In “No Taxation Without Ramifications“, Marie Leone notes that with Japan’s planned 5% reduction in corporate tax rates, the United States will have the dubious distinction of having the highest corporate tax rates in the world. While our federal government is contemplating tax rate cuts, the divided nature of political control in Washington D.C. will ensure that cuts in tax rates are net-neutral to the government, likely by eliminating tax credits or other “loopholes.”

Q: Why are our tax rates so high? A: They have to be.

Difficult to admit, but we created it.

Let’s imagine for a minute that the government in Washington D.C. was divorced from the truly domestic matters of the lives of Americans; and that, consistent with its intended purpose and founding charter, it focused on strictly defined national issues best addressed by a national government. Taxation would be radically different than it is today. States, or even “smaller” units of government, would have the dominant interaction with citizens, and would be the dominant taxers. National matters, like war, would be addressed as they have been in the past (think War Bonds in World War II). Citizens would have more attachment to their entire form of government at all levels because their entire form of government at all levels would be more respectful of them. There would be a right ordering of that relationship – government serving the people.

High levels of taxation result in discouraging certain behaviors. As a society, we tax cigarettes, alcohol, and gasoline, among other things, because we want to discourage their use or consumption. When we have the highest tax rates in the world, we discourage corporate investment, job creation, and innovation. Discouraging these behaviors and activities is counterproductive and damaging in the long-term.

In an earlier post entitled “Cause and Effect“, we offered the following prescription for our tax/entitlement/government problems:

The work of this organization involves re-igniting that self-government gene. We do it by focusing on these principles and by getting people active in local government. Citizens have a right fundamentally to decide how much external government they want. The best way to hold all units of government accountable is to begin by holding some units of government accountable; and the best way to begin holding some units accountable is to hold a single unit of government accountable. The journey of a thousand miles does indeed begin with a single step.

In the coming year, we’re going to begin touting the stories of our activists who are working every day to hold government accountable. If you, or someone you know wants to get involved, or has such a story, drop me a line and share it.

Old Glory, the symbol of our Union

The really interesting part of the night will come when Rep. Paul Ryan of Wisconsin delivers the Republican Party counter. I thought today a little bit about what Rep. Ryan might say, and perhaps what really needs to be said to Americans. The two things probably won’t be the same. I’m no speechwriter, but if I had the opportunity to address Americans, and share with them what I think the state of the Union really is, here’s what I’d say:

Tonight is an opportunity for us to have a conversation about where we’re at as a nation. In January 2011, while the bonds of Union remain as strong as they’ve ever been, sadly, as a nation, we’re as mistaken as we’ve ever been about how and why we’re a union – why we are these United States of America. This confusion about who and what we are is profound and alarming, and it’s our own fault. We’ve grown accustomed to national rule-making and are suffering from an illogical and destructive dependence on the concept of fairness, and have grown to view the government created by our Constitution as something like a mutual-protection pact; as if the government was created to prevent people from having to do too much of anything unpleasant, like work, save, plan, or care for their families. This it manifestly is not.

The government created by our Constitution wasn’t intended to eliminate poverty, ensure equality of outcomes, nor inject itself into seemingly every dispute in which one party may insist that they have been dealt with unfairly. Yet this is where we find ourselves. Life is hard, unfair, and sometimes even cruel; and our compassionate nature cries out against this. Our Creator wrote into our hearts a nearly unquenchable thirst for justice. Regrettably, we are imperfect and fallen creatures, and our nature resists taking responsibility for seeing that very same justice to light. Thus, we turn to government.

We have a choice. We can recognize where we’ve gone wrong, reject that mode of thinking, and repair the damage that has been done. It will take a long time, but this path will arrest our decline. The alternative is that we continue our erroneous and destructive insistence on national rule-making, continue to permit government growth into any area it desires, and secure bankruptcy, financial disaster and the end of this experiment in Liberty. That’s it. The paths are clear – the choices have never been clearer.

For me and my colleagues, we pledge tonight that we will advance no legislation that does not meet the hurdle of national interest. If a bill is introduced in Washington that may be written locally to accomplish the same result, we will vote against that bill in our legislative body and direct it to the People for them to consider in their state legislatures. We will also work to repeal existing federal legislation that properly belongs in the domain of the states. We welcome the opposition party to join us in this effort, for the good of all Americans.

Regrettably, there is a direct relationship between how unlikely it is we will hear something like this tonight, and how necessary this message is.

Have your own thoughts about the state of our Union? Let’s hear them.

$14 trillion - we're going to need a bigger calculator

We have a national financial problem on our hands, and it may even be fair to call it a national financial disaster. In my prior post, a report on public credit, I identified the unavoidable embodiment of our problem: our now $14 trillion national debt. This debt is the result of many things, but in recent years unchecked entitlement spending and hand-outs have exponentially grown this obligation. Entitlements form the origins of, and perpetuate our taxation problem. We have the second highest corporate tax rates in the world; this suppresses investment and job creation. Personally, in addition, your income is taxed. Your property is taxed. You are taxed when you shop. You are taxed when you die.

