The deals, fiscal cliff and Weimar

When the Weimar Republic went into a tailspin it was due to outstanding debt (war debt from WWI) that it couldn't repay coupled with a hoarding binge set off by the need to actually feed returning soldiers.  Hoarding of food started the German Mark going on an inflationary spiral as the amount of food dwindled the price of the remaining food skyrocketed.  As costs rose the German government tried to cover that by printing more money, thereby devaluing their currency which then caused foreign debt holders to doubt the value of their debt assets as they were getting paid in money worth less and less because it was not pegged to the gold standard.  When that happened hyper-inflation set in to the point where you had to spend a paycheck when you got it just to get anything of value from your work.

Money is an exchange value of work put in to perceived value for final goods, after all, so when any government starts to print money they are saying: your work is worth less to you because we can't manage the value of the currency.  Because there is an inherent work valuation in finished products delivered to market, when more money is printed the goods are worth more, as well, which is inflation: it is more money trying to chase a set intrinsic value of work investment in goods production and when the currency is devalued then more of it is needed to get that intrinsic value.

When the foreign creditors came knocking the German economy imploded with hyper-inflation as the government tried printing more money to the point where you needed carts and wheelbarrows to get money to a store on the hour you were paid... yes you were paid by the hour at that point and the government had set up rationing of how much you were allowed to get, but that was meaningless when you couldn't buy anything.  Finally the German Mark was worthless and everything ground to a halt in Germany: the banks shut down, the industries imploded and stopped manufacturing, and the agricultural sector only got by if they could barter actual food for work.  Thus you had barter.

Welcome to the land of the US 'fiscal cliff' brought on to you by the debt given to you by the US federal government which went off the gold standard under Richard Nixon!

The US debt by our government is $16 trillion and growing at a phenomenal rate.  The annual deficit, per year, of the federal government is heading north of $1.5 trillion/year.  The Federal Reserve (that set of private banks the US government allows to handle our debt servicing for a fee, lucky them! and the printers of cash) are now inflating the US dollar under the guise of 'Quantative Easing' I, I II and a limitless III, with worthless cash now sitting in reserve to cover the US federal government's spending because, surprise!, no one overseas wants to buy it.  The largest holder of the US federal debt is the Federal Reserve.

What is the 'fiscal cliff'?  The inability of the US federal government to get spending under control and wanting to turn the US economy into the Weimar Republic by being unable to stop the red spread of ink to cover the stuff that can't be covered by taxes.  This was approached just after the prior election cycle and a deal was made to keep the economy going: raise the debt ceiling for more deficit spending in exchange for keeping tax rates where they were under what became the Bush/Obama tax cuts.  Now the debt ceiling is approaching, the deal is about to end and the tax rates are about to skyrocket taking another chunk out of the US economy to go into the federal bottomless pit.  Capital gains taxes will rise from 15% to 20%.  The Alternative Minimum Tax, set up to hit 'the rich' way back when, is not indexed to inflation and will go up to take in about 30 million citizens who are far and away just in the upper middle class to rich category.  Because everyone, to some extent, has money in the equity markets and capital gains are utilized to garner money from the growth of companies, all Americans will suffer.  Once the taxes are in place there will be less incentive to gain money from capital growth and less reason to increase wages and earnings due to the cost of running companies rising due to the Quantative Easing.

The rich get this hit, the poor get this hit, everyone gets this hit.  Income tax goes up in each bracket so the lowest bracket goes up from 10% to 15%, the middle class goes from 33% to 36%,  and the highest bracket  goes up from 35% to about 40%.  Some other cuts expiring are the child tax credit, some higher education expenses tax credits and FICA goes up 2% on every wage earner.  Added tax for Medicare goes up by 3.8% as well as the brandy-new Obamacare. The Estate Tax goes up.  You see?  Fairness!  Everyone suffers.

Net amount gained?  $440 billion

Because of the deal there are also some spending cuts, mostly to the military, which are a figurative 'drop in the bucket'.  The entire US military could drop out of the budget and you would still have over $1 trillion in deficit spending without 'the deal'.  The 99 weeks of unemployment goes back to 26 weeks... and good luck in finding a job, eh?

So while the US economy locks up, there is that other thing coming around again: the debt ceiling.

For the $2 trillion plus $440 billion and change the US government gets in tax revenue, it spends $3.5 trillion per year.   And if you did make the military magically go away as the Left keeps on wanting it to do, you would only have... $3 trillion in spending.  Needless to say there needs to be some military to protect the Nation and we can start shutting down bases wholesale overseas to trim just a bit more out of structural costs.  In other words due to the amount the Obama Administration has asked for in structurally increased spending, the expiring tax cuts would only lower deficit spending from $1.5 trillion to $1.1 trillion per year.

Now what are the major line items that the federal government will have to rack up?  First is servicing that $16 trillion debt:

Debt Service: $250 billion

After that the military.  Now lets take a 20% across the board hit plus a bit more and give every Leftists a wet dream just to paint the rosiest of rosy pictures for them and they can't say I didn't give them what they asked for:

DoD: $400 billion

Say that leaves $1.75 trillion per year!  Say did you know that Social Security (FICA tax) and the Medicare tax don't cover the cost of those programs?  They are both running in the red with SSA cashing out 'special bonds' which will increase the cost of our Debt Service line... but lets say that it doesn't just to keep things simple.  Now you would think that ANY GOVERNMENT should be able to do basic functions on that remaining haul, right?

First up paying up on SSA:

SSA: $880 billion

Ok, you are down to having a total of $870 billion of revenue to spend!  Geeze, can't we get by on that?  Next up are the M&M's, Medicare and Medicaid (sans Obamacare), which aren't bad but aren't all that hot, either:

M&Ms: $800 billion, approx. no one can give exacting figures due to Obamacare cuts and changes

For $70 billion you can now fund the rest of the federal budget.

