The current debate about extending the slight payroll tax cut has broken a public silence on this topic, and it provides an opportunity for open discussion of what is really going on here.

The reason for the silence is peculiar. One party rather likes the idea that the workplace would bear an ever-greater burden for the building of the cradle-to-grave welfare state. The other party is not much interested in it because it is already a “flat tax,” and thereby conforms to the supply-side strictures about the difference between good and bad forms of taxation.

Neither party has a clue about what to do about the programs that the tax funds, so they have both mostly tried to ignore its damaging effects.

Think back to the 1980s, when the Republicans were absolutely dead set against increasing taxes. Candidates who were rhetorically open to higher taxes lost elections. And Republicans were given political credit for reducing taxes in an effort to spur economic growth.

But look at the facts. In 1980, the total payroll tax to fund Social Security was 10.16%. By 1990, the total was 12.4%, which is where it has remained to this day. Somewhere in these years, we saw a gigantic tax increase. The reason was something called the Greenspan Commission that took on the task of “saving” Social Security. In 1983, and with little public fanfare, the system was saved by fleecing you.

No one called it a tax increase, even though that’s what it was. Instead, it was sold as an increase in the employee-employer premium paid to the system. This kind of language, taken from the private sector, implies something that is emphatically untrue: that Social Security is some kind of insurance program and what you pay into it is really a contribution of the same form that you pay for car insurance.

The tax burden of just this program went from 2% of a maximum income cap of $3,000 in 1949 to 12.4% of $51,300 in 1990. In the years since 1990, the main form of payroll tax increase has affected the income cap and not the rate itself. Today, the income cap is doubled from the end of the Reagan years. It is now $106,800. Is that an inflation adjustment? No, the increase is well above that. In fact, if the cap were adjusted by inflation alone since 1949, it would only be $28,516 today.

This is an extremely sneaky way to raise taxes without saying that you are doing so. It is like the domestic worker who only steals one piece of silver flatware at a time, once per month. Then he increases that to once per week. Then he increases that to once per day. When caught, he protests that his stealing has not increased: He continued to take only one piece of flatware at a time.

This tax is not a premium for a program that most young people know is not going to provide them anything they can count on in their older years. On the contrary, the purpose of the payroll tax is precisely what we would expect: a coercive program to raise money for the government. In fact, payroll tax revenue as it stands today would have funded the entire federal budget as late as 1982.

By any historical standard, the payroll tax is a gigantic wealth-eating monster. And despite all the money it has raised, the programs that it funds are still said to be broke and doomed to go belly up by demographic trends. Here is a lesson in the truth about government: whereas the private sector always strives to take less and give more, the government always takes more and gives less.

Americans from the earliest years of the republic through the New Deal would have known nothing about such a tax, and they never would have tolerated it. It interferes most directly with the right of the employer and the worker to negotiate terms of employment.

Whereas the individual bears the burden of the income tax, the payroll tax amounts to a direct hit on the fundamental right of association and trade between consenting adults. The state steps in to say: “You guys may not make any kind of deal unless you agree to fork over a portion to your masters. To make this easier to take, we’ll put you on welfare late in life as a form of compensation.”

There are other ways that the payroll tax is hidden. For people who work for wages, the payment is split between the employer and the employee, but this is an accounting fiction, as you discover once you become self-employed and bear the entire burden. The reality is that the worker pays the entire tax; it is only collected by the employer.

There is another aspect of the payroll tax that it is sneaky. This is the withholding aspect of the income tax that is rolled into the government’s take from wages. In this system, most people get “refunds” after they file taxes, leading people to believe that they are getting some kind of gift from the government.

This system began in 1943 with the support of many establishment economists who advised that this would make tax collection easier. Charlotte Twight reports that in 1942, George Lent wrote in the Journal of Political Economy that when government pre-collects payments, “the taxpayer does not have the same consciousness of parting with his income to the government,” making withholding “the most ‘painless’ method of meeting tax liabilities.”

The institution of this system was made possible because employers were already collecting taxes from workers through the Social Security tax. The new withholding tax was merely added on in ways that were not entirely noticeable to taxpayers. The whole effort was helped by a series of propaganda films that came out during the war, one of which featured Donald Duck being told that “your privilege, not just your duty, but your privilege to help your government by paying your tax and paying it promptly.”

One of the major players here was Milton Friedman, who years later told Reason magazine about his experience. “I played a significant role, no question about it, in introducing withholding,” he said. “I think it’s a great mistake for peacetime, but in 1941-43, all of us were concentrating on the war. I have no apologies for it, but I really wish we hadn’t found it necessary and I wish there were some way of abolishing withholding now.”

This year was pretty much the only slight respite in the payroll tax we’ve seen since its introduction. It lessened the burden on workers and employers just slightly, and this is a wonderful thing. The tangle of politics that has come about through this debate now represents an incredible risk to Republicans, who have historically paid scant attention to the payroll tax, and even worked to increase it. As The New York Times mentions in passing, they “now risk the odd political development of being accused of being the impediment to a tax cut.”

At least, this wicked form of wealth extraction is finally being labeled what it is.

Regards,

Jeffrey Tucker

The Hidden Cost Of The Payroll Tax was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

Retirement plans are…helpless flounder!  I hardly know where to begin, so I’ll start with what I know best.  I, too, was taught a few basic formulae back in ’58, and two superb ones are virtually impossible now and have been for some twenty years, minimum.

