In 1960 the U.S. was at the acme of its economic and military power. We had saved the world from Hitler, rebuilt Europe, and developed the strongest, most prosperous economy on earth. In that year we elected a young, charismatic President who inaugurated his term in office with a challenge to his countrymen, "Ask not what your country can do for you; ask what you can do for your country". Much has changed in our nation since that blustery day in January 60 years ago when JFK exhorted us to be patriotic and self-sacrificing. The federal budget has ballooned from 97 billion to 4.8 trillion. For those of you whose eyes glaze over contemplating all those zeroes, this means the government is 50 times larger than just six decades ago. During that same period inflation only increased 7 times. So in real dollar terms we have grown the government to be almost 7 times larger than it was when President Kennedy challenged us to rely less on government and more on ourselves.
Today all we ask is "what can the country do for me?" It has become the national mantra. The poor want welfare checks and food stamps, farmers want price supports and subsidies, manufacturers want protective tariffs and a weaker dollar, unions demand taxes on outsourcing, corporations complain they need tax relief and relaxed regulations, and the rich lobby for a thousand different tax breaks. Everyone complains about the insidious corruption of Congress and how our political leaders are spineless and consistently choose their selfish re-election chances over the welfare of the nation. If the problem of selfishness and corruption was contained within the city limits of Washington D.C. then it would be troubling but manageable. Sadly, though, the contagion has now spread nationwide. To see it firsthand, don't bother reading your morning paper, simply look in a mirror. To quote the famous Pogo comic strip, we have met the enemy, and it is us.
As the special interests have seized control of our government, virtually every one of us has responded by joining or contributing to one or more groups lobbying on our behalf to grab our own personal share of the federal pie. A corrupt people following corrupt leaders will not lead the U.S. back to greatness. Constantly asking what our country can do for us not only turns President Kennedy's advice on its head, it highlights our moral, political, social, and economic decline. It took nearly 200 years to build a free, moral, and prosperous nation. But we have dismantled our freedom, morality, and prosperity is just six short decades. How could we have gone so wrong so fast?
The era of special interest government began in the 1960s with President Johnson's war on poverty. The Democrats have prided themselves on representing the poor and the downtrodden. When they attained an overwhelming majority in both houses of Congress in 1964, they pushed through legislation like Welfare and Medicaid to help the poor. These well-intentioned programs were extremely costly and so taxes were raised substantially to pay for them. The top income tax rate actually was above 70 per cent throughout the 60s and 70s. It had even been higher in the 40s and 50s but only pertained to the exceedingly rich back then. The inflation that characterized the 1960s and 1970s moved more and more Americans into those very high tax brackets. The Republicans responded by passing an armada of tax shelters, credits, deductions, waivers, and allowances as a defense against the inflated tax rates.
This class warfare between the rich and poor, between the Republicans and the Democrats has continued unabated now for sixty years. The Democrats spend our tax dollars to help their special interests, the poor, the unions, and illegal aliens. In turn, the Republicans spend our money and create tax incentives to favor their special interests, the rich, the military, and the corporations. As the government has grown exponentially over the past half-century, everyone and his brother have appealed to either the Democrats or the Republicans to receive special treatment by the government. We all seem to need help and are unable to function on our own. We are all "special". How can a country that professes to believe that all men are created equal allow special treatment to become the rule rather than the exception? We have become like a bunch of small children each pleading his case with Mom for why he should get a slightly larger slice of pie for dessert. The government acts like a wacky, dysfunctional mother and gives in to each such entreaty by increasing the petitioner's allocation, thereby triggering an endless series of similar requests from the other children. Whatever happened to fairness, to treating everyone the same?
We opened this Pandora's box back in 1913 when we passed the income tax. Prior to that sea change in taxation the country paid for its programs with usage fees. For instance, if Congress wanted to build some highways, they would pass a gasoline tax so the people with cars who used the highways would be the ones to pay for them. This was a simple and fair method of paying for government. Broad based taxation that started with the income tax and continued with sales taxes severed the link between a government service and its cost. For the first time a citizen or group of citizens could receive assistance from the government and get someone else to pay for it. What began as a small additional tax for just the very rich to pay a century ago has grown into a leviathan that dominates government revenue collection. The ability to receive a benefit without having to pay for it has seduced us all. It has spawned a thousand different lobbies and political action committees. It has sharply divided us as a nation.
Today our government has become 100 per cent political. There are no more statesmen, no more patriots. It is every man for himself and his all important special interest group. Government spending is political and so is the taxation to pay for it. Actually, it has now become politically untenable to raise taxes, so now we finance our government by borrowing or printing the money. As the electoral public we are equally unwilling to give up the spending or to raise the taxes. Ironically, we could easily afford a government that only provides the essential functions that serve all of us, like defense and the court system. The budget could be balanced and even yield a surplus without raising taxes, but we are addicts who can not give up the special spending, the freebies.
