E.J. Dionne has a dreadful piece in today’s Washington Post. He argues, first, that we need to tax families earning more than $250,000 (the “wealthy,” for Dionne) more:

The simple truth is that the wealthy in the United States — the people who have made almost all the income gains in recent years — are undertaxed compared with everyone else.

Consider two reports from the Center on Budget and Policy Priorities. One, issued last month, highlighted findings from the Congressional Budget Office showing that “the gaps in after-tax income between the richest 1 percent of Americans and the middle and poorest fifths of the country more than tripled between 1979 and 2007.”

The other, from February, used Internal Revenue Service data to show that the effective federal income tax rate for the 400 taxpayers with the very highest incomes declined by nearly half in just over a decade, even as their pre-tax incomes have grown five times larger.

The study found that the top 400 households “paid 16.6 percent of their income in federal individual income taxes in 2007, down from 30 percent in 1995.” We are talking here about truly rich people. Using 2007 dollars, it took an adjusted gross income of at least $35 million to make the top 400 in 1992, and $139 million in 2007.

So, his reasoning for why households with income more than $250,000 per year should be taxed more is:

1. their wealth is growing quicker, so the government should take more of it to… what? “Equal the playing field?”
2. the government is only taking 16% of the top 400 households’ income, which is no where near $250,000, so we should increase tax rates on them.

His first argument reveals precisely what he (and many on the left) truly believe government is for. Government is a tool to be used to change and order society into their perfect model. Not equal opportunity—he wants to level outcome, as well. He wants to create equality of outcome by reducing how much one person has rather than increasing how much the other has. Shouldn’t we be focused on progressing so the less well-off are better, rather than making the well-off worse?

His second argument is specious. He says, because the top 400 individuals have an average tax rate of 16.6%, we should tax households with income over $250,000 at higher rates. He is justifying taxing households with $250,000 income per year with evidence for individuals with $138 million of income per year. Forget sleight-of-hand. It’s just idiocy.

But worse, Dionne ignores that individuals have an effective tax rate of 16.6% not because their tax bracket has too small of a rate, but because (1) much of that income is likely from capital gains, and thus taxed at 15% (a lower rate encourages investment), and (2) due to the maddeningly-complex nature of our income tax law.

Our tax law is riddled with exceptions and deductions which allow people to decrease their effective tax rate. Increasing their tax rate is like turning the water pressure up on a leaking hose: yeah, you’ll get more pressure, but it is a hell of a lot more efficient just to fix the leak. His complaint only highlights that our tax law must be eliminated and replaced with a much simpler system at a lower rate. Paul Ryan’s Roadmap for America has an excellent plan for doing just that.

Dionne wasn’t quite finished, though. He then argues that the Senate should be reformed because:

Does any other democracy have a powerful legislative branch as undemocratic as the U.S. Senate?

When our republic was created, the population ratio between the largest and smallest state was 13 to 1. Now, it’s 68 to 1. Because of the abuse of the filibuster, 41 senators representing less than 11 percent of the nation’s population can, in principle, block action supported by 59 senators representing more than 89 percent of our population. And you wonder why it’s so hard to get anything done in Washington?

The filibuster is absolutely being abused by Senate Republicans, but Dionne isn’t targeting the filibuster with his angst; he’s criticizing the Senate’s fundamental structure.

Congress was set up with two houses for a reason. The House was meant to represent the people directly, a true representative democratic body, with advantages to larger states. The Senate, however, was not; it was meant to represent the states on equal ground. Not the people. The states, where Rhode Island has just as much power as Virginia. Or New York.

We have already severely weakened this arrangement by allowing popular elections of senators, but if we based representation in the Senate on population just as we do the House, there would be no reason to have a bicameral legislative body. There would be no difference between the two.

Dionne’s agitation at the Senate’s anti-democratic structure points to his misunderstanding of what the U.S. was meant to be, and to some extent still is. The U.S. was never intended to be a democratic nation. It was intended to be a republic, where democracy is utilized to preserve the rights of the people and welfare of the nation. “Democracy” in the U.S. is not an ideal; it is a means, a tool, toward achieving greater ideals.

Rule by the people is a good tool, but it must be utilized properly. Providing no check against larger states abusing smaller states threatens our union. This must not be forgotten.

The financial regulation bill exempts the SEC from public disclosure:

The law, signed last week by President Obama, exempts the SEC from disclosing records or information derived from “surveillance, risk assessments, or other regulatory and oversight activities.” Given that the SEC is a regulatory body, the provision covers almost every action by the agency, lawyers say. Congress and federal agencies can request information, but the public cannot.