The first was that one should allocate no more than 25%, preferably less, to housing.  In our early married years I always tried to make that twenty-five per cent. cover not only rent but utilities (power, water, telephone, etc.) as well.  Usually that involved quite a bit of searching to come up with a house we were willing to live in, but I always managed.  We never lived in less than comfort, but we were never “house poor.”  A good rule is never to be any kind of “poor,” including spending too much on cars, clothing, entertainment, or whatever your personal passion is.

I can imagine the stunned looks and hysterical laughter of today’s young workers when adjured to go and do likewise, because housing and accoutrements eat up half of their after-tax income.  They consider cable TV, Internet service, and cell ‘phones to be absolutely indispensable.  My brilliant son lives in what he describes frankly as “a tiny hovel,” and has a room mate to share expenses, but he lives in Washington state, one of the five most expensive areas in the US.  When I compare relative income by my quick and not all that dirty method (divide by ten; a decade or so ago it was “divide by five!”) Andrew is making $500/month in 1966 dollars, when his father made $325 and got shot at frequently.

In theory, ‘Drew is making half again as much as John did.  He drives a WRX-STI (whatever that may be, other than fast and sporty) four years old that was paid for completely when he entered the world of commerce full time two years ago after finishing his MBA.  He is a fast-rising star (Mothers can be so impartial!) at the corporation which values him very highly, and the kid is pulling down about 60K, which sounds pretty good at twenty-six.  I’m not bragging on my son (I will be glad to, of course), I’m pointing out that the increases in taxation and the costs of over-regulation make it virtually impossible for most people to live decently on what is left after the depredations of the Nanny State, and we haven’t gotten to massive inflation and the depths of Depression, which are coming.  Not only will Cap and Trade add $1500 to $3000 a year to the average family’s expenses, depending upon which figures we use, but  those are going to be “after tax” dollars.  That means we must add a third to the estimates in the actual impact C&T will have on expenses.  And remember that such estimates always turn out to be far less than projected.

My first summer jobs paid a dollar an hour, practically tax free, and I saved enough to pay half of the cost of my first car.  (Daddy was teaching me good habits, including saving half of what I made.  It helped that my beloved three-year-old Plymouth Cranbrook cost $225!  The summer before I started college he smiled at me lovingly and told me to go clean out the rest of the account and spend it on more new clothes than he had already given me money to buy.  THAT was a real lesson in the value of saving!)

I was employed as a secretary for a little while and made $225/month.  A department head at the local college made an unthinkable $800/month!  The difference was…I took home almost two hundred and twenty of that.  Social Security, these days, eats up over 15% of income, between deductions and what the boss isn’t paying you because he is giving it to the government on your behalf.

The formula I want to get into now is far worse.  I was taught that a husband should endeavor to leave his widow 80% of his highest income.  Let me repeat that:  in order to provide security and continuity of the lifestyle they had achieved, eighty per cent. of his highest income will be required.  That is really pretty modest, because expenses go down only in the gasoline not used for him to go to work, food, and occasional wardrobes updates men need less frequently than ladies.

I realized in 1992 that every widow and those who wanted to retire eventually was in serious trouble, because the interest rate fell to 5%!  Oh, my, how young and naive we were back then.  Here’s a little mathematical exercise:  if you make $100,000, and the interest rate is five per cent., how much do you need in insurance and/or reliable investments to ensure that your beloved spouse is not going to end up in a cockroach-infested, cold water, walk-up flat eating Fancy Feast?  Don’t even bother to figure it out, because these days you have to multiply the figure by at least five, your stock market portfolio is down at least 50% (if you didn’t get out in time, and if you did…there wasn’t any place much safe to put the money), and worse times are ahead.  Do you have an insurance policy for ten million dollars?  I didn’t think so.  Neither did John.

As nearly as I can tell my mathematical genius, OR/SA husband had one of two plans for my old age.  (The private research corporation he worked for wanted him to work until he was at least seventy-two!)  The first was that he was going to out-live me, and the second (I’m guessing!) is that I am so utterly fabulous that I would surely find another husband before the insurance money ran out.   Passing lightly over his opinion of my manifold charms and perfections (not shared, oddly enough, by a great many), he failed to take into consideration that I would not be able to remarry!  If I do, I will forfeit my entire income!  Worse, my new spouse would have to live fifteen years, unless the rules have been changed recently, before he could “leave” me a share of his retirement income.  Awk.  Um.

The government is ruining the morals of sweet little old ladies because the pretty universal conclusion widows reach even when they find wonderful men is, “I love you dearly, but I just can’t afford to gamble my old age on the probability that you will live to be eighty-seven.”  Decent men don’t even ask to ladies they love to take a risk of that magnitude.  My darling Charles made the modern equivalent of a proposal amongst the older set, e-mailing me, “Hey, pretty lady, how’d you like to live in sin?!”  I burst into delighted laughter–never having been the sort of lady who gets propositioned by sexy sailors–picked up the telephone, and accepted.