Throughout history every society has had to decide how to help the truly helpless. Most countries centuries ago lacked the wealth to do much about the problem. Historically, the people who have been really unable to help themselves usually numbered 1 or 2 per cent of the population. Any nation of just average wealth today can manage to help such a small segment of its citizenry. Special federal programs and tax breaks in the U.S. have gotten so out of hand that now more than half of our citizens receive direct or indirect assistance from the federal government. Are we to believe that more than half the country is truly helpless? Can we blame the poor suckers in the minority who are not receiving any special government aid for feeling that they are being cheated?
The United States of America was founded by strong men and strong women. There were few if any "helpless" among them. Our forebears endured near starvation at Valley Forge, survived the bloody Civil War, tamed the West, set the standard for hard work and innovation during the industrial revolution, and then won both of the World Wars. We have always been a nation of hard-working, rugged individualists who are independent, self-reliant, and willing to stand up to any challenge. So why have we turned our backs on our proud heritage and so willingly relinquished our freedom and responsibility, allowing the government to make all the important decisions, control our money and our livelihoods, to educate our children, care for the poor, and waste our money and our lives fighting ill-advised wars around the globe. Once we the people were the government, but now the government controls us completely and the special interests control the government.
We are sinking in this moral quicksand of special people, special groups, and their special needs. Remember the George Orwell classic, "Animal Farm", in which pigs created a barnyard utopia in which "all animals are created equal"? After the porcine establishment had been operating for a while, the pigs in charge decided they were entitled to a little extra because they held the reins of power. Consequently, they amended the farm's slogan to "all animals are created equal, but some animals are more equal than others". Orwell meant his sardonic allegory to refer to the communist Soviet Union. Sadly, it applies only too well to the U.S. today.
Americans have come to assume that all wealth in the country is shared, that it belongs to all of us. Of course this is a moral fallacy. The money belongs to the people who earn it, but the corruption has possessed us so we ignore such simple truths. We band together in strong lobby groups to persuade our representatives and Senators to grab us a big chunk of that cash. The lobbyists have been frightfully successful in that effort and by legislating thousands of special spending programs and tax breaks they have inflated the size of the government 7-fold in the past sixty years. All that money was not plucked from a money tree; it was ripped from our individual and corporate hands reducing investment, research, and expansion of the American economy. While we have been busy arguing over who gets what from the federal pig trough, to mix a metaphor, we have been killing the goose that lays the golden eggs. This parlor game of stealing from each other through the federal treasury has transformed the U.S. from the richest nation to the most indebted in just 60 short years.
The only government spending that is moral is for services rendered to all citizens like national defense, the courts, the police and fire departments, and the post office. Any services that are provided only to a segment of the population should be paid by those citizens receiving the benefit. It bears repeating that taxation is coercive. The government collects taxes from us by threat of imprisonment and fines. If we paid taxes through donations as is the case with charitable organizations, then we could monitor their performance and choose to increase, decrease, or terminate our regular donations. Since freedom of choice is not present, the government is morally bound to spend the tax revenue in services to the taxpayer. To extract money from a citizen by force and then use that money to provide services or tax breaks to another citizen is theft. Politicians prefer euphemisms like transfer payments or redistribution of income, but the correct term is theft.
The rich and the poor have become quite proficient at stealing from their countrymen through the federal treasury. The politicians tell us this is proper and moral because the process is democratic. The fallacy of this argument is clear by following it to its logical extreme. What if the poor become a powerful voting majority and get Democrats to pass free health insurance, then free gasoline, then free food, then free rent for all poor people and force the wealthy and middle class to pay the bill? Conversely, what if the rich become so powerful in manipulating Congress that they pass a series of tax laws that enable them to not pay any taxes at all each year? Would it not be obvious to all of us that we were being robbed in both cases?
All citizens should receive the same services from the federal government and they should share equally in paying the cost of those services. Any special services provided only for certain groups of citizens are illegitimate and should be jettisoned. Such groups have the right to form private organizations to provide the services they need, but they have no right to pass the bill to the rest of us for payment. Likewise, any special tax advantages given only to some citizens and not all are also illegitimate and must be repealed. Both are the result of political special interest lobbying and constitute theft from the citizens not receiving the special benefits. If the spending and tax breaks are eliminated simultaneously, then everyone will make their own personal sacrifice at the same time. It is true that the sacrifice will be uneven as some will be hurt financially more than others. However, the citizens that are hurt the most are also the ones who have benefited the most during the past sixty years of ever-increasing corruption.