Change we can believe in.

If I didn’t know any better, it’d all make me believe Obama doesn’t really believe in transparency.

Marc Eisner on the CBO’s long-term budget projections:

Under this more realistic scenario, debt would hit 87 percent of GDP by 2020. “After that, the growing imbalance between revenues and noninterest spending,  combined with spiraling interest payments, would swiftly push debt to unsustainable levels. Debt as a share of GDP would exceed its historical peak of 109 percent by 2025 and would reach 185 percent in 2035.”
…
Indeed, under this scenario, in 75 years, revenues would reach 19.5 percent of GDP, expenditures would constitute 28.2 percent of GDP, leaving a fiscal gap of 8.7 percent of GDP (Table 1-3, p. 15).
…

• Large budget deficits would reduce national saving, leading to higher interest rates, more borrowing from abroad, and less domestic investment—which in turn would lower income growth in the United States.
• Growing debt would also reduce lawmakers’ ability to respond to economic downturns and other challenges.
• Over time, higher debt would increase the probability of a fiscal crisis in which investors would lose confidence in the government’s ability to manage its budget, and the government would be forced to pay much more to borrow money.

But Paul Krugman says high debt levels isn’t an issue and we should add another trillion dollar stimulus on top of our current spending.

In defending their healthcare “reform” bill passed in March, the Obama administration is arguing the individual mandate is constitutional because it is a tax:

In a brief defending the law, the Justice Department says the requirement for people to carry insurance or pay the penalty is “a valid exercise” of Congress’s power to impose taxes.

Congress can use its taxing power “even for purposes that would exceed its powers under other provisions” of the Constitution, the department said. For more than a century, it added, the Supreme Court has held that Congress can tax activities that it could not reach by using its power to regulate commerce.

I’ll just get the tragically amusing part of this in real quick, because it isn’t what I want to focus on. During the push for their bill, Obama insisted the mandate wasn’t a tax, because it would amount to a tax increase and thus would violate his pledge not to raise taxes on individuals with less than $250,000 of income. So he lied to get his bill passed. I’m sure you’re shocked.

But what concerns me more about this story is the final line of the above quoted section. Congress has the power to levy taxes to provide for the general welfare of the nation, and the article goes on to say that in the Supreme Court’s decision on Social Security, they held that it is Congress’s duty to decide what is for the general welfare, not the courts’. Thus, the Obama administration argues, the individual mandate is constitutional because Congress has decided this tax is toward the general welfare of the nation.

Think about that for a second. Under the Supreme Court’s 1937 decision, Congress is free to levy a tax on almost anything it wants—provided they believe it to be in the “general welfare” of the nation—and there’s no check against it. There’s no court that can overturn it, no legal test to decide whether something is toward the general welfare of the nation, nothing. The court completely abdicated its power to Congress.¹

A tax is an incredibly powerful tool in influencing societal behavior. If the individual mandate, which requires every American to purchase health insurance or be fined, is constitutional, then why can’t Congress tax anyone who doesn’t donate x percentage of their income to charity each year? Why can’t Congress tax companies without unionized labor? Why can’t Congress tax music or filmmakers whose work is deemed indecent or obscene, to discourage their polluting of society?

A “tax” is not just a means for government to raise revenue. The power to tax is also a bludgeoning tool to make certain practices prohibitively expensive for people to do so they are less likely to do it. Basically, it’s a tool for government to control individual behavior. Using the power of taxation in this way is terribly contradictory to the spirit of the Constitution and the intent of our nation: to allow people to live their lives how they choose, without a government dictating to them. It is an end-run around the Constitution, which was created to limit the federal government’s power to very specifically defined powers. As interpreted, and as used by the Obama administration to justify their individual mandate, the power of taxation becomes an arbitrary power for Congress to control society however it pleases.

This should be quite disturbing for all Americans, including people who support the Democrats’ healthcare “reform.” In this case, you might believe being forced to purchase health insurance is a small price to pay for covering the medical needs of more Americans. But please remember, you may not like some of the controlling and authoritarian laws this produces in the future. Your guy will not always be in office. This marks the road toward authoritarianism, and it is a trail of tears no matter what your party.