He explained anxiously later why he had not shown up with a gorgeous ring and a bouquet of roses, gone down on one knee, and delivered a classical proposal imploring me to make him the happiest of men by bestowing my hand upon him in marriage.  He knew it would endanger me.  He was pretty sure I would have accepted, but darn it…it would cost a bare minimum of half a million dollars to change my name to his–as proud as I would be to bear it–and I have a perfectly good name I answer to every time I hear it…and it just isn’t safe.  I dislike being a scarlet woman, but there isn’t any other rational choice.

The sole feeble beam of hope I can see is that most women no more than sixty have probably qualified for Social “Security” in their own right.  I’ve done a lot of interesting things, but I haven’t “worked,” in the government’s eyes, forty quarters, not by a long shot.  Perhaps Donna Reed, if widowed a second time, could qualify for a sop of a few hundred in SS, but she sure couldn’t live on it.  Rueful chuckle…I always thought that failure in life was needing SS.  What’s the official “poverty” level, again?  Nah, I own my own home outright, and that will surely disqualify me from food stamps.

Please take Gary’s advice and check your hole card.  Even if things stabilized right where they are and get no worse, can you afford to retire?  What will your wife have to live on?  Will she be able to remarry if her experiences with you have caused her to think that she doesn’t want to end her days without the companionship and love you have provided?  Will she end up saying, “Welcome to Wal-Mart?”

I’ll leave you with a final superb rule:  “Never confuse what you can pay for with what you can afford.  If you do so frequently enough, eventually you will not be able to do either.”  That is the sin of those who lived on credit cards and pulling equity out of their houses every time they built up a little.

Paying for dead horses is very painful.  Three generations living under the same roof sounds very unpleasant, as much as I adore my children and they would love to have me live with them.  One of my favorite sayings is, “The worst that could happen is…” although I use that in the analytical sense of risk management, and the answer has to be “Nothing really serious!”  What is the worst that could happen to you if you do not do your best to secure your future now?  You’ve already started by reading what Agora has to say.

What is the worst that could happen to your wife?  What could you do to prevent it?

My apologies if I have ruined your weekend, but it is never too early to plan ahead, and even now we can all take steps to alleviate the grim future we envision.

Regards,
Linda Brady Traynham

May 29, 2009

Real Retirement Planning was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

In the markets, all the really interesting action is happening behind the scenes. On the surface, things appeared to get better on Friday. In the U.S., Ford told investors that it lost $1.4 billion in the first quarter. Apparently this was less than analysts expected. The Dow closed up 1.48% and climbed back over 8,000.

What a battler that Dow is. It’s got nothing on the S&P 500 though. The S&P is up 28% in the last thirty-three trading days. It hasn’t done anything like that since the 1930s. However the index did close down for the week. That broke a six-week run of gains.

One more note about that. Four-week winning streaks of ten percent are more are generally followed by much smaller gains or losses over the next four weeks, according to the analysts at Bespoke Investment Group. Their research shows that in the four weeks following a four-week rally of 10% or more on the S&P, the index followed up with average gains of 1.87%.

How about one more note about that. There were two four-week rallies of more than twenty percent, according to the same research. The S&P 500 surged 54.2% in just four weeks by early August of 1932. Over the next four weeks in went up another 30%. Then, in April of 1933, the index provided an encore to one four-week surge of 33.8% with another surge of 19.2%.

So there you go. What we do we make of all that? Well, it shows you that even in the middle of the Great Depression, the market was capable of staging mammoth rallies that would tempt investors back in. No doubt those were extremely tradable rallies. But they were followed by lower lows once the forces of economic and earnings reality reasserted themselves on the collective mind of the market.

This time will be different because it’s always different. But if you’re wondering if the stock market is flashing a recovery sign for the economy, you might want to take a look at insider selling. The insiders are selling this rally, according to Data by Maryland-based Washington Service. That outfit says the during the S&P’s 28% climb from twelve-year lows on March 9th, CEOs, directors, and senior officers of U.S. corporations sold 8.3 times more stock than they bought.

The insiders are probably not paying attention to the first quarter earnings reports that are responsible for the current rally. They’re looking at the rest of 2009 and probably planning for more layoffs. If they think the rally is over, it probably is. Not that there won’t be others. But behind the scenes, other things are happening which are going to drag on stocks.

One of those things is that many of the world’s sovereign governments are in the process of going broke. Spain, Ireland, Greece, and Portugal have all had their sovereign credit ratings downgraded by the ratings agencies. These countries face different challenges like burst property bubbles, declining government tax revenues, and banking sectors hobbled by massive bad loans. But what they have in common is that their respective governments have responded to the crisis by ramping up borrowing to credit-rating ruinous levels.

The scale of global borrowing plans is pretty breathtaking. And what you begin to wonder is a simple question: where is all the money going to come from? Or, to quote David Gray in Night Blindness, “What we gonna do when the money runs out?”

For example, the UK’s Debt Management office, which issues bonds on behalf of the British government, says that British bond sales between now and 2013 will exceed £696 billion. The Guardian reports that it will be more like £815 billion, according to figures from Deutsche Bank.

Do you think private investors are super excited to loan the British government money when the British economy is expected to contract by 3.5% this year? Under the budget revealed last week by Chancellor of the Exchequer Alistair Darling, the UK will borrow A$356 billion (£175 billion) this year alone, or about 12.5% of British GDP. Over the next five years, public sector debt would rise to 76% of British GDP from its current level of 46%.