Now to be fair, Obamacare rightly belongs with the M&Ms, making them the MMO, so lets add in that to get the actual cost change to the system:

MMO: $920 billion (again inexact as NO ONE has an idea of the TRUE COST of Obamacare)

Your $70 billion to spend now goes into a $50 billion deficit, red ink in other words.

The rest of the federal government has not been funded at this point.  Here are some relatively mandatory agencies based on what their functions are (although do regard them with a huge grain of salt as they are summaries and, unfortunately, the actual functions tend to be small parts of a bureaucratic morass):

Homeland Security:  $40 billion

VA:  $61 billion

State Dept: $48 billion

INTEL Community: $0.5 billion

HHS: $78 billion (the overhead cost in personnel and such  to run MMO)

Interior:  $11 billion (but they want to close the parks!!!)

Treasury: $4.7 billion (remember the Federal Reserve is a quasi-governmentally chartered organization, NOT the Treasury)

SSA: $9 billion (the overhead cost of personnel and such to run SSA)

Cost to run these parts that are Constitutionally required (in whole or in part) or to keep discretionary wealth transfer payments going is thus

Cats & Dogs: $255 billion

To fund the C&Ds with Obamacare gets a $305 billion deficit, and without it a $185 billion deficit.

Everything else (EPA, Education, Justice, Labor, HUD, Agriculture, Commerce, Energy, Transportation, Corps. of Engineers, NSF, SBA, all of this stuff) gets zeroed out and eliminated from the US federal government.  The big goose-egg for funding, but the property can be sold off to get a bit of revenue, which doesn't matter a lot, but gets you something.  Also the regulatory behemoth gets it right in the heart and topples over dead as a doornail.

If the agreement made post-2010 is actually kept for taxes and then the debt limit is NOT RAISED, then what to fund in the federal government becomes a very interesting proposition.  Take all the truly mandatory (as in specified in the US Constitution) stuff and you get, in spending:

Debt Service: $250 billion

DoD: $400 billion (unrealistic, but fun to tweak the Left with on their wet dreams)

Cats & Dogs: $255 billion

Absolutely mandatory, by the US Constitution required spending: $0.905 trillion

That isn't bad.

Cost of voluntary spending:

SSA: $880 billion

MMO: $920 billion (again inexact as NO ONE has an idea of the TRUE COST of Obamacare)

Total spending on Entitlements: $1.8 trillion

Total spending: $2.705 trillion (but probably more as these things go)

Total revenue from all sources: $2.44 trillion

Total deficit in 2013:  $300 billion (approx.)

And no other parts of the US federal government left outside the mandatory Cats & Dogs.

This is the sort of math that gets done if you don't raise the debt ceiling: you make hard choices of what to cut, and something else outside of DoD (which I gave the Leftists a wet dream on) and more taxes is the issue as that voluntary or discretionary portion of the budget is set to be the long-term budget buster as no one forecasts those outlays to go DOWN as a structural portion of the budget, but only UP and sharply upwards.  Remember that before Obamacare was factored in you had a $70 billion surplus before you got to other mandatory spending and that other mandatory spending would have given you a deficit of $800 billion without Obamacare.  There is no way to run any of the math on Obamacare and have it come out cost neutral or actually cut the cost of the government because it RAISES the cost of government.  That one CBO report was so rigged, so based on non-adjusted numbers and static (meaning it didn't take into considerations responses to the law) that it was a lie, pure and outright.  It just doesn't work that way.

So if you cap off spending you then have areas you must cut.  You can save a bit trimming at mandatory spending, but that is not the problem in this budget: 'entitlements' are.

Let's say that everything was capped and, say, Obamacare not funded, a bit of trimming at State, HHS (unfunded Obamacare), unnecessary functions at DHS (like the TSA) and Interior (like handing back land to the States to get rid of overhead functions) and you get a deficit neutral budget.  What happens, firstly, is the regulatory overburden from the rest of the government, plus the subsidies to do inefficient things (like corn based ethanol and 'green' energy) go away.  So does DoJ, which includes the FBI, BATFE, and a number of other functions all blow into dust and Eric Holder is out of a job.  Labor goes away as an agency, and so does OSHA and all the federal overhead with it.  The EPA becomes dry gulch of unsustainable regulations no one will enforce at the federal level.  After that the Cost of Living Adjustments for SSA and M&Ms might be frozen for a few years and harsh means testing put in place to get the upper middle class off of the M&Ms.

Basically it is saying to the States: you are on your own.

It also gives a major signal to the credit markets: the US is now serious about paying off its debt and can be considered a secure place to invest as we are no longer in the red at the federal level.

The Federal Reserve to liquidate its worthless cash then starts to jack up interest rates to, say, 25-30% for 4-6 years which has a two-fold effect of making loans for a number of banks nearly impossible to make, but also draws in external capital and cash to start funding companies in the US that are now unshackled from the federal regulatory monster (although the tax problem is a major one, still, that regulatory overburden will allow companies to free up their own capital to invest).  Unemployment goes up for 2-5 years as the job market expands and new entrants try to find positions in it and labor participation rates increase, and this is a GOOD THING, unlike now where labor participation rate is dropping which is a BAD THING.

The worst of all scenarios is just agreeing on anything like the path we are on.

A half-way decent agreement would be one to scrap Obamacare and all the stuff Obama has put in, for an exchange of another debt ceiling limit raise which will also be the LAST time and that will be made clear to everyone.  This gets a couple of years to restructure entitlements, roll back government slowly, and get the Federal Reserve to stop filling up the swimming pool sized punch bowl for us to drown in and pull out the plug on the monetary Debt Star.