1. Please note that the Supreme Court could, technically, overturn this decision. But under current case-law, this holds true. ↩

Senator Charles Schumer wrote an open letter to Apple regarding the iPhone 4 antenna issue:

“I ask that Apple provide iPhone 4 customers with a clearly written explanation of the cause of the reception problem and make a public commitment to remedy it free-of-charge,” Schumer writes in the letter, obtained by CNN. “The solutions offered to date by Apple for dealing with the so-called ‘death grip’ malfunction – such as holding the device differently, or buying a cover for it – seem to be insufficient.”

What a wonderful use of our government’s time. This issue certainly ranks up there with the recession, the deficit and the Afghan war. I’m just glad someone finally recognized this is something deserving of response from a senator.

Here is Donald Berwick’s ode to the NHS. Some have suggested that quotes used from it have been used unfairly. It’s rather clear they haven’t.

Berwick believes that politics provides for more accountability than markets, and is more just and honorable. Here’s how he describes how the NHS provides accountability:

Ultimately, the buck stops in the voting booth. You place the politicians between the public served and the people serving them. That is why Tony Blair commissioned new investment and modernization in the NHS when he took office, it is why government has repeatedly modified policies in a search for traction, and it is why your new government chartered the report by Lord Darzi. Government action on the NHS is not mere restlessness or recreation; it is accountability at work through the maddening, majestic machinery of politics.

And how he characterizes the market:

You could have obscured – obliterated – accountability, or left it to the invisible hand of the market, instead of holding your politicians ultimately accountable for getting the NHS sorted. You could have let an unaccountable system play out in the darkness of private enterprise instead of accepting that a politically accountable system must act in the harsh and, admittedly, sometimes unfair, daylight of the press, public debate, and political campaigning.

And:

In the United States, our care is in fragments. Providers of care, whether for-profit or not-for-profit, are entrepreneurs. Each seeks to increase his share of the pie, at the expense of others.

And:

I find little evidence anywhere that market forces, bluntly used, that is, consumer choice among an array of products with competitors’ fighting it out, leads to the health care system you want and need. In the US, competition has become toxic; it is a major reason for our duplicative, supply-driven, fragmented care system. Trust transparency; trust the wisdom of the informed public; but, do not trust market forces to give you the system you need. I favor total transparency, strong managerial skills, and accountability for improvement. I favor expanding choices. But, I cannot believe that the individual health care consumer can enforce through choice the proper configurations of a system as massive and complex as health care. That is for leaders to do.

So: the political system is “transparent,” “majestic,” accountable, and somehow wonderfully competent, while the market is darkness and entrepreneurs are blood-suckers looking to exploit everyone else in a zero-sum game.

This is the man Obama appointed to run Medicare and Medicaid without so much as a single Senate hearing. Ironically, a man who praises the government’s transparency was appointed to office without a single opportunity for the public, and its representatives, to inspect his credentials and philosophy. Twisting the irony dial even closer to eleven—the man who appointed him, Barack Obama, won his election promising a new era of transparency.

I don’t think that’s irony. I don’t for a second believe that Berwick or Obama have any interest in transparency, except when it’s convenient for them. They are interested in controlling society, shaping it in their mold, and forcing every individual to bend to their will, because they believe not only that they know better than everyone else, but that they have the right to force their views onto us.

His nomination is no accident. This is what this administration believes in and ultimately wants to bring to America. And when a little Senate hearing, a little public scrutiny, stands in the way of their agenda, they’ll sidestep it. The ends justify the means.

Ezra Klein thinks appointing Don Berwick via a recess appointment is justified because Republicans would have “demonized” him:

In other words, it was pretty clear how this was going to go: Republicans were going to use Berwick and the NHS as a way to hammer Obama and the Affordable Care Act. Then, as has happened to so many bills and nominees, they were going to filibuster him. It is hard for me to even believe that anyone considers these predictions in doubt. As such, the choice for the administration was between recess-appointing Berwick now, before Republicans damaged and blocked him, or later. If they went with later, it’s possible they’d have to find another nominee, as Berwick would’ve been damaged, and though Troy might not have criticized them for a recess appointment, others would have gone to town on them for appointing this rationing-friendly maniac who couldn’t even survive a Senate hearing.

By which “demonize” Klein means “use his own words to criticize him.” The horror.

So, his argument is bypassing the Senate altogether and using a recess appointment is justified because Berwick’s own words would have damaged him?

Good one there, Ezra. Perhaps we should do away with all Senate confirmations. All of that oversight and public criticism is just too inconvenient for the President.