Gee. That is a lot of borrowing. Britain is country drowning in debt. Adding more millstones around its neck would not seem to improve its chances of paying that debt down. You could pay it down by, say, generating national income from exports. This is what Australia is hoping to do.

S&P’s ratings agency keeps track of the sovereign debt to income ratio. If a country exports a lot of finished goods or raw materials, the government benefits from tax and royalty revenues. These monies are used to service the sovereign debt.

But if you’re not generating large export revenues, then you find a big gaping hole in your budget where royalty and tax revenue should be. Maybe that’s one-reason Britain’s new budget raises tax rates on high-income earnings from 40-50%. What you gonna do when the money runs out?

If Britain’s government thinks it can make up for disastrous public finances by raising taxes, it’s probably making another in a long-line of stupid mistakes. The high-income earners who would face the big tax increase are exactly the same people getting fired from their jobs in the City. This shows, once again, that building an entire national economy around high finance puts you in all sorts of trouble.

But wait. Maybe the high-saving nations of the world will bridge the gap between British expectations and financial reality. We wouldn’t count on it though. Remember the big hoopla from the G20 meeting in London when it was announced that the International Monetary Fund’s funding would be tripled to $750 billion?

That funding is desperately needed. The IMF itself reckons it will have to dole out some $187 billion in new loans to national governments just to ride the current phase of the global financial crisis. But a key piece of information was left missing in London. How would the IMF be funded?

The G20 finance ministers met in Washington to sort that out. And the early indications are that the IMF will be funded by issuing bonds sold to high-saving nations. If this is true, it’s a victory for the developing world and a defeat for the U.S. and Europe. The U.S. and Europe were both pushing for a direct cash injection funding method. In other words, they wanted China, Russia, Brazil, and India to use their foreign currency reserves to fund the IMF.

But the BRICs batted that proposal away. So now the IMF plans to sell around $500 billion in bonds. They will be denominated in the quasi-currency the fund uses internally (the special drawing rights, or SDRS that both Russia and China have floated as a possible new global reserve currency).

How the bonds actually work still has to be sorted out. But the internal logic of the whole arrangement is now clear: creditors hold the whip hand. Debtors are going to get whipped. The balance of power in the global economy is clearly shifting from the borrowers and spenders towards the savers and producers. Advantage BRICs.

Disadvantage Gordon Brown and Barack Obama and probably Kevin Rudd too. With the existing debt-to-GDP ratios in Britain and the U.K., we reckon it is going to be impossible to fund further expansions of financial bailout programs and welfare state programs without much higher interest rates (borrowing costs).

You can avoid the borrowing problem for a while by soaking the rich with higher taxes. You might also use climate change hysteria to tax carbon (really an indirect tax on consumers). If both happen this year and the result will be even more rapid economic contraction. They will be this Depression’s equivalent of Smoot-Hawley: exactly the wrong thing to do, done at the worst possible time.

Of course the easy out, we feel obliged to point out, is not to borrow the money at all or tax it from your citizens. You could just print it instead. But this tends to unleash hyperinflationary pressures which also tend to destabilize civil society. It’s better to avoid this if you can.

Either way, there is no avoiding the reckoning. Right now, you could make a compelling argument that the value of credit-backed assets is falling so fast that government steps to prop them up simply won’t (or can’t) work. Credit deflation rules the day. The formidable fiscal and monetary stimulus measures are disappearing in the maw of asset deflation while the world goes broke trying to prevent it.

If this is right, and it’s something investors take the time to notice, stocks are going to make lower lows again. A lot lower.

Regards,
Dan Denning
www.dailyreckoning.com.au

April 27, 2009

S&P Ends Its Rally and Government Debt Still a Problem was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

Old Whiskey Rebellion and Modern Tea Party

During the Whiskey Rebellion of old, irate Western Pennsylvanians burned down the house of George Washington’s appointed tax collector, General John Neville.  This wasn’t without provocation, of course.  The bonfire started after one of Neville’s federal marshals shot and killed an unarmed tax protester.  Lesson to the feds:  Be careful who you shoot, especially when they can shoot back.

The recent Pittsburgh Tea Party was far less inflammatory, although some of the issues and basic sentiments are much the same as those of the 1790s.  The original Whiskey rebels opposed a distant and aloof government that reflected the interests of an East Coast cultural aristocracy.  Despite the personal popularity of George Washington, his federal government was imperial and out of touch.  To answer a summons in federal court, for example, a Western Pennsylvania farmer had to trek near 300 miles across the mountains to Philadelphia.  And the lack of a useful national currency – one of the key functions of any government — handicapped economic growth.  In fact, for lack of real money on the western frontier, people used whiskey as a form of currency.

The final straw came in 1792 when Treasury Secretary Alexander Hamilton proposed raising revenue by taxing the capacity of stills.  And in those days, stills were no mere means of making recreational moonshine.  By 1794, the draconian collection of Mr. Hamilton’s new tax placed at risk the ability of farmers to transform their surplus grain into more transportable and saleable whiskey.

In other words, the whiskey tax damaged the farm economy, which was about all there was west of the Alleghenies.  Inept government economic and monetary policy placed the future at risk.  Thus did many citizens rebel.  And rightfully so, some say.