The best of all scenarios is for the House to hold out that Obama asked for the cliff in exchange for a one-time ceiling hike, and now that he has gotten all the taxes he wanted, he should be smart enough to figure out how to fund the government with $2.44 trillion.  He asked for it, so give it to him.  If this is what all these bozos got elected on (and that is what the Left is saying for taxes) then the agreement MUST be good.  Hard medicine to go cold turkey on spending, yes.  But it is, after all, what was agreed-upon: the deficit addict goes cold turkey after one last hit on taxes and then balances the budget in one year.  The Left wanted, with a vengeance, the 'Clinton Era Tax Rates' so GIVE IT TO THEM and demand a return to CLINTON ERA SPENDING RATES and the CLINTON SIZE OF GOVERNMENT to boot.  They loved the Clinton era so much, then tell them to bring it ALL BACK on both taxes and spending.   You can formulate your own approach, but the basics are to get spending in line, kill regulations, put the States on their own and let them all know: no bailouts for you.

These idiots Upon The Hill I expect to be the worst of all possible people.

Idiots.

Fools.

Debt Junkies.

And they HATE that your WORK is worth something to YOU and want to PUNISH you for being PRODUCTIVE.  They want to CONTROL YOUR LIFE from cradle to grave, take all you own and then have you THANK THEM for being so nice to you.

When you hear the words 'Grand Bargain' and it doesn't include any rollback, then you will have your answer if we are going Weimar or not.

No rollback: Weimar.

Rollback and government accountable to citizens: America.

I'm preparing for Weimar.

I am hoping for America, but hope is not a strategy, preparation is and sends a message all its own that is unmistakable.

Getting out of the fiscal hole

Our Nation has plied blithely past $16 trillion in debt, equal to our entire GDP, and barely rattled as it did so.  In truth the whole world is rattling and a bit more on our part isn't going to be quickly identified, although its longer term consequences will have a drastic impact on events at home and globally.  If the state of the federal level of government is unsustainable, a number of our States are as bad off if not worse off than the federal government.  CA is seeing an exodus of businesses and jobs as the tax rate, crony kick-backs to politicians, and bureaucracy seep into every area of life in an attempt to control it from the governmental level.  Like IL there is a huge debt problem of what is 'owed' to civil servants who have been lucky enough to get unionized and then enrich politicians via their unions so that they can have a say on both sides of the negotiating table.  Other States like NY, MA, PA, NJ and WI are not immune to this problem, as well, and each have similar problems of too much government promising and too little forethought as to what those promises actually mean.  WI is digging itself out the century-long hole of Leftist policies by simply cutting spending, requiring workers to put more into their own care and freeing up local counties and districts to be able to chart their own courses on fiscal needs.

The simple removal of bureaucratic overhead, spending mandates, and requirements to adhere to contracts that were done to reward the minority with the wealth of the majority in an unsustainable system are critical.  Sovereign governments are the source of contractual authority and, being that source, cannot be bound to the same laws that they pass for everyone else at all times.  That is a perilous thing to have sovereign government do, but it is essential to have a system of regular laws that are upheld for the benefit of all to the detriment of none, and that is part and parcel of the sovereign power, as well.  A sovereign government can, thusly, break promises and contracts for the survival of the sovereign entity.  Just as at the National level a sovereign government can break treaties with foreign Nations when they put the sovereign of the Nation at peril so, too, can lesser sovereigns exercise such authority in their domains of power.  Throughout history this is exercised only by the most corrupt of regimes or when a government is in dire peril of being liquidated for past problems it has caused: better to break the contracts, reform government and pursue the goals of the people as a whole than to be dissolved by that whole and start over.  Yet, as sovereign governments are the representation of the people who create the Nation, they can change or abolish the State (the government) when it no longer meets their needs and imposes unjustly upon them outrageous costs that no people should ever bear.

This part of the debt burden held by States is, then, amenable to State sovereign power which is recognized as distinct from the federal Nation State sovereign power.  The reason we have no laws for bankruptcy of States is that it is expected that this sovereign power will be used to address the localized problems and allow the people of a State to reform, amend, change, or abolish and create anew their government.  It is perilous to renounce debt as those depending on debt servicing get the shaft.  Russia learned this, to its dismay, when it renounced Czarist debt, Nationalized companies and then found that skilled management at home was absent and that no one abroad would invest in such a place that could not recognize its debt obligations.  When the USSR began to finally honor the Czarist debt and pay it off in the early 1980's, the end for their system was written in the need for outside help.  Socialist and Communist regimes are always born in debt and find it hard to do much of anything because they will not recognize this debt payment obligation. 

For the US, our States in the most dire of need will have to recognize the error of their ways, re-organize debt and stop accumulating new debt, which means breaking promises on retirement amounts (or even having any funds dedicated to such from government) so that the government can down-size and do its few basic functions and continue to pay its debt off.  Such debt can be re-negotiated, however, and offer pennies on the dollar but for those pennies it is expected that the debtor (the State) reform its ways and walk the straight and narrow and actually pay that amount.  If you want an example of what happens when that falls through, look at Greece, Italy, Spain and the rest of the EU that has huge debt and getting even pennies on the dollar is a pipedream.

To bring around States to the realization they can't finance their promises requires that those purchasing such debt recognize that it can't be reasonably repaid and stop purchasing it.  This has already happened at the Nation State level with the Federal Reserve now holding a massive portion of US debt.  That is to say that the ones running the printing presses get to call the shots in the very near term.  The flip side of easy lending to a government by a central bank is that the government becomes beholden to that central bank when spendthrift ideas are backed and paid for with debt obligation.  Once the Federal Reserve just acted as a for-profit pass-through of US debt (we paid for that service) but as our creditors have started to dump debt (read: China and Russia) the Federal Reserve holds such debt and can only balance it by creating new funds to pay in inflated dollars.  There are only two things the Federal Reserve knows how to do to deal with fiscal problems: inflate currency by printing more money or increase the interest rate to burn more money.  For all the window dressing on the Federal Reserve, that is what they do.

