Category: Politics

Income Mobility and Inequality in America

There has been much hand wringing on the left about inequality. We are told by the media that the American dream is dead; that the rich get richer while the poor get poorer. Is the American dream dead?

43% of American born into the bottom quintile of wealth stay there as adults. 40% of Americans born into the top quintile will stay in the top quintile as adults. This of course means that 57% of the bottom will rise out of the bottom, 4% of them reaching the top and conversely that 60% of the top will fall, 8% of them to the bottom. Is this really the full picture of inequality?

Consider that quality of life in absolute terms has continued to go up. Being poor in 1950, 1960 or even 1990 is not the same experience as it is today. Most of the poor today have things considered luxuries in the recent past such as cell phones, computers, and air conditioning. The median family today has nearly twice the purchasing power than they would have had in 1960. Therefore absolute income is only a part of the story. The same capitalistic system that rewards those with money with more money also leads to tremendous advancement in quality of life.

Even looking at income alone, 84% of individuals have family income greater than their parents, after adjusting for family size. In the bottom quintile, 75% greater than $10,000 more in income, 44% greater than $25,000 more.

Much of this information comes from reports from the Heritage Foundation, a conservative think tank. I did some research to see what the other side is saying about these numbers. Think Progress took on Heritage’s assertion of relative prices by pointing out that education and healthcare costs have risen in relative cost. So let’s analyze this fact for a moment. College costs have in fact risen dramatically faster than inflation. Is this because of greedy capitalists- no; it is precisely the opposite, cheap government money has allowed higher education costs to rise. Healthcare is more complex, costs are rising because we have much more healthcare choices and technological advancement allows us to live longer and better. Once again Government has also been deeply involved driving up costs with regulations and controls. Obamacare was sold as a way to provide healthcare for all; the president promised it would lower costs; but so far the opposite has occurred as choices do down and costs rise.

Meanwhile the greedy capitalists that the left so often points the finger at have brought us cheaper and better goods and services. The poor can afford cell phones- that make their lives easier. Most of them can access the internet, many even in their own homes. Information that was once costly to consume and learn is now cheap and easy. Henry Ford grew rich by bringing the average American worker a car he could afford. Steve Jobs by revolutionizing products that connect us and entertain us. Products that were once luxuries are now available to almost all.

Healthcare and education need not be exempt from this progress. Technology in healthcare can also bring costs down and increase wellness if we let markets work. Home schooling is thriving in America; parents today have the ability to bring world class instruction into their homes through the internet. If we decouple government money from higher education, we will see choices go up and costs go down as institutions are force to innovate and compete for students.

Much of the philosophical divide in this country comes down to a lack of understanding of economics and capitalism. Progressives fall into the zero sum fallacy- that there is a set amount of wealth in the world and it can be managed by governments to create more equality. The left uses fairness and inequality arguments to further their socialistic philosophies and grow their power.

The reality is that wealth isn’t fixed, capitalists create wealth by serving their fellow man. The more wealth they create the more potential relative prosperity for all.

All of us are born with different circumstances, some of us have advantages over others, and we will never have wealth equality in America. Free Market Capitalism remains the best system to foster income mobility and allow all of us to maximize our potential and live prosperous productive lives.

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First “Do No Harm”

Physicians swear to first do no harm. Doctors must carefully weigh their treatments and interventions into the body to be sure not to do more harm than good. They must weigh the pros and cons, they utilize science to make informed decisions and to guide their patients.

If only government understood this simple idea. We have an activists government, a government that sees problems everywhere and is eager to solve them with laws, regulations, prohibitions and interventions of force. It is of course our own fault, we expect our government to take care of us. Governments have always existed to prevent force from outside their borders and maintain an army and defense. In modern times governments have become expected to do many more things. The government is expected to shepherd the economy to make sure the citizens have jobs that pay the bills. Governments are expected to care for the elderly and provide fairness in all things. Drugs are bad- so government must outlaw them and put those who refuse to obey in jail.