Rooted in Citizen Anger and Frustration

What’s behind the modern “Tea Party” sentiment?  I believe that it’s rooted in citizen anger and frustration that the federal government just spends and spends and spends, with no evident heed for tomorrow.

The justification for heedless increases in government spending – even worse, increased spending with borrowed money — is along the lines of Pres. Franklin Roosevelt’s famous comment that “If we borrow funds, then we owe it to ourselves.”  The modern justification, as a Federal Reserve official once explained to me, is that “As long as we can afford to pay the interest on the debt, it’ll be OK.”

But the people are not blind, let alone stupid.  It is clear that the federal debt just grows and grows.  How much longer can this last?   Today many informed citizens understand that the national debt is way too big.  The rate of growth is out of control.  We don’t “owe it to ourselves.”  We owe it to the Chinese, the Japanese, the Middle Easterners.  And we cannot afford to pay the interest anymore.  Well, not if we want to be able to do anything else as a nation except work like tax-slaves to pay interest on past debt.

By any technical measure, the federal government is insolvent — except for that quaint custom of inflating the currency with fiat dollars.  So really, the nation is long overdue for a national discussion on the fundamental nature of its money.  Hence the Tea Parties.

The Pittsburgh Tea Party Crowd

In Pittsburgh a crowd of several thousand (estimates range from 2,500 to 5,000) formed last week in the city’s old, historic Market Square.  Market Square dates to the 1700s, and perhaps the bedrock still recalls the events from the days of George Washington.  The mid-April weather was characteristically lousy, with drizzle and rain falling in 50-degree temperatures.  If you were there, it was because you wanted to be there.

The Tea Party attendees struck me as a cross section of Western Pennsylvanians.  There were many Steelers jackets, and ball-caps with military logos and veteran patches.  I asked around, and met business owners and office workers, factory workers, lawyers, health care providers, restaurant workers, and a few people who are, as they put it, “between jobs.”  There were off-duty cops and firefighters, courthouse employees, bus drivers and even a few bikers resplendent in their leather and tattoos.

The Tea Party brought out the creative side of attendees as well, with people dressed in Colonial period costumes.  To my observation, it was an orderly and respectful crowd, filled with sincere people who appeared to know their American history.  My gut feeling was that the Tea Party attendees understood why they were out standing in the cold rain.  (One 30-something woman told me, “I’ve never been to a political rally in my life.  But I’m just scared for the country’s future.  We’re going to be broke.”)

The makeup of the crowd was young and old, men and women.  There were retirees (as indicated by their hats and T-shirts), middle-aged people, and young people complete with pink hair and metal in their ears.  There were parents with children.  (One participant told me, “I brought my son with me because I want him to remember this day.  I think we’re at the beginning of something that’s going to change the country.”)  There were white and black, Asian and Indians.

Many Tea Party attendees carried signs, all apparently homemade.  The verbiage ranged across a conservative to libertarian political spectrum.  Some signs were historical, with deep roots in the 1913 coup d’etat of American Progressivism under Pres. Woodrow Wilson.  (“The Fed is Illegitimate.” and “Abolish the 17th Amendment.”)  You don’t see many signs like that these days, that’s for sure.

Other signs were rock-ribbed statements of protest about taxes and spending.  (“Give me Liberty, Don’t Give Me Debt.” and “Born Free, Taxed Beyond the Grave.” and “Abolish the IRS, Support the Fair Tax.”  and “Wall Street Banks Got Billions, and All I Got Was This Lousy Sign.”)

Other signs – not many — knocked Pres. Obama; but I would not characterize the Tea Party as just an anti-Obama rally.  There were indications of deeper dissatisfaction with the federal government, at a systemic level.  One sign knocked the “Bush-Obama Ripoff.”  Other signs were along the lines of “Abolish Congress,” which is not exactly realistic, considering the wording of the U.S. Constitution.  (Vote the bums out, maybe?)

One sign hit on the corruption of the process of governance, stating, “Big Fraud from Little ACORN Grows.”  These were not the usual mass-produced, “union-label” signs that you see at those “other” kinds of political rallies.  I’m sure you get the idea.

The Tea Party Organization

The 2009 Pittsburgh Tea Party was organized by a suburban housewife, albeit one with an MBA from the Harvard Business School.  From what I heard, a few politicians volunteered to speak.  The terse reply from the organizers was along the lines of, “No, this is where the people will speak.  You politicians need to shut up and listen.”

There was no indication that the Tea Party was an “Astroturf” event.  The Tea Party received almost ZERO media coverage in the days leading up to it.  It had all the markings of a “flash rally,” organized on the Internet.  The local talk radio guys scarcely mentioned it, to my knowledge.  (If they did, I missed it.)  The local newspapers gave no advance publicity.  The local TV stations were too busy covering the usual pabulum about car crashes and house fires.  If it doesn’t bleed, it doesn’t lead.

It seemed to me that the attendees of the Pittsburgh Tea Party were there of their own volition.  I sensed no mind-control from the evil Fox-News Network, and I wasn’t even wearing my radio-blocking aluminum skull-cap.  Contrary to the defamatory stereotype pushed by the incompetent mainstream media (the LA Times characterized Tea Party attendees as “insane”), the Tea Party people seemed to be decent folk, able to think for themselves and form independent opinions.  And many Tea Partiers have apparently formed the opinion that the federal government is spending the country into ruin.  To those of us who follow the issue, it’s a valid point.