Total debt obligation for the US government and all the States is in the range of $70 trillion with some estimates putting it over $80 trillion, and none of that can be paid off with the current economy.  Even a booming economy for a decade can't do it.  Or two.  Why?  The spending doesn't stop and always outstrips tax revenue.  I've gone over the so-called 'entitlements' (basically taxes paid in to pay to current beneficiaries with IOUs from the Treasury for future payment now coming due) and would be remiss to point out that the next largest growing portion of the federal budget is debt servicing.  At some point in the near future the question will be: you can have 'entitlements' with debt servicing and NO other government, or you can have government's necessary functions with debt servicing and NO entitlements.  That choice will be yours.  The folly of the USSR points out what happens when you reneg on debt and it isn't pretty.

If the theme of the 2010 Tea Party election was 'Stop The Spending' then this message must be reinforced in this election to put it as 'Stop The Spending Now Damn It'.  Politicians, generally lacking in spine, find saying 'no' to goody giveaways very hard.  These politicians must be replaced, and if their replacements fail then they must be replaced and so on in a process I call 'Fire Until Competence Is Found'.  It is what President Lincoln did with Union Generals, and it works quite well and is eminently suited to the electoral process at all levels.  As citizens our duty is to get this message across AT all levels of government, and I heartily endorse taking part in any election at the local, county, State and federal level to drive this message home.  If we can get just a few more States beyond TX and VA into solvency, then a real path out for the spendthrifts can be pointed out as good examples to follow.

Stopping the spending is the most important part of this equation, and can (indeed must) act in concert with other portions of it to bring home the true bankruptcy of the 'entitlement' system.  Most citizens when they hear of the insolvency of, say, Social Security will point to 'guarantees', which were made by politicians.  Remind them that believing in a politician is the surest way to get in the hole and that these politicians must be held to account for their ill-actions.  No matter how 'good' the cause, the actions, themselves, are ill and need to be rethought.  With that said there now needs to be trust garnered by the federal government (and the States as well) that they understand that things not given to them to do in the small realm must be lopped off to show that government understands dire fiscal times.  At the federal level this means antiquated departments like the EPA, Education, Energy, Agriculture, Labor and choice portions of Interior that is holding land in States that the State legislatures have not signed off on the federal government having to control per parcel.  Perks must go, including large Secret Service details, flying first class and huge staff sizes at all levels of government. 

Structural reforms to get the federal government out of the home lending market ENTIRELY and to remove the ability of commercial banks to operate in that realm are necessary: a local banking system offers depth and flexibility that a larger system cannot achieve while remaining profitable and requiring local judgment on who is worthy of getting a loan.  The only requirement is that loans are given out based on fiscal background, type of loan, and if said loan actually is not at risk for being lost or devalued for the customer once given all of which are local decisions and can be handed to different officers in a company to judge just those factors shorn of all other outside factors completely.  This entire concept goes for student loans, as well, as we are moving out of the 13th century bricks and mortar schooling realm and into a 21st century realm with on-demand courses and self-paced systems now coming out to allow the bright to excel as fast as they can and the less bright to realize just what their limits are quickly so as to adapt to a better suite of skills to meet their individual talents.  For we all have talents in different proportion and they are least well served by diploma mill physical education institutions with a 'One Size Fits All, Fits None Well' approach.  And this is at the Primary, Secondary and Post-Secondary levels of education, not delimited to Colleges and Universities, although the loan part is aimed at them.  As a society we will adapt to the changing understanding that education is life-long, that touchstones are what one can do not how many classes one has attended, and that the greatest drive for education is self-education.  This will mean that what we consider 'vocational' systems will revive as those not suited to book learning but can learning engineering, physics, and chemistry by hands-on application will require these venues to expand, not diminish and they do require physical structures as they deal directly with our physical reality.

Trust building is a two-way street and government is ill-served by seeking power to control those things it is not designed to do.  Reduction in federal regulation and putting that burden on the States means adaptable responsiveness to local and regional problems as States can work with each other without the requirement of federal oversight.  So long as they do not put bias in the internal trade system of the US, States can work together to solve regional problems via State to State agreements run by the States and held accountable by the people in them.  Handing back control of natural resources (i.e. having lands held by the federal government go back to State control) means that these localized system which are adaptable to local concerns can be put into play without a straightjacket of having to put in tropical screening in facilities above the arctic circle.  As ND has shown with some spillover to MT and SD is that State and regional resource exploitation can be done competently, within reasonable accommodation to the environment and still get one heck of a return.  CA has so much oil off its coast that it comes out in seeps, but because of regulations the pressure can't be relieved by drilling because of environmental fears... which are being realized by not drilling the oil pockets.  Not everyone will succeed equally and some States may never get a clue, but that should not be for lack of good examples by other States.  As the States have demonstrated good and responsible capability for near-shore drilling and exploration, they have a track record of success and the federal government should withdraw its regulatory schema for economic zone drilling and put that in the hands of the coastal States as well.  Pipelines that cross international borders only need Nation to Nation agreement on the crossing and the internal apparatus of each Nation in Provinces and States be allowed to find the best routing solution for them.  As the Nation needs refining capacity (we are now exporting crude oil for refining) the States should serve as the focus for this local concern, as well, and perhaps provide federal land that is too contaminated to be used for much of anything to the project.  In short the federal government really can demonstrate trust by removing regulations and supporting States and the people to figure it out for themselves.

