government conservatives should be none too eager to welcome them back, nor should we let our natural sympathy with the profit motive blind us to the fact that a great many of them do not belong in the conservative movement, and that more than a few of them belong in prison.

All of this underscores why TARP was such an unmitigated disaster – and why we should be suspicious of politicians like Romney and Gingrich who supported the bailouts.

Remember, capitalism without bankruptcy is like religion without hell.

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Getting Rich While Serving in Congress Isn’t Proof of Corruption, but It Stinks to High Heaven

Mark Twain famously observed that, “It could probably be shown by facts and figures that there is no distinctly native American criminal class except Congress.”

That’s a generalization, of course, but one that makes a lot of sense. Especially since I’ve written about the sleazy practice of swapping earmarks for campaign cash and also about the revolving door between Capitol Hill and the lobbying community.

Indeed, the culture of legal corruption in Washington is so pervasive that even the New York Times had to give credit to Sarah Palin for making it an issue.

Another sign of sleaze in DC is the degree to which politicians manage to get wealthier while in office.

In other words, how is it that some politicians come to Washington with modest amounts of wealth and somehow become multimillionaires? Especially when they are getting richer while the rest of the nation is treading water – even though we know they are some of the nation’s least competent people?

Here’s part of what the Washington Examiner has to say about this phenomenon.

According to an analysis by the Washington Post of congressional financial disclosure data for the period of 1984 to 2009, the median net worth of a member of the House of Representatives, excluding home equity, more than doubled. Over the same period, according to the Post, the wealth of an average American family declined slightly. The Post paints the growing wealth gap between Congress and average Americans as reflecting rising income inequality more generally. But that’s a tough sell in view of other data released yesterday. The New York Times reported that while the median net worth of the richest 10 percent of Americans remained essentially flat from 2004 through 2010, the median net worth of members of Congress rose by 15 percent over that same period. …Why are members of Congress not getting rich? Hoover Institution Fellow Peter Schweizer addressed this question in his recent book, “Throw Them All Out: How Politicians and Their Friends Get Rich Off Insider Stock Tips, Land Deals, and Cronyism That Would Send the Rest of Us to Prison”. It’s not rising congressional pay because congressional pay has actually fallen in inflation-adjusted dollars over the last 25 years. Members of Congress are getting richer because so many of them are masterful manipulators of their perks and positions in government. For many, that means making lucrative stock deals based on insider information or participation in special Initial Public Offerings. Or it can mean securing an earmark to build a road that doubles the value of a recently purchased piece of property. In short, wealth can come from having the inside connections, specialized information and privileged access that only comes with being a senator or representative.

There are two conclusions to draw from this analysis. The obvious lesson is that big government breeds corruption and illegitimate wealth. Simply stated, politicians wouldn’t be able to accumulate so much unearned riches if government didn’t have so much power and control over the economy.

The second lesson is less obvious, but perhaps more important. As I’ve noted before, perhaps one of the reasons why politicians despise “the rich” and favor confiscatory taxes is that they generalize from their own experiences (as well as from their relationships with powerful special interests) and assume all wealth is obtained immorally.

Indeed, I’ve been mulling this over and think I need to augment Mitchell’s Law and Mitchell’s Golden Rule with something like Mitchell’s Inverse Corollary of Taxation and Illegitimate Wealth. But that’s too wordy, so I’ll have to keep thinking about it.

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A Cartoon about Congress and Thanksgiving

In past years, I’ve shared posts about taxes and Thanksgiving, political correctness and Thanksgiving, a serious look at how shifting from communism to private property led to Thanksgiving for the Plymouth Colony, and a humorous look at what Thanksgiving might be like if Mayor Bloomberg of New York City ever becomes President.

In the spirit of the season, here’s a cartoon based on the biggest turkeys in America, the political elite in Washington. As you may have read, they have an uncanny ability to get rich by trading stocks based on their insider knowledge about what is happening with legislation.

I suppose the cartoon is funny, but it’s actually rather outrageous that these jackals come to Washington with modest wealth and leave town decades later as multi-millionaires.

But since this is supposed to be a happy day, here’s a non-political Thanksgiving joke, and here’s another one that’s quite amusing, though I’ll warn you it is R-rated.

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