To unite the country again we must have a government that is fair. If we believe that all men are created equal, then our government must treat each of us equally. All the special interest spending and tax breaks must go. The result will be a federal government that only provides universal services that we each receive and that we all approve of as essential.
Similarly we each need to share equally in the burden of paying for government. That does not mean we all pay the same amount in taxes. The rich are more able to pay and they have more to lose if the government fails. Consequently, they should pay more, but how much more? We have been arguing about the tax rates ever since the income tax was created 100 years ago. What is needed is a tax code that treats all of us the same.
The current tax code exempts millions of citizens and corporations because they fail to make a minimum amount of income. They benefit from government, as we all do, yet they are not required to pay for it. At the other end of the spectrum, the wealthy citizens and companies have convinced Congress to include a myriad of exemptions, deductions, allowances, and tax shelters to dramatically lower their tax bills. Not only does this drastically lower tax revenues each year, but it also damages the economy because vital capital is diverted to losing investments rather then being deployed to finance profitable enterprises that create wealth and millions of new jobs. The fair way to pay for government is 5 or 6 graduated low rates that are the same for all of us, individuals, partnerships, and corporations. Low, graduated rates with no deductions, exemptions, or other tax dodges will raise enough money to pay for the common services that remain. If it does not raise enough revenue, then the new tax code will automatically adjust all tax rates so the budget balances next year.
What types of income would be assessed the new lower federal tax rates? The answer, the only fair one, is all types of income. If you work for a wage or salary, then you pay the tax. If you make your money through investments - stocks, bonds, real estate, gold - it does not matter, you pay the tax. If you own rental real estate and rent out apartments for a profit, you pay the tax, and finally, if you run a business, a sloe proprietorship or parnership, or a corporation, then you pay the tax. Everyone gets treated the same. No deductions, exemptions, allowances, credits or other dodges for anyone!
Likewise, we all save and invest for our retirement by paying into Social Security, 401k plans, and pension plans at work. Self-employed citizens save and invest in IRA plans. We all invest for retirement in a variety of plans. It is important that the tax-free nature of these plans be preserved so we all can look forward to a financially secure retirement. Please note, however, that social security income once we retire should be taxed. For most seniors who do not have other income sources, they will pay the lowest rate of 2 per cent. This may seem a hardship but it is important that EVERYONE pay taxes each year. If we make an exception for seniors, then the working poor will want to be an exception and investors and businessmen will argue why they should be exempted. Before you know it, we will have 47% not paying taxes again. This push for tax exceptions is what produced our behemoth government and our insane national debt in the first place!
Ironically, investors should come out way ahead when all their tax shelters and dodges are removed from the tax code. They will insist on investing in companies and projects that make money. They will pay a maximum of 25% each year and plow the 75+% profit back into the investment and make more money. This is what investors did in this country from 1776 until 1913, when our growth and prosperity was the envy of the world. Letting investors make money and pay a small tax will grow our economy much faster than the current approach that emphasizes money-losing tax shelters and deferred income.
We have deluded ourselves thinking that we come out ahead playing the special interest tax game. Most taxpayers will pay much less with the simple lower tax rates and the new 1040 can be completed in an hour instead of 2 days with Turbo Tax or an accountant. A few corporations will pay substantially more in taxes, but they have been cheating the rest of us for decades, hiding behind their tax dodges. If they switch strategy and deploy their profits toward money making projects instead of money-losing tax shelters, then they will come out way ahead in the long run and so will our economy.
No one has the right to expect someone else to pay his bills for him. When you go to the grocery store, you fill up the cart with the items your family needs and then head for the cashier to pay. Do you tell the cashier to get the guy behind you in line to pay for your groceries because he makes more money than you do? Does the cashier insist that you pay for your cart and for the next guy's cart because he is poorer than you? Of course not, you pay for what you purchase, no more, no less. Why should government be any different? You should only pay for the services you receive and no one else should be required to pay for what you receive. It was politics that divided us as a nation and seduced us into abandoning reason and fairness. It is time to recognize how crucially important reason and fairness are to our moral and financial well-being. It is the divisive politics that we should abandon.
There is only one way to restore our heritage and to again truly believe that all men are created equal in America. We must cut all special interest spending and eliminate all the special interest tax breaks. The government should spend the same amount of money on each citizen, providing exactly the same services for all. Conversely, each citizen is morally bound to make the same financial sacrifice to pay the cost of government. These two measures, a corruption-free budget and a complete overhaul of the federal tax code will have to be implemented simultaneously. We must unite and take our medicine together, each sacrificing our personal short-term self-interest for the long-term health and prosperity we all will enjoy with a smaller, fairer government and a larger and rapidly growing economy.