In short removal of regulations for labor, environment and agriculture, along with a host of others for education, energy and land use, puts the most capable and local of government in control of their own destiny.  Yes there will be those who don't do so well, better a few fail and we garner good examples from others, than to fail everyone by doing nothing or doing a little poorly or not well by fiat from the federal government.  Getting prosperity back requires these things and a comprehensible tax code.  As I pointed out previously to this article, exemptions must be eliminated as tax rates are lowered to get a net tax rate that is lower than the purported rate, but is closer to the rate already paid with exemptions and other write-offs.  The entire set of write-offs can be eliminated to get a flat tax, payable by all who earn income of any sort, with only some lowering of rates below the poverty line so as to lessen the impact on the poor so that their amount steps up towards the norm for those above the poverty line as they make more.  This is equality of the tax code and puts citizens into the drivers seat by not collecting taxes by having businesses do it, but by those who vote understanding the direct cost of what they vote for once per year.  This would also mean rolling in separate taxation for 'entitlements' (like FICA for Social Security) and removing them as separate line items, which simplifies the tax code.  Former Soviet States like Latvia, Lithuania, Estonia, Albania, Russia and others have all concentrated on this as it eliminates tax avoidance and puts a stronger assurance on compliance and a better feel for revenue over time.  An assured revenue stream is mandatory for paying down debt obligations.

Now as I am not a set-size pie person, the way to remove debt is to make more in hard currency: produce more wealth.  Remove the wealth reducers in regulation, tax policy and other bureaucratic overhead is necessary and often results in economic expansion with diminished boom and bust cycle depth as artificial causes of bubbles from government disappear.  You still get such cycles, but that is because of increased technical capability removing older industries and that takes a hard change-over as expectations for existing industries go down and new ones arise.  Creative destruction is for the betterment of all mankind, to produce more worthwhile goods at a lower cost so that more people can afford them to lead better lives.  Luckily, this is a very profitable endeavor and can't be done without the profit motive to do more and gain more for any given produced unit of an item or service.  Thus the future must be examined for what it brings.

Until we get to quantum computing we will see an expansion and filling-in of the now old cyber structure of the digital age.  With hard physical limits for silicon and reduction in circuit size now being reached the realms of nanotech, quantum tech and biotech will all serve as future platforms for expansion and they are in their most nascent stages of development at this time.  Even awaiting those areas (and the new companies and industries that will make them) the older technology for personalizing computing and laboratories will create labs on a chip for home medical diagnostics when, coupled with expert systems, will expand and reduce the cost of everyday medical care.  Put robotics in with that and you get Larry Niven's autodoc, where you step into a booth or lay down on a bed with automatic scanners and medical tools to do everything from examine your daily health to stabilizing the condition of someone who has been in a horrific accident, perhaps with some surgical needs addressed immediately and specialists on-line to deal with the worst that can happen to an individual.  This will remove Medicare, Medicaid, and even medical insurance once done and the technology is starting to be integrated today to put scanners together with expert system software.  Autonomous robotics is also advancing and when applied to medicine and surgery, the cost of everyday care and even minor surgical procedures will drop as they become mass-customizable by technology.

I have already addressed schooling and the manual arts, and these, too, will be augmented by low cost computing platforms that are autonomous or semi-autonomous.  Because our structures are not designed for automated maintenance, there will always be a requirement for manual labor to repair existing infrastructure until we can adapt technology to it or supersede it with better ways of doing things.  If you do construction in New York City you must deal not only with modern pipes, power cables, conduit, etc. but those left by previous utilities dating back to the 1840's if not earlier, and that is not something that robotics or autonomous systems will handle well for some decades yet.

Returning to space for commercial activity is already on the drawing board, and going back to the moon to exploit its resources (mostly for space use and for those items that can only be made in micro or zero gravity) may start out with remotely operated vehicles or semi-autonomous vehicles, but will require some amount of direct human oversight at some point in time.  A minor asteroid brought into Earth orbit (or Lunar orbit come to that) can be easily rendered into separate elements by the process of solar mirror melting.  Put a bore hole into the interior, deploy a few square kilometers of thin film reflector to concentrate sunlight into the center of an asteroid and perhaps a thin film enclosure to capture escaping gasses and just let nature take its course.  When thoroughly melted the micro gravity will separate out the elements and then when it cools you get concentric shells of denser and denser elements presorted by atomic mass.  Other methods can be used to remove hot melt by layer and re-melt layers so that they are more easily dealt with when solid removal can't be done quickly or efficiently.  An asteroid of just a few hundred tons might yield a ton of gold or silver, and many more tons of iron, cobalt, nickel and copper.  Essentially the same can be done on the moon, as well.  In all, expansion of an economy when done on this scale is no longer that of a Nation State as we now know it, yet the basic economics never changes and no matter how much money comes into a government, it always seems to expand to absorb more and more of it.

For all the good news to come about, it is up to the citizen to put government on the strictest of diets and boil our social questions out for open and frank discussion.  The morality of taxing the unborn to pay for the current elderly and sick is one that does need to be in the open as the deceitful discussion led over the prior century has attempted to sugar coat something that no one in their right mind would agree to.  It is up to each of us to learn how to deal with the things life hands us for good and ill.  I've made no plans based on: Social Security, Medicare, Medicaid, or any other 'entitlement'.  They will not last forever no matter HOW MUCH MONEY the government gets because any government that sees fit to remove liberty for this cause will do so for ANYTHING and then use its removal as a club against free men.  That money is gone and overspent many-fold, and isn't coming back, isn't in a 'lockbox' and treats our children and grandchildren as our ATMs.  We have garnered much material wealth and a bit of better health with that, and if we must do without we now have that as a cushion to fall back on when we realize that government is not a guarantor of retirement, health care or any other thing. 

We are.

As individuals and in our cooperation with each other to create accountable systems that meet our needs outside of government.

That is why we seek to have a just government that can uphold contracts amongst us, and understand that it must guarantee that system while we understand that often our best impulses come to the worst ends via government.  Our essential duty is to learn this and teach it to our children: free men take their lives into their own hands for good and ill and we also must create the means to catch those who fail in this.  That is not the task nor role of our government, to be positive to us, but to simply uphold the just means so that we can achieve the good things that create a strong society and a free population.  When we do wrong, even for the best of reasons, we admit to it, mend our ways and pay off our debts and NEVER burden others with this especially those who have NO SAY IN IT.  Which is our children and grand-children.  If we are far on the side of lax morals now, we can always straighten up, take our lumps, admit our humility and uphold our duty and right to pay off our debts and stop doing the asinine things we currently do with such good words that belie such ill outcomes.