The Tea Party Festivities

The Tea Party stage was decked out with flags.  Festivities began with a musical mixture of patriotic tunes and Country-Western music.  The Tea Party kicked off with a brief welcome from the organizers, followed by a moment of silence in memory of three Pittsburgh police officers who were killed in the line of duty a couple weeks ago.  Then a prayer.  Then the Pledge of Allegiance.  Then the national anthem.  In other words, it was as patriotic as the 4th of July.  Nothing radical.

The first speaker discussed the ever-expanding federal budget.  If you’ve seen the movie I.O.U.S.A., produced by Addison Wiggin of Agora Financial, then it was nothing new except that this was a Tea Party protest in downtown Pittsburgh.  And criticizing federal spending in downtown Pittsburgh is not something that happens very often.

Another speaker gave a spirited history lesson about the origins of the Federal Reserve.  It was Creature from Jeckyll Island-kind of stuff.  It was surprising (to me) how much of the discussion the crowd appeared to understand.  It was astonishing, really.  I think that most of the Federal Reserve scholars in town must have been in the audience, because people seemed to know exactly what the guy was talking about.

A third speaker gave a solid speech about the evils of ever-expanding government.  This guy is a multi-millionaire who built his own nationally-ranked high-tech business and made a fortune.  He’s met a few payrolls in his career.  He discussed the exploding levels of federal expenditures.  He hit on the ballooning national debt, and asked rhetorically how the nation ever intends to pay just the interest, let alone the principal.

And so it went, with more speakers giving talks along the same lines.

The Hecklers in the Crowd

Of course, a few hecklers showed up to make noise.  While one of the early speakers was discussing how federal borrowing is crowding out private investment, a group of five (I counted them) people started to chant, “O-Bam-A!  O-Bam-A!  O-Bam-A!”

At first, the crowd ignored the hecklers.  Then the hecklers realized that they were having no effect, so they yelled louder.  Eventually, it was kind of hard to hear the speaker.  A few members of the Tea Party crowd turned to the hecklers and told them to shut up, have some respect, etc.  That was like throwing kerosene on a fire.  Now the hecklers were hollering at the top of their lungs.

There were a few TV cameramen from local stations covering the event.  Needless to say, the camera-guys rushed over to film the hecklers in action.  By now the five hecklers were having a great time, yelling and making enough noise to disrupt the proceedings.  Then some Pittsburgh cops and event organizers walked over to tell the hecklers to keep it down.

The cops must have said something, because the hecklers broke up and started walking around the edge of the Tea Party crowd, yelling epithets like, “You’re all racists.  You can’t deal with a black man in the White House.”  To which a black guy standing next to me said, “I’ll bet these punks are ACORN activists.”  He turned and talked right at one of the hecklers, saying, “Why are you causing a disturbance?  Get out of here.  Go home to your mama.”  So the heckler called the black guy an “Oreo,” as well as a few other words that I thought were banned from modern vocabulary.  Then a Pittsburgh cop walked up to the heckler and politely asked him to “move along, unless you have some other reason to be here.”  Pittsburgh’s finest.

Media Coverage

The local media gave almost no coverage to the Pittsburgh Tea Party.  The TV stations focused on the hockey playoffs between the Pittsburgh Penguins and the Philadelphia Flyers.  One station ran a short, insubstantial fluff piece, with plenty of attention to the five hecklers.

The Pittsburgh Post-Gazette, located three blocks from Market Square, buried its next-day coverage within a critical, anti-Tea Party story distributed by the Washington Post.  The photo on the inside pages of the Post-Gazette was from a Tea Party in Cincinnati.  On its editorial page, the Post-Gazette ran an insulting cartoon by the predictable and pedestrian Rob Rogers.  The cartoon showed three raw-looking, hirsute men sitting around a table, sipping tea and bellyaching (get it?  Tea Party?)  Meanwhile, the circulation of the Post-Gazette is falling and the newspaper is laying off staff.  Gee, I wonder why people don’t bother to read the Post-Gazette?

What Were the Tea Parties About?

But it’s not just the Pittsburgh Post-Gazette that’s missing the boat.  The talking-head androids of Big Media also missed the point of the Tea Parties.  To the extent that there is any remotely accurate reportage going on, the focus seems to be that the Tea Parties are well-off people bitching about high taxes.  Even the Gallup Poll organization took the bait, publishing a recent report stating:

“A new Gallup Poll finds 48% of Americans saying the amount of federal income taxes they pay is “about right,” with 46% saying “too high” — one of the most positive assessments Gallup has measured since 1956. Typically, a majority of Americans say their taxes are too high, and relatively few say their taxes are too low.

But focusing on the level of taxation is the wrong issue for Gallup to track.  It struck me that the Tea Party attendees in Pittsburgh were worried more about the use of their tax dollars, and the explosion in federal deficit spending.  The Tea Party movement strikes me as more about the dangerously growing size of the federal government.  From what I could gather, the Tea Party attendees opposed the unalterable trend of endless federal growth.  And coupled with this there is, of course, a deep fear about the eventual decline in value of the dollar.