Taxes are a symptom, in a manner of speaking; they are the effect in a cause and effect relationship. While it may be a new way for you to think about it, taxes are simply the tangible manifestation of a responsibility transfer. Put another way, taxes are that which is seen, and the transfer of responsibility is that which is not seen. As individuals cede control of their lives and transfer responsibility to an external unit of government (or, more destructively, when a unit of government takes away from individuals some control of their lives), that unit of government needs resources to discharge the newly-acquired responsibility. A simple illustration of this are fire departments. In much of America, volunteer fire departments still exist. These largely rural communities haven’t consciously chosen to tax themselves in order to transfer this responsibility to their municipal unit of government. Continuing to accept the responsibility themselves, they “pay” for the service of a fire department with their time, energy and “in-kind” contributions (think equipment and the like).

Our financial woes – obscene debt and job-killing taxation – are also a symptom of something else. They are also an effect, one whose cause is an abdication of responsibility; and a lack of self-government is a lack of the cardinal virtue of restraint or temperance.

If you wrestle with our problems and come to a different diagnosis, your first action must be to run your own diagnosis through the cause and effect mill. There are those still today, despite the evidence to the contrary, who insist that the problem with public education is that we need to spend more money on the kids. Similar thinking persons will insist that our financial problems are the result of something else, and probably something they opposed. Never mind that the CBO and the U.S. Office of Management and Budget report that the total cost of the Iraq War was less than the 2009 stimulus bill; people will insist against the evidence that it couldn’t be entitlement growth.

However, if my diagnosis is correct, how does one go about re-kindling this virtue? How can we re-make a society from one that is overly dependent on the nanny state to one that is self-governing? This question is not dissimilar from the old joke about how does one eat an elephant. As the obvious answer goes: one bite at a time.

The work of this organization involves re-igniting that self-government gene. We do it by focusing on these principles and by getting people active in local government. Citizens have a right fundamentally to decide how much external government they want. The best way to hold all units of government accountable is to begin by holding some units of government accountable; and the best way to begin holding some units accountable is to hold a single unit of government accountable. The journey of a thousand miles does indeed begin with a single step.

In 2011, we’re going to continue to recruit volunteers to work with local units of government. We anticipate that some of our volunteers’ efforts won’t be appreciated; we’ll take comfort that shrieks of indignation are generally a good sign we’re on to something. We expect that our volunteers, armed with information, will be able to make great strides in holding local units of government accountable: we hope to see better budgeting, cost-savings and privatization of services to deliver more for less. Those volunteers, with some successes under their belts, will find new areas to focus their attention, and we’ll help them be a success in those areas as well. It remains our belief that there are no shortcuts to this work of restoring American Constitutional government. You have start at the bottom and work like hell, and pretty soon you start to see changes. Once you start treating the problem, you see, the symptoms start to disappear.

I’ll close this first post of the year with a final acknowledgment. There are many people who recognize the symptoms of what ails America, and many of those people desperately want us to be healthy again. In charting a course of treatment, it is incumbent upon us to resist the urge to find a quick fix. There are no super pills that will correct our problems – no great leader can do this work. Not even a new Congress can, because today’s legislation only has a two-year limited guarantee. The malady has taken a long time to establish itself, and it can’t be undone overnight. But slowly, in small ways, and then eventually in grand and surprising ones, we can begin to renew American Constitutional government, and procure prosperity and freedom for ages to come.

I’ve said before that our broad and rather simply-stated problem is one of responsibility ambiguity. There are all sorts of things that need to get done in the world, and we’ve reached a place as a society that we don’t think critically about whose responsibility it is to see those things through to completion; and, even more alarmingly, many people are likely to default to a sentiment of: that’s someone else’s responsibility, not mine. We’re living more and more in an “I’m getting mine” type of world.

It is as if we have a nation of fully grown people, but no real adults. As an adult (and not a child), one has to deal with the harsh realities of life. We don’t, for example, always get what we want. Things don’t always go our way. We must recognize that we have duties that come before our wants. This is the world that adults live in, where there are rights and responsibilities.

Unfortunately, this quality is rare (and yes, I’m making fairly broad generalizations). Most people want to do what feels good, not necessarily what makes sense. Where I live, a number of residents attended our annual Town Meeting, the once-a-year Township government meeting, hoping to push for something called “clean elections.” While their motives may have been well-meaning (I say “may” for I cannot be certain and they didn’t divulge), the history of election and campaign reform is, put generously, less than stellar. Individuals, as readers are certainly aware, may donate $2,300.00 per individual per cycle for federal elections. PACs and labor unions are exempt from this limit, and as has been widely reported, SEIU gave in excess of $60 million to President Obama in his 2008 campaign. Lest I go too far off course – this post isn’t about campaign finance laws – the point to remember is that we live in expedient times, where critical thinking seems to be a relic of another era.