We are can create that future and get out of this fiscal hole by forcing our government to stop trying to provide an easy life that none can afford.

Life isn't worth living because it is easy.  No it is death, death is equal to all and easily found at all times across all classes of society and respects none.

No, life is hard to fight for, hard to keep, hard to maintain and must be all those things so that we can create a better world for all mankind to enjoy the fruits of their life.  And not have it picked from them by government to go begging for the rind of the fruit while government sucks the succulent flesh from it.

It is for these reasons I vote.

I am happy to vote, but it is too important a task to not take as an earnest duty and obligation to my fellow citizens so we may all be free from government's tender mercies.

The clothes have no emperor

In watching the first Presidential debate I came away with a few basic ideas and wrote those up at Hot Air, which appears to be my initial post point for ideas.  I slept on the ideas, and posted them the day after and will now put that out with all my standard provisos on WYSIWYG, no corrections for anything, just simple copy and past and then concentrate on one area:

So much good from last night it is hard to know where to begin.

Just in overview I noticed that Romney was transitioning between topics to keep up with the debate outlines, so that when Lehrer had to go to the next area it had been softened up by Romney ahead of time. Giving Obama the lead position meant a lot in that Romney could get the last word in which shifted Obama from offense to defense at a few points throughout the night. Together this effect was devastating.

On the major plus side Romney put out how an executive deals with problems in government: you lay out a policy and then have to adapt it to the legislative branch and what it is willing to do. This is what an executive DOES – lay out policy which then drives the argument and direction of legislation. You don’t need miniscule, point by point things to do if you give the overall direction and theme of what you want to accomplish. Those were laid out quite well in multiple instances.

Taxes would go down but exemptions would be eliminated meaning that the end marginal rate is a goal and it is a rate with few exemptions to it. This reduces overhead and makes understanding the code easier, not harder. It also is an aim to remove all the loopholes put in by the letter street cronies that the Left used to complain about. In the end more people pay taxes, but the rate is lower so that there is less taken out of the paycheck, meaning more take home pay. This was not lost on me and seems like a good way to start repealing the crony tax system to get to a flatter tax. A good start.

Thematically Romney laid out that all government expenditures must be balanced by asking: ‘Do we want to pay China for this by having them bankroll our deficit spending that our children and grandchildren MUST pay off for us?’ This is killer. If he really and for true means this, then the morality of spending has just been put into play in a big, big way and everyone wanting ‘entitlements’ is now on the defensive having to justify putting future generations in debt for current spending. That is a game changer if pressed home and to the hilt. Putting the spenders in the position of immorality (instead of the cloak of doing good) is killer: put the red letter D for DEBT around their necks and point out how wicked their spending is to future generations and how lacking we are in wanting to do that.

Just so many good points… Mitt Romney did the startling thing of knowing Obamacare AND Dodd-Frank better than Obama, inside and out, which is no mean feat. Dancing through the problems of the legislation and making it sensible was stunning as NO ONE on the Left or Right has done that to-date in such a thorough way going point-by-point. And that point-by-point way of addressing concerns is yet another executive trait, meaning that problems are assessed and prioritized before-hand. Just amazing.

In one night Mitt Romney has demonstrated that he at least gets the fundamentals of the Constitution and Declaration and why they are intertwined and what that means for policy. Giving an overview of the 10th Amendment, while short, means that he has another area to flesh out beyond just block granting stuff to the States. Combined with the morality, or lack thereof, of spending, he has a potent arsenal that can only be utilized if it is backed as POLICY. Not programmatics but that thing that drives programmatics. If done as POLICY then this is the beginning of a sea-change in politics.

His job would not be one of reaching across the aisle, however, as the Tea Party begins to dominate the Republican Party… if 1/3 or more of Congress is held by Tea Party members, then they become the drivers of legislation because of the two parties and the fights become one of the establishment against the Tea Party which is a whole other fight and unlike anything seen for over a century in America. If we put in the hard work, then we will give Romney a very, very hard job to do and require him to live up to what he has laid out for us tonight. It isn’t about an election, but changing the course of the Nation away from its current disastrous path. I do disagree with some programmatics from Romney, yes, but it is up to him to show that he really does understand his policy direction… and if he doesn’t live up to those themes, I will have no problem in 4 years voting for someone else. As of last night, however, it can be said that the direction of not just this race but the entire dialogue of what is moral and just in government has been put into play. Fairness is in the eye of the beholder and that loses out to equality for all and upholding a moral standard and good so that our children will have the chance to prosper without our debt loading them down.

Prepare for weeping, wailing and gnashing of teeth from the Left over this as the basis for politics is now changing beneath their feet.

ajacksonian on October 4, 2012 at 6:19 AM

Here I would like to concentrate not on the morality of debt or spending, although morality does come into play, but of taxes.  I know the morality of taxes is a dry subject that the Left figures it won somewhere around President Wilson, but lets start with the can opener and look at taxes, deductions and marginal tax rates.

For this exercise I will use totally made up numbers for a highly simplified tax system with some embedded carrots to get you, the taxpayer, to do what the government wants you to do.

In this case there will be two families, they will have definite similarities in that they will be a 4 person household with two parents and two children.  In this tax code they will each get 'benefits' of deducting $100 per person and an additional $500 per child per year.  Each family gets a 15% write-off on their home mortgage interest payments and a general write-off on all income of 5% which I'm tagging for medical expenses.