Keith Hennessey on the unemployment benefits debate:

There is overwhelming bipartisan supermajority support for a UI extension if it is offset.  Speaker Pelosi and Leader Reid chose not to follow this path, presumably because it would split their side of the aisle.  They instead chose a partisan route that resulted in partisan stalemate, and we are now in the midst of a traditional blame game.  Do not be fooled into thinking this is a debate about whether to extend UI benefits.  It is instead a debate about whether that increased spending should be offset by spending cuts or instead increase the deficit.

As usual, Hennessey’s overview is excellent. Absolutely worth your time.

Megan McArdle:

Wading through the online debates, I note that opinions on stimulus are nearly 100% correlated with the composition of that stimulus, and the opinionator’s prior view of that activity.  So when Democrats are in power and stimulus is mostly spending, liberals think that the stimulus is an issue of fierce moral urgency stymied by venal greed and rank idiocy, while conservatives develop deep qualms about budget deficits.  When Republicans are in power, and stimulus consists mostly of tax cuts, Democrats get all vaporish about deficits and the income deficit, while Republicans suddenly realize that the normal rules don’t apply in an emergency.  When out of power, both sides will grudgingly concede that some small amount of highly temporary stimulus might be all right, but note (correctly) that the other side seems to be trying to make permanent as much of this “stimulus” as possible.

For me, then, this mostly ends up as a proxy war over the level of government spending, a war I’d rather fight honestly on value grounds rather than attempting to disguise my preferences with a shoddy veneer of “scientific” logic. 

Massachusetts implemented an almost identical healthcare system to what Democrats passed this spring. Their “reform” has not only failed to reduce healthcare prices in Massachusetts, but has made it more expensive. Predictably, the state implemented price controls on insurance providers, which promptly led to $116 million in losses for the top five state insurers. Three are under administrative oversight because there are concerns they will fail.

So, what is the state’s solution? More control. Not only more control, actually, but taking absolute control of the medical industry in Massachusetts:

Naturally, Mr. Patrick wants to export the rate review beyond the insurers to hospitals, physician groups and specialty providers—presumably to set medical prices as well as insurance prices. Last month, his administration also announced it would use the existing state “determination of need” process to restrict the diffusion of expensive medical technologies like MRI machines and linear accelerator radiation therapy.

Meanwhile, Richard Moore, a state senator from Uxbridge and an architect of the 2006 plan, has introduced a new bill that will make physician participation in government health programs a condition of medical licensure. This would essentially convert all Massachusetts doctors into public employees.

This isn’t, and never was, about reducing healthcare costs so more people can afford it. It is about government assuming control of a vital part of our lives. That’s our future.

Stanford professor and entrepreneur Paul Romer has a fascinating idea for how to turn developing nations into developed nations: charter cities. His model for these cities is British-controlled Hong Kong. The host developing nation will lease land to a developed country which will govern it, providing stable, business-friendly rules.

Sebastian Mallaby has a fantastic piece in the Atlantic on Romer’s idea and his push for it. In the introduction, Mallaby describes Lübeck, a Germanic town built by Henry the Lion into a prosperous city in the 12th century:

The stultifying feudal hierarchy was cast aside; an autonomous council of local burgesses would govern Lübeck. Onerous taxes and trade restrictions were ruled out; merchants who settled in Lübeck would be exempt from duties and customs throughout Henry the Lion’s lands, which stretched south as far as Bavaria. The residents of Lübeck were promised fair treatment before the law and an independent mint that would shelter them from confiscatory inflation. With this bill of rights in place, Henry dispatched messengers to Russia, Denmark, Norway, and Sweden. Merchants who liked the sound of his charter were invited to migrate to Lübeck.

This is an apt description of what Romer hopes to build. This concept assumes that the main limitation on growth in developing nations isn’t natural resources or human capital, but capricious, inconsistent and controlling governing. Businesses cannot develop because the government suffocates them, or fits of business-friendly rules are quickly scrapped when political winds change.

That’s precisely right and his idea is intriguing. It raises a whole host of issues which Mallaby nicely discusses and I may write about them, but this makes something else clear: it isn’t the rules that is the important part. It’s the environment they create.

Simple, limited and consistent regulation allows for a clean slate. There’s no mental and physical overhead dedicated toward understanding arcane and complicated rules, and arbitrary political dealings, to do business and create things—you just do it. That’s what America was when Europeans began emigrating to the continent—a land where there were no priests, lords or kings to please, nor limiting vestiges of your reputation. It was a dangerous place to live, but America promised a new life with unlimited opportunity. There were no artificial constraints.