Like I said earlier in the article, it’s about time for the U.S. to have a national discussion about the nature of its money.  What is a U.S. dollar any more?  Where does national wealth come from?  We ought have that national chat while we still have some money, and while we can still create wealth.  Because a lot of people appear to sense that something important is coming to an end.

And when things fall apart, we’ll be in for a generation or two of very tough times.  So the political class, and its Big Media androids, are ignoring the Tea Party movement at their peril.

Until we meet again,
Byron King

April 22, 2009

The Pittsburgh Tea Party was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

– Joshua Wyeth, 16-year-old participant on Dec. 16, 1773

Time to cock the ol’ tricorn hat and grab a flag!  Fling your tea bags and hoist your principles on the mast.

Right now, you’re on the hook for $42,000 — to pay off the monetary experiments of your federal government.

(If you voted Ron Paul for president and you’re not living in Texas, you may say you live in a state of taxation without representation.)

And maybe, just maybe, you were one of the thousands that gathered in various towns and cities around America to protest this hefty bill on Tax Day, April 15…in a little tradition we call “the Tea Party.”

Some say it’s not so much a tradition as it is a neo-con, Fox News-phenomena of faux-populism…Others cry from the blogosphere: Here’s the crowning demonstration of a new era of McCarthyism from a bunch of malcontents, “malcontent” being a fancy word for ne’er-do-wells leveling less dignified terms at those they see as other ne’er-do-wells: those embracing the welfare state.  When the mud starts flying, everyone comes out looking awful foolish.   But it is good to see a bonafide non-hippy-liberal-green contingent take to the streets for something.

Couldn’t make it? Here’s the Whiskey Room’s front-rail barstool view.

Southbound Go Your Sons and Daughters of Liberty

Gary Gibson and I got on the Baltimore Light Rail at 10:30 am, southbound to Glen Burnie, MD. That rendezvous point joined us with one of the four organizers of the state capital’s Tea Party, Pat.

Imagine, in the face of such nasty weather, signs streaming South to the Annapolis Harbor all the way from Route 50.  Crowds poured from church parking lots and garages.  (We noted bitterly not being able to park in Annapolis’ newest and fanciest garage: roped off ‘specially for employees of the state.)

Some 2,000 souls, we were told from the podium’s speakers, gathered on the waterfront and blocked the wooden docks of this colonially-quaint little capital.  Our count exceeded 700 for sure.

Commerce-wise, we succeeded only in blocking a few tourists from finding their way to the Starbucks — a breech clearly mended by the protestors who were cold in the pourin’ friggin’ rain and needed caffeinated reinforcement.

The protest was a little “every man for himself” – each sign was its own platform.  One man might protest the creation of the Federal Reserve.  His sign: a parade of historic personages — in yellow and red — ending with Obama’s face, writ underneath: Proudly Bailing Out Since 1913.  Another man, in camoflague poncho, simply holds up a piece of cardboard: “Global What?”

So each man and woman and child foisted up his or her own complaint, there was no overwhelming unity.  Only a couple hundred voiced the cries: “Throw the bums out!” “Cut our taxes!”

This is always encouraging…I like my demonstrations and parades a little disunited, otherwise I start to worry about Czech marches…beer hall putsches…and other sundry ugliness of humans meet ideals meet the streets.

Cut to a man in white gaiters and a kilt: “Bring back the Brits — They taxed us less!”

On the way to the harbor, the local oyster house hoisted a sign: “Somalia has nasty pirates, we have LEGISLATORS!”

Best of all were the protesting babes in arms of mothers.  Little girl of 16 months in Ma’s arms, the sign: “My Children Don’t Want to Pay for Your Toys.”

Most eloquent protestor prize: A man pulled his private historic schooner into the harbor with the help of friends.  Left on the ship, in full view of the assembled multitude, were wooden crates stenciled “TEA” — and a few more were scattered on the docks.

Another fine touch that only Annapolis could offer: a patriot in his Revolutionary garb shirking duty from state capital tours to take a stand.  His trusty mount: a Segway.  Poised high and proud, he held a flag aloft.  (We drank our morning espresso with him in the coffeeshop nearby before penetrating the dense brush of demonstration…he was delightful, and said, in parting: “See you on the other side of the breech!”)

No one voiced this aloud, but stickers wrapped round stems of umbrellas proclaimed: “Impeach Obama.”  We already wowed Europe with our stupidity in the impeachment process of Clinton…now shall we use the right as a prophylactic measure?

After braving two hours of wind and torrential rain, your hardy Whiskey & Gunpowder headed for the bar, warm Irish coffees and carried on a heated political discussion with our fine barkeep who gave Gary a free beer.

Sons of Liberty: Then and Now

For a dose of reality, let’s check back with our forefathers…the first Sons of Liberty.

Basic scenario: you had this giant trade monopoly called the British East India Company hit the American shores with cheap product that undersold all competitors: an addictive substance called tea, upon whose back the Age of Enlightenment had been borne.

The Brits assumed that no man would give up his tea, and therefore, that they’d pay the import duty…and therefore sanction the royal taxations sans representation.

Three ships, the Dartmouth, the Eleanor, and the Beaver hit Boston harbor on Dec. 8.  Eight days later, 60 Sons of Liberty split into three groups and mounted the boats waiting to unload their cargo.  These fellas were surrounded by British armed ships, but carried on splitting up crates with axes and tomahawks for three straight hours — broke up 342 crates — some 10,000 lbs. of tea.