Family 1 has an aggregate income of $30,000 per year, a 25% tax rate, a home mortgage payment of $1000 per month and 95 percent of that is interest as they haven't been in the home long.

Family 2 has an aggregate income of $55,000 per year, a 30% tax rate, a home mortgage payment of $1500 per month and 90 percent of that is interest as they have been in a somewhat better home for just a bit longer.

Now let me break down the numbers a bit so you can get an idea of how this 'removing deductions and lowering rates' works.  These numbers just reflect this made-up tax code system with just a few simple parts to it, so no griping about how they don't reflect 'reality' or real numbers – they are just math.

	Family 1	Family 2
Federal Taxes	$7,500	$16,500
Standard deductions	-$400	-$400
Child tax credit	-$1,000	-$1,000
Mortgage interest deduction	-$1,710	-$2,754
Standard medical deduction	-$1,500	-$2,750
Net Taxes	$2,890	$9,596
Net tax rate	9.6%	17.4%

 

When it is pointed out that NO ONE pays the tax rate for their bracket, this is a truism as NO ONE  actually pays that load due to the loopholes, give-aways and write-offs in the tax code.

Is a tax code that rewards behavior by the power of government a moral one?

On the positive sides it does things that government in the form of Congress and bureaucrats want to see happen in the economy.  It is, in other words an enticement to you to do certain things even if they don't make any sense at all for you to do them.

Taking the deductions line by line:

1) Why should you have a deduction for being yourself?  And why do those who live with you who depend on you get a deduction?  You are a citizen, after all, and so (with a bit of luck) are the members of your family.  What is the earthly reason that you should be able to deduct anything on taxes for these people just as citizens?  And, really, isn't that a bit denigrating to say that you 'deserve' to write-off such individuals who are, after all, part of the whole of the people?  Why not lower the tax rate and just do away with that? If this is meant for 'the poor' then set a point of minimal, subsistence living under which no taxes can be paid and be done with it.  Be generous and peg that at 4x this deduction and you now have the ability of a family of 4 to earn just enough to feed themselves.  Putting this loophole in is condescending from government and treats you as a dependent of government... yet YOU are the one earning the income which government is trying to take away from you.

2) The child tax credit is a simple loophole to make children more 'affordable', sort of like that new home you wanted to buy at inflated prices, but with a higher cost of consumables over time.  This is treating children as a 'burden' to adults, not as new life to be cherished. It is also a very recent addition to the tax code (with the income tax, itself, being only 100 years old in the US) and much fought over for a few years until it got inserted due to 'family values'... of which are included kick-backs from the US government, apparently.  Isn't that a lovely 'conservative family value'?  Call it what it is, not what it is sold as, and that changes the entire view of the deductions and their purpose.  Plus it is small ball, stuff, meaning that you can be easily bribed to have a larger family.  Yet another 'family value' apparently.  Even better if you make so little in taxes that your marginal rate drops below zero, you get a bonus gift from the US government: a pay-off.  Kick-backs, pay-offs and bribes: all 'family values' via the tax code.  Just what you want children to learn about growing up, isn't it?  How to become a nice, subservient crony to the system taught right there at home with the tax code.  With the tax code as it is, why do we need a Dept. of Education?

3) Next up is the vaunted, much lusted after mortgage interest deduction, one of the two main ways to reduce your tax obligation!  Yes, say that you want to touch that and you get roasted over an open flame.  Yet what, exactly, is it?  You take out a mortgage based on a few things: you need a home, you seek to limit tax liability, you believe that you will make more in the future, you think the home will appreciate in value.   These are not the traditional things that people have thought about prior to Ginnie Mae and the 'securitizing' of debt vehicles in the home mortgage market by the federal government (done under the Nixon Administration at the suggestion of the Dept. of Labor, of all places), at least some of the latter – the need for a home and reducing tax liability were key before that era starting in 1970, and prior to the 1930's only the ability to actually pay for a home mattered due to lack of write-offs before then and the FHA.

What is this yet another side of kick-backs, pay-offs and bribes by the US federal government via the tax code?  Unfortunately, yes.

When the banks were left to their own devices they required some things of people purchasing a home: 20% down, a work history, a known business you worked for or (as an owner) a steady ownership record, and the ability to actually afford maintenance on your home (about 1% of its cost per year).  Back in that era the bank was local, the person who managed mortgages knew the area and neighborhoods, and your mortgage was kept locally as a part of a portfolio held by the bank.  You, as the lendee, were known and probably had a working relationship with that bank to start with, meaning they knew your family's situation and could give some leeway on paying back during hard times.  To achieve all of that you had to demonstrate the ability to work, to save, lead a thrifty life, manage your household expenses, be reliable and understand just what the burden of owning a home was.

Today we have the enticement to banks to lend to NINJAs, people with No Income, No Job or Assets.  Your mortgage interest deduction started as a way to 'ease the burden' of home ownership and to entice more people to purchase homes.  All well and good if you still had to place 20% down, I suppose, but it is a kick-back just the same.  Still the larger banks saw that there was an 'opportunity' in the mortgage market if only the pesky regulations could be changed to stop them from entering it and if they could get some assurance on the value of the debts in far off parts of the country.  Aren't you glad the US federal government got that done to destroy the Savings & Loan industry and press local banks out of the market and out of business?  Because of the S&L crash the opportunity to change regulations further to open up the spigots for the larger commercial banks was done through the crisis of that crash: never let a good crisis go to waste.  Through activists at the bottom, local banks were pressed into giving loans in bad neighborhoods where home values were at threat from local conditions, and then made to give loans to those with lesser work histories and less down on the mortgage.  Home values, with the entry of the commercial banks, started to rise far faster than their 1-2% appreciation that was historical to the late 1960's, and the idea of a home being an 'investment' safe from most of the problems of normal affairs took root.  Once a final safe haven of IRA's were put in, then homes just became another investment vehicle with an expectation of appreciation over much shorter periods of time.