When politicians see a problem they immediately start thinking of how to address it with the force of government. All too often we pass laws thought to address a problem that create more harm than good. No one would argue that the disabled should be discriminated against so we passed a law, the ADA. Then we all moved on feeling good about our great society. But the result of that law was that fewer disabled people got jobs as businesses were afraid of the costs of accommodating them or being sued if they didn’t work out. It didn’t matter if a particular disabled person was happy to work somewhere under the conditions, the government wouldn’t allow it making that person a liability- and taking away that choice. Prostitution is demeaning to women so we prohibit it almost everywhere. But the demand remains and so now women who become prostitutes, some willingly some not, are at the mercy of the lawless streets. The intention is to get rid of the behavior we abhor but the result is worse.Regulation of industry is similar. The process was described in comical fashion by Ronald Reagan: “If it moves tax it, if it continues regulate it, if it stops subsidize it!”

In my debates I am often asked to prove that a particular law or regulation is harmful; shouldn’t the burden be on the government- the only institution with the compulsion of law to prove that it isn’t? Shouldn’t we expect our lawmakers to first do no harm? Shouldn’t they examine all the costs and weigh these against the proposed benefits of what they propose? The problem with laws and rules are that they rarely go away once passed. Year after year they persist despite all the evidence of their failure or high cost to benefit ratio. Whole industries thrive on these laws and protect them with powerful lobbyist and lawyers.

We have an ever growing nanny state, the only difference between Republicans and Democrats in recent years has been the size and scope of the nanny state. Mayor Bloomberg of NYC, a quasi Republican has gone after smoking, salt, and now soda in his city all in the name of protection. He has even tried to control the amount of pain killers doctors prescribe in the cities hospitals. We are more enamored today with safety and comfort than we are freedom. We expect to be protected and we have been all too willing to give up choice and freedom to do it. Let the citizens demand that their government first do no harm.

Moral Clarity

Yesterday my 7 year old son told me a bold face lie. He lied for expedience about a test at school- he didn’t want to study so he said it had already passed. After he was exposed and admitted to the lie, my wife and I tried to explain integrity. I talked about meaning what you say and being honest even when it is tough to do so. My wife and I talked about the importance of trust and gave examples. We all want our kids to be honest with us and do what is right. As a society however we have lost much of our collective integrity and moral clarity.

The recent former LAPD shooter is a good example. Despite killing multiple innocent people not even directly connected to his grievance the shooter has generated significant support from many. Even some very law abiding and decent people have sympathized with his plight and assumed that he was wronged. The shooter, now deceased, has had his firing re-opened by the LAPD. I do not pretend to know if he was wronged or not or what if any was true in his published manifesto- I find it completely irrelevant. Have we gotten so far from moral certainty and discernment that a man can kill four innocent people and be praised by some and partially excused by others? Most of us have been fired unfairly before; many of us- myself included; have had others in the workplace lie about us in order to gain an edge. As your mother probably told you- two wrongs don’t make a right. The second this man decided to take a life he should have lost all credibility- he should have been strongly and unequivocally condemned by all. His manifesto shouldn’t have been published widely in the media- he should have been seen as the criminal lowlife murderer he was. It can be natural to root for an underdog and many have had poor dealings with the LAPD or police in general. When I drove most of the day for work I racked up quite a few trivial or unfair traffic tickets. Most of the officers I dealt with were unhappy and discourteous- I felt I was often treated unfairly. The LAPD has had major corruption scandals and officers have even been convicted of murder- I have no illusions about the LAPD. Most big organizations will have some major flaws. None of this justifies murder- the LAPD shooter may have been wronged- but the second he shot that innocent young couple he earned his violent death. People generally hate unfairness and perhaps that is why so many rallied to his cause- assuming his accusations were true. I think there is something else at play- moral relativism and a lack of clarity.