These measures can not be done halfway. We can expect every special interest lobby in the country to exert withering political pressure to defeat this new fair tax plan. Each will argue that their constituents can not survive without government money and an exception must be made. Give into one such group and one "vital" government benefit and the thousands of other groups will not rest until they reclaim their special treatment as well. We have been down this road before. In 1986 Senator Bill Bradley introduced a bill to eliminate all tax credits and deductions to simplify the tax code and make it fair for all. The bill received a great deal of favorable press and hopes were raised nationwide that Congress would finally do the right thing. The sticking point turned out to be the mortgage deduction that more than 60 per cent of the country depended on for protection from the taxman. That deduction was just too popular and Congress would not vote to eliminate it. The bill was passed with that deduction and several others still intact. Within a decade the lobbyists successfully persuaded Congress to restore almost every credit and deduction that had been removed and added thousands more to our tax code.
If we are to do this right, then it must be all or nothing. We can not leave any credit or deduction in the tax code and we must cut all the special interest spending. The political pressures must be resisted completely. Once the lobbyists see that no exceptions will be allowed, then they will try a different tack. They will argue that such a radical shift in government spending and taxation will be too disruptive and, therefore, should be fazed in over a period of years. On the surface this objection will seem reasonable, but it is really a Trojan horse. The additional time will be used by lobbyists and politicians to make deals and persuade opinion makers that a few very important tax breaks and spending programs must be preserved. If we fall for this ruse of phasing in a fair and ethical government, then the effort will suffer the same sad fate as Bill Bradley's tax bill. All the corruption will come roaring back to life, tempting us down that same road to moral decline, political division, and financial ruin.
The current federal tax code is some 30 volumes long in small print and yielding even smaller comprehension by the average American taxpayer. Lawyers, lobbyists, and accountants are largely responsible for writing our long, involved, and unfair tax code. President Carter described our Income Tax as a disgrace to the human race and that was over 40 years ago when the code was much shorter and less incomprehensible. This embarrassing and verbose monument to political self-interest ought to be burned on the White House lawn. It should be replaced with a five or ten page document that simply specifies that each taxpayer declare all his income and pay the new lower rates. In the future we will not have to pay accountants hundreds of dollars to do our taxes or spend days filling out those abstruse forms by ourselves. The whole process should not take more than 1 hour for most taxpayers.
Eliminating all the special interest tax breaks will profoundly affect how Americans spend, save, and invest their money. In an unfettered free market, capital is normally deployed to achieve maximum value to its owner. For instance, we wait for a sale to buy new clothes and we invest in a company's stock because their growth prospects are bright and we expect to turn a profit. The thousands of tax dodges and shelters that that have been developed through the years motivate us to do just the opposite. We invest in financial instruments designed to lose money! The strategy is to use such losses to reduce tax on our profits. The hope is that some day these losers will turn into winners. Of course if that happens, then the investor will have to find more losers to offset the winners to reduce taxes again. This is a grossly inefficient way to deploy capital in a free market economy. As a nation we want maximum investment in the winners, not the losers. That is how great wealth is created that benefits all of us by growing the economy. Eliminating the tax breaks will restore our normal capitalist motives and our money will start working for us again, rather than against us.
It is worth noting that the American government and economy ran like a well-oiled machine from 1789 to 1913 relying on moderation in both spending and taxation. With the exception of the Civil War, the country paid its bills when due and avoided high levels of debt. With the deplorable exception of slavery, all citizens were treated equally and fairly. There was no inflation during that 124 year period and unemployment was so low as to be negligible. The economy grew at a rapid pace on average and although we experienced three bad depressions, they were all cured in 4-6 years because the government did not intervene, but instead relied on capitalism to self-correct as it always does as low prices attracted new investors.
During these glory years America was truly a free country. Its citizens were hearty, self-reliant, and fearless. As a nation we met every challenge and overcame every obstacle in our way. We the people, not the government, tamed the west. The American people, acting individually and in corporations, grew the economy from a string of struggling colonies to the strongest colossus of economic power in the world. The government did not do that, we the people did that!
It took 170 years of hard work and determination to build the greatest economy in the world, but only 60 quick years to demolish it. We stopped believing in ourselves and instead placed all our trust in government to solve our problems, make our decisions, and to control more and more of the economy. We were not able to grow the government by 7 times by plucking the money from a money tree. All those trillions of dollars came out of the economy; they came out of our wallets and bank accounts. That money could have been used to invest in new products, new technologies, expand into new markets, fund vital research, and continue fueling that spectacular capitalist engine that was making all of us more prosperous. Instead the money was diverted to the greedy, corrupt hands of a thousand special interest groups who preferred handouts and bailouts rather than hard work and competition. Thomas Jefferson warned us that democracy will cease to exist when you take away from those who are willing to work and give to those who would not. It was also our greatest political thinker who reminded us repeatedly that most bad government results from too much government.