This inability to deal with the world as an adult is a problem on many levels, not the least of which is the obvious challenge in getting people to first recognize we have a serious problem; second, analyze why and how to fix it; and third making the fix into a reality.

Justice Robert H. Jackson

Which brings me to the following quote, from Supreme Court Justice Robert H. Jackson. Justice Jackson, concurring in part and dissenting in part in the 1950 case of American Communications Association v. Douds, wrote the following:

Progress generally begins in skepticism about accepted truths. Intellectual freedom means the right to re-examine much that has been long taken for granted. A free man must be a reasoning man, and he must dare to doubt what a legislative or electoral majority may most passionately assert. The danger that citizens will think wrongly is serious, but less dangerous than atrophy from not thinking at all. Our Constitution relies on our electorate’s complete ideological freedom to nourish independent and responsible intelligence and preserve our democracy from that submissiveness, timidity and herd-mindedness of the masses which would foster a tyranny of mediocrity. The priceless heritage of our society is the unrestricted constitutional right of each member to think as he will. Thought control is a copyright of totalitarianism, and we have no claim to it. It is not the function of our Government to keep the citizen from falling into error; it is the function of the citizen to keep the Government from falling into error (citation omitted).

As people begin to understand that government’s purpose isn’t to stop citizens from making bad decisions, we’ll begin to see a more balanced approach to what “government” will be responsible for, and the interaction of every American with government will evidence that the citizen is the level of government not only charged with the greatest degree of responsibility, but the best-equipped to discharge those duties.

Yet, we proceed down a dangerous path, immune, it seems, to the warning signs around us. This story today notes that there is a proposal for expanding the FHA: a Depression-era holdover that defies reason by growing in importance as we move further away from the Depression.

The most noteworthy part of the article (emphasis mine):

The plan would be a massive expansion of the Federal Housing Administration, the Depression-era mortgage insurer. FHA would take on $300 billion in new loans for as many as 1 million distressed homeowners, most of whom otherwise wouldn’t qualify for a government-backed loan.

Taxpayer dollars would be at risk should borrowers default on their new mortgages.

So, most of the homeowners in question wouldn’t qualify for a government-backed loan; yet, they’d be getting one. On top of this, defaults – when they occur – will be borne largely by the American taxpayer. Translated loosely, if you’re not getting one of these loans, you’re acting as the bank with your tax dollars (and no, you don’t get a vote in the credit committee). If we hit a recession and people default? That’s no longer the problem of Bank of America, or Wells Fargo, or Indymac Bank. Now it becomes the problem of the American taxpayer.

The complicated scheme gets worse, but the details aren’t the important point. The important point is that the federal government has no business bailing people out of private contracts they entered into in good faith. Even if one could imagine a scenario whereby having “the government” void a perfectly legal contractual agreement seems like a good idea (and I cannot), there’s absolutely no basis for having that sphere of government be the one that’s furthest away from the people. Hard hit real estate markets – such as Miami or Detroit – will be supported by people from all over the country. Their lack of caution, greed-driven speculation or simple indifference to obligations and lack of respect for contracts shall be subsidized by productive persons who manage their affairs properly and respect the law.

The bill is H.R. 5830: if by some chance you’re calling your representative, you might voice your displeasure specifically with this legislation.

And lest you think imbalance is confined to the realm of bad economics masquerading as “compassion”, there’s this story today about No Child Left Behind. It appears that the federal government is rolling out more laws to regulate the way States – and by extension, parents – educate their children.

To be perfectly clear, Mr. Madison wrote in Federalist #45:

The powers delegated by the proposed Constitution to the federal government are few and defined. Those which are to remain in the State governments are numerous and indefinite. The former will be exercised principally on external objects, as war, peace, negotiation, and foreign commerce; with which last the power of taxation will, for the most part, be connected.

The powers reserved to the several States will extend to all the objects which, in the ordinary course of affairs, concern the lives, liberties, and properties of the people, and the internal order, improvement, and prosperity of the State. The operations of the federal government will be most extensive and important in times of war and danger; those of the State governments, in times of peace and security. As the former periods will probably bear a small proportion to the latter, the State governments will here enjoy another advantage over the federal government.

To Madison’s list I would add only: administration of the courts.

Amazing, then, that we’ve sunk to the condition we’re in. Will liberty be lost, crowded out by the ever-greater expansion of external government, simply because people aren’t educated on the proper role of the federal government? Or will we once again hold accountable ourselves, our neighbors, and our government?

The Tenth Amendment reads: “The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people.” The guidlines are there; the justification has been made; all we’re required to do is learn it and insist on compliance by those we send to represent us.