Moral relativism is a cancer that eats at the moral fabric of our society. We now are encouraged not to judge anyones behavior and we tend to focus on all the excuses instead of the morally deficient behavior of a person. Class and race play a role as well. Stealing from a rich corporation by illegally downloading software or music is deemed ok. Of course the reality is that the rich and powerful are rarely hurt much by these thefts- it is the lowlier workers that suffer as revenues dry up- but this is again irrelevant- theft is wrong either way. Young minority gang members who terrorize their own communities are merely victims of racism and “the system”.

Let’s be clear, no one has the same experience in life- fairness doesn’t exist. Some people have many more breaks than others. Some of us have loving parents and financial security some of us have neither. We do need to try to understand root causes and we do need to try to help the less fortunate- including criminals and especially children who are more reachable. However we also need to make judgements and hold people accountable on a community and societal level. Young men who impregnate women and then run shouldn’t be called “baby daddies” and they shouldn’t be able to walk with their heads high anywhere. They should be condemned by their communities and shamed by society until they take responsibility. Society should forgive people their transgressions but not without conditions and atonement. We need to remove the excuses as well and stop allowing some to absolve themselves of responsibility by always playing the victim. Being a victim can paralyze a person as they blame everything on some external force beyond their own control. Real victims exist but the successful are rarely without adversity; they just learn to rise above it and take responsibility for their lives.

Christianity is the biggest influence to my morality as it is for many others but I have known many men of great integrity and moral clarity who are atheists. My father is deeply religious and has abundant integrity, he is honest to a fault and carefully considers all his decisions. He is very careful never to take advantage of anyone, even when he has been taken advantage of by many. His deep faith allows him to keep things in perspective and he believes he will be richly rewarded some day. On the other side is my favorite teacher, Mr. R. I remember Mr. R. being in tears apologizing to the class for what I thought was a relatively harmless comment he made that embarrassed a student. He cared so deeply that he had hurt this girl that he visibly wept; even though everyone knew he had no malice and was only trying to be funny. I also remember him being deeply hurt when he found out that several students had cheated on a test. Morality need not come from faith or religion- but there is a basic morality that everyone should uphold. It can be relatively easily defined in the golden rule: Treat others as you wish to be treated.

As a child I remember several occasions where I thought I’d been treated unfairly and told my mother. My mother almost always sided with the adult or authority in question. When she did fight for me she did it without my knowledge or on rare occasions where she knew I was right. My mother reinforced personal responsibility and discipline and now I do that for my son. It is easier to make excuses for our children, to be on their side always- but this is a grave injustice to them. Our children need parents who act as parents not as friends.

We do no service to the immoral when we make excuses for them or try to justify their actions. We owe them accountability most of all. Our young men are especially vulnerable, they need strong and steady leadership- they need to be taught right and wrong. They need limits and boundaries- in the absence of these things they lash out and test the limits of their egos. For some this leads to a violent, criminal life. Let’s not take the easy or politically correct way out let us do our best to be moral leaders in our spheres of influence. Live by example first- but do not be afraid of speaking out and holding others accountable.

Tax Policy and Corporate Investment

Wall Street Journal Today:
J.P. Morgan JPM +1.58% research report estimates that there is $1.7 trillion of undistributed foreign earnings held by more than 1,000 U.S. companies overseas. But only 600 disclose how much of their foreign cash is held offshore. Some like Johnson & Johnson JNJ +0.31% and Illinois Tool Works ITW +1.26% have all their cash in foreign subsidiaries.

According to some as much as 60% of corporate cash is overseas, why? Corporations in America make lots of money overseas the majority of which has already been taxed in the nations it was earned. If the corporation wants to bring that money back to the United States they are required to pay again, typically 35%.

From Brookings:

Even though a corporation is eligible for a tax credit equal to foreign taxes paid, the decision to repatriate earnings typically requires that corporation to incur a significant tax cost. As a result, corporations usually find it more attractive to defer U.S. taxation by reinvesting their foreign earnings abroad.