Just think about it.  Your fledgling patriots ducked into the local blacksmith, smeared their faces in coal dust, pretended to be Mohawk Indians, and got away with it!

When they passed the house of the British Admiral, he yelled out: “Well boys, you have had a fine, pleasant evening for your Indian caper, haven’t you? But mind, you have got to pay the fiddler yet!”

Will we pay the fiddler…or just keep paying our taxes with much grumble and bah?  Frankly, this wasn’t a bona fide protest, so much as a bitchfest.  In fact, many protests incorporated the 1976 mantra: “I’m mad as hell, and I’m not going to take it anymore.”

Those words, of course, spew from apartments all over Manhattan in the film Network. A film as notable today for its zeitgeist (and the lovely actions of Ms. Faye Dunaway) as it was when my parents saw it before me.  In that movie, the “prophet” is assassinated — we hope our bourbon-gravel voice won’t be stifled the same way.

Regards,
Samantha Buker

April 20, 2009

Tax Day Tea Parties, Unite was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

Let’s suppose for a moment that a charismatic Democratic President of socialist bent and a Democratic majority in both the Senate and Congress won’t ignore the payroll tax rebate when they institute the demanded hefty hike in the gasoline tax.  And let’s suppose the bill balances the tax and the rebate exactly right and the revenue is exactly the same after as before.  And let’s suppose the bill passes the House and Senate without accumulating any pork.  And let’s suppose the politicians don’t play costly political games with the way the new appropriations are apportioned or with what gets cut to pay for the rebates.  And let’s suppose it doesn’t cost any extra money to collect the new tax or send out the rebate checks.  And let’s suppose the government doesn’t derive or exercise any new power from its oversight of this new tax-and-distribute scheme.  And let’s suppose the politicians don’t come back a year later and say, “The payroll tax rebate is responsible for this year’s budget deficit.”  In short, let’s suppose we get only what the net-zero tax proposes, not a bargain with the devil.

Dr. Doddington claims there will be a net benefit to American families, particularly the poor, and a net improvement in the environment.  While I believe the goals of helping the poor and saving the environment are noble and laudable, I don’t think the net-zero tax will do either of those things.

First note the gasoline price increases will occur because of taxation, not because of a natural increased scarcity of oil.  Note also that the taxes will only apply to people within US borders.  True, the increased gas prices in the US will reduce US gasoline consumption, and therefore oil consumption, and will spur alternative energy research in the US.  The extra money spent on alternative energy in the US, however, means all the other real and immediate needs and wants of Americans—food, shelter, medicine, clothing, clean water, transportation, communication, education, etc.—will be ignored by the market to the degree it changes focus to alternative energy, so their supply will decrease and their price will increase, and as usual the poor will be the most affected by this increase.

But a reduction of US oil consumption will also increase the relative oil supply abroad, which will reduce oil prices in the rest of the world, and so foreign oil consumption will increase and foreign alternative energy research will slow.  Because of this, I wouldn’t expect any net benefit to the environment or any unusual progress in alternative energy research.

While it is true that the rich do buy more gas than the poor, the poor not only spend a larger fraction of their income on gas, they are already less likely to use their gas frivolously and will therefore find it much harder to conserve gas than the rich.  Unless the rebate “windfall” occurs much more often than once a year at tax season, the net-zero tax may be progressive as a whole as Dr. Doddington suggests, but for 11 months of the year it will be regressive and everyone will suffer.  If, however, it isn’t an annual rebate, but rather is a monthly or weekly rebate, the poor will come to rely on the checks as “government assistance” and budget around them, and so we violate at least one of our “not a bargain with the devil” assumptions from earlier.  It doesn’t matter that the first check will come before the tax hits, only that the windfall will come in regular waves.

Since the rich save and invest more of their income than the poor and the rich won’t get as much out of this scheme as the poor, there will be a costly economy-wide shift of resources from capital goods to consumer goods that will impede economic growth, but there’s a more important way this affects business.   Businesses pay the payroll taxes, they pay the gas tax on their company vehicles, they get stuck with higher prices from their suppliers and lower demand from their customers who both need to compensate for their own increased operating costs, and they see none of the rebate until the money trickles to them through the economy when the checks come.  Economy wide, I would expect a lot of small and marginal businesses to cut back production, lay off employees, or get bought or run out of business by large corporations that can absorb the cost of the tax hike.  I would also expect most of these businesses to be in the capital goods industry.

While it may be possible to propose amendments to the net-zero tax that would fix the above issues, I expect any amendment will create its own problems.  Dr. Doddington, I’m sorry, I think you’ve fallen for a misguided attempt to end-run around the broken window fallacy.  Even without the problems the net-zero tax creates with businesses, there’s no real benefit if we break 20 small windows to pay to replace one big broken window.  The best we can expect from an “equal exchange” like this is a net negative effect because of the costs of the additional government meddling and necessary economic restructuring.  Net-zero would only give more power to government and add turmoil to the economy, not put money into the pockets of the American people.

Regards,
Chris Hitzroth

March 26, 2009

A Critical Response to “A Net-Positive Gas Tax” was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.