The east coast soon developed, with the rules and controls that come along with it. But the west always beckoned, that same feeling of unlimited opportunity.

It’s that spirit that is important for development. It struck me while reading this that it isn’t just the developing world that needs this feeling. We need it again as well.

In 1900, government spending accounted for 20 percent of total GDP; in 2010, it is almost 45 percent. Our income tax law is mind-numbingly complex. Government has assumed responsibility for not only controlling the economy’s general tone, but specific industries, like the housing market, and guaranteeing the safety of certain companies that are too important to the nation to fail. The government not only has its finger on the economy’s pulse, but around its heart and neck. Washington, D.C. is the new arbiter of economic success.

James Madison’s great genius in construction the Constitution was not just in its separation of powers, but reserving wide power for the states. By allowing the states to function freely (within the context of the federal government’s reserved powers), states could choose their own political and economic path. By allowing states to manage themselves how they choose, they could experiment without affecting the entire nation.

That’s no longer true and hasn’t been for decades. As the federal government becomes the dominant body in society, it makes what was once flexible and agile—the many states—into something slow and rigid. The federal government cannot experiment because failure would affect the entire nation. But worse, this process has shifted societal responsibility from the local and private spheres into the national and public spheres. Poverty is no longer our individual responsibility, for us to work with friends in our communities to alleviate, but a national one. Depending on oil for powering our economy isn’t something for individuals to solve by forming new ventures that succeed based on economic viability, but a problem for Congress to solve by choosing what alternative form of energy, and existing companies, will succeed. Nothing is my problem anymore. It’s the government’s.

That’s eliminating personal responsibility. When the government is responsible for everything, there’s no dynamism, no motivation to create something for ourselves.

We need a new frontier.

Ben Franklin was apparently asked after the Constitutional convention what government we have. Franklin said:

A Republic, if you can keep it.

Insightful:

I would compare those who advocate such outright borrowing without committing to credibly repay at maturity to people who fall for teaser mortgage rates and are rather negatively surprised to see the rate adjust later. It is interesting though that there seems to be a large positive correlation between people who advocate government borrowing because rates are low NOW, and those who call for protecting consumers against reckless lenders who tease them with a low temporary rate. To quote a famous Canadian singer, Isn’t it ironic?

While serving the Clinton administration, Elana Kagan apparently pushed the American College of Obstetricians and Gynecologists (ACOG) to change their report on partial-birth abortion because their original statement that in the “vast majority of cases” the procedure isn’t necessary to protect the woman’s health:

So Kagan set about solving the problem. Her notes, produced by the White House to the Senate Judiciary Committee, show that she herself drafted the critical language hedging ACOG’s position. On a document [PDF] captioned “Suggested Options” — which she apparently faxed to the legislative director at ACOG — Kagan proposed that ACOG include the following language: “An intact D&X [the medical term for the procedure], however, may be the best or most appropriate procedure in a particular circumstance to save the life or preserve the health of a woman.”

Kagan’s language was copied verbatim by the ACOG executive board into its final statement, where it then became one of the greatest evidentiary hurdles faced by Justice Department lawyers (of whom I was one) in defending the federal ban.

Change we can believe in.

One note: the article I link to is written by a Bush administration lawyer, but the article links to the relevant memos Kagan wrote. The last memo shows she apparently intervened to change a politically-inconvenient conclusion by the ACOG.

John Taylor:

The low interest rates added fuel to the housing boom, which in turn led to risk taking in housing finance and eventually a sharp increase in delinquencies, foreclosures, and the deterioration of the balance sheets of many financial institutions as toxic assets grew rapidly. To test the connection between the low interest rates and the housing boom I built a simple model relating the federal funds rate to housing construction. My research showed that a higher federal funds rate would have avoided much of the boom and bust.

And:

Others might say that my research ignores mistakes in the private sector. Of course there were market problems of various sorts. Mortgages were originated without sufficient documentation or with overly optimistic underwriting assumptions, and then sold off in complex derivative securities which credit rating agencies rated too highly. Individuals and institutions took highly risky positions either through a lack of diversification or excessive leverage ratios. But such mistakes do not normally become systemic, and in my view, the government actions tended to convert non-systemic mistakes into systemic risks.

The link is to a PDF, but if you have any interest in politics or the economy at all, you should read it. And then read it again.

Placing the Federal Reserve’s awesome power in the hands of men is dangerous no matter how it is managed, but we would be in a much better position if the Fed followed Taylor’s recommendations.