Some Republicans have called for a repatriation tax holiday or a territorial tax system whereby profits are only taxed once in the country they are earned. This seems fair but Democrats have argued that certain profits wouldn’t be taxed at all. The tax code is immense and corporations have whole departments whose job it is to minimize taxes paid. Politicians pass more and more laws and corporations find more ways to get around paying. Massive companies like General Electric have mastered the art of avoiding taxes despite billions in profits.

What is the solution? I propose a corporate income tax rate of zero. Corporations are entities made up of people and those people are all paid in some way eventually whether it be salary, stock or benefits. All of those forms of income are taxed eventually, meaning that a corporate tax is redundant and a form of double taxation. Corporations would still pay plenty of taxes in other forms such as payroll and sales and energy taxes.

Taxation on profits is inefficient as well, The Atlantic:

The corporate income tax encourages firms to waste resources on tax avoidance  In general, taxes are most efficient when they fall on those who have the most difficulty avoiding them.  Big corporations can and do spend an enormous amount of money and human effort transforming their income into more tax-preferred forms–deferring it, moving it, swapping it with entities that have different tax rules, and so forth.  We spend an enormous amount of energy trying to make rules to stop them.  It would be a lot easier to get rid of the thing entirely and focus on getting the money from people, who can’t afford quite such large squads of tax attorneys.  This would also correct an obvious flaw in the corporate tax code: it’s easier for big companies to afford pricey tax lawyers–and pricey lobbyists to get them special tax breaks.

Surely some will argue that with any change to the tax code there will be some who take advantage of it, and they are correct. The question becomes what can we do to make taxes as fair and efficient as possible and encourage growth that ultimately means more revenue. The answer is simpler laws that are enforceable, it shouldn’t require whole teams of lawyers and accountants to do a businesses taxes. Lets make the code simpler and then focus enforcement efforts on the remaining cheats. What we have now are special interests deciding our tax laws. Thousands of lobbyist exert pressure to get favorable laws and regulations that reduce their clients liabilities. Lets remove the complexity and make the code simple and fair and eliminate the need for special interest lobbying.

Imagine the corporations worldwide that would pour billions perhaps trillions of dollars into the US economy if we had a simpler and lower tax policy. We already try to create incentives for all kinds of special interests like the film industry and alternative energy; so clearly we understand that tax policy influences growth and investment. Government shouldn’t be in the business of deciding who gets special treatment with our money, picking winners and losers.

Some of my progressive friends will call this idea a race to the bottom and say that other countries would follow suit. I agree, I hope they do follow suit and eliminate corporate taxes. I believe in growth and if we reduce tax burdens and make taxes work fairly we will all benefit and governments will have the revenue they need. What governments should spend their tax revenue on is a separate argument for another column. Tax policy is complex and I haven’t answered all the problems here- but I know that we can make our system more equitable with simplicity.

Some Thoughts on the Re Election of President Obama

Republicans can and must make the moral case for free markets and limited government. Our ideas on balance are much better for all Americans including non whites and single women that vote overwhelmingly for Democrats.

Mitt,
You dodged a bullet- you and your family are better off. Thank-you for be willing to lead and take on the challenge. I think you ran a good campaign and you should ignore the Monday morning quarterbacks and hold your head high. You gave America a real choice and they chose the wrong path.

America,
You doubled down on Obama. Know that those of us who disagree will not compromise and not yield in our defense of liberty. We will continue to oppose on principle. If the President wants a legacy he must yield and work across the aisle. I will continue to make the case for free markets and free people.

Obama lost big among those of us who pay federal income tax, the vast majority of whom would not have had their income tax raised. They know that more taxes for wealthier Americans won’t make them better off. The numbers aren’t in but he will also surely lose among those who defend this country with their lives last time he lost he got 44%; this time it will probably be less.

Only 25% of the electorate identify with liberal. (35% conservative 40% independent/moderate)

Obama built his win on non whites who are much more socially conservative than Obama and in some ways more than Romney. Big city liberals are not enough to win the presidency- Obama won because minorities bought into his rhetoric and image and believe he empathizes more with them.