That was achieved by the home mortgage interest deduction, the lowering of lending standards for commercial banks, and the forcing of loans into areas that were marginal and required some civic renewal (read: redevelopment and investment) to be worthy of having loans floated to them.  These conditions created a bubble in the home mortgage sector of the economy and it popped circa 2007-2008.  The regulations pushing all of this are still, to this day, in place.  Including the vaunted home mortgage interest deduction which makes it 'affordable' to own far too much home for a given income (because those restrictions were 'loosened' as part of all of this, too).

Doesn't that 'old fashioned', local and largely unregulated but highly protected banking system with stable neighborhoods and firms sound nice today?  Wouldn't it be nice to have people who actually were thrifty, were able to understand the value of a home as a place to live, and who didn't look for kick-backs and bribes (if not outright coercion) to banks to give loans?  The large commercial banks are only a part of this problem, albeit a large one with enormous long-term impact and structural degradation to local communities. Every individual who bought more than they could afford, purchased without income or assets, or who could only swing purchasing a home with the deduction or because of the deduction is part of the  problem.

Is this deduction a moral one?

Are the regulations that followed on to it, that inflated expectations, reduced valuations and were in search of more money flowing through the system to cause a large-scale systemic collapse moral?  For these regulations are the problem, not the solution.  In this imaginary system this line item accounts for 1/5 to 1/7 of the reduction in liability, but in the actual world people searching the quick flips, the quick turnarounds, the easy sale, the inflated home value up to as much as 10% per year allows for the exploitation of this write-off to reduce liability even further.  It was a tax dodge put in by cronyism with the willing assent of the bought off citizen who purchased a home.  It is the money-grubbing that was exploited by government and banks to utilize the home owner via pay-offs to inflate the system artificially to cause temporary 'prosperity' that then crashed hard and deep, and has a major crater still lingering  in the financial structure of the Nation that neither Democrats nor Republicans want to remove.

Are these the values you want to teach to your children: that pay-offs and kick-backs, cronyism and the expectation of getting ripped off are the norm for government regulations and that one should take part to make a quick buck while they can?  Is that the basis for a moral family arrangement when your children see YOU in that light?  And when you happily slap that bumper sticker on your RV that you are spending your children's inheritance then what, exactly, is the message that you are sending?  That you got yours?  Hurray for me and fuck you?  Because that is the message we get from such regulations and they do not bring about a stable nor just society, but just the opposite.

4) A standard deduction for medical expenses.  This, in various formulations, is currently in the modern tax code and became embedded in it during WWII as part of the enticement to get retirees, the unfit and those who were marginal in the workforce to join in the industrial war effort.  Women, midgets, the blind, those stricken with polio, the elderly... all of these people had to be enticed to work and the one easy way to do that was via what had been for decades, an executive 'perk': health care 'insurance'.  Prior to the war effort the idea of having health care 'insurance' was limited to the very upper class of society.  Why?  Because it is uneconomical to provide it, save as an enticement to a high experience, highly capable executive as part of a package of goodies to get them to work for a company.  To put it bluntly, that sort of coverage is too expensive to afford.  In fact companies couldn't afford it for their workers prior to WWII.  Luckily the crisis of necessary wartime production meant that businesses lobbied Congress to get a tax write-off put into the tax code so that a percentage of the cost wouldn't be taxed, which was about 40% if memory serves.  Why is this uneconomical?  And is it moral to have this in the tax code at all?

Health 'insurance' isn't real insurance where you are betting you will get sick and the insurance company is betting you won't.  The expansion to regular health visits, check-ups, tests, hospitalization and all of that has many features that are recurring on an annual basis, and often more frequently.  Covering medications also has a recurring and regular cost to it, and this is not a feature of any other type of 'insurance'.   Prior to this write-off individuals could get true insurance for forms of catastrophic care, accidental death and dismemberment, and even such things as investing in long-term care while young by having a stable family.  Thus this form of 'insurance' must have a high premium to it, because it is covering so many expenses for so many people that there is an overhead cost to it that is far beyond any other insurance around.  Instead of a secretary and a couple of actuarial people, these companies must employ a raft of experts, forms processors and other individuals that has grown larger over time.  Further they have taken on negotiating with hospitals, physicians and groups of same for reduced prices for the insurance members.  What used to be something that you paid directly and negotiated with the physician or hospital now had an intermediary involved, and whenever you get a middle-man, you get the cost of the middle-man as part of the system.  Without a write-off businesses could never afford that additional overhead cost for their workforce.  Period.  It costs too much.

When insurance companies put the screws on providers, by promising volume to make up for lower cost, any shortfall is passed on to other customers.  All well and good until you get to the Johnson Administration and the start of Medicare and Medicaid.  When the US federal government starts to tell what it will pay for procedures, and they are not the going market rates but below them, then the cost differential must be made up by physicians and hospitals to stay in business.  That is cost shifted to other patients, which means that insurance companies both inside and outside the M&Ms see the cost of care rising, which they must pass along via higher premiums only a portion of which can get a write-off.  Your cost of care rises.  The federal government only exacerbated a pre-existing problem that it caused in the first place, and neither Democrats nor Republicans removed the uneconomical tax write-off after WWII.  The very vocal minority that told of the problems of the 'Great Society' medical programs proved not only prescient but having too limited a vision of the actual rate of increase of costs involved.

Why is overhead cost important?

Overhead cost is a burden to whatever the transaction is that is going on: stores have square footage, personnel, record keeping, liability insurance, lighting, heating, janitorial work all of which are just part of overhead cost.  Insurance companies have this, as well, so that when a transaction takes place the cost of their negotiations is added into the fray, as well as the cost of making sure that charges passing through the system are not fraudulent: it is their money they are handing out, dues and such are only payments to them to do this job.  Thus whatever the actual cost of an item is, it must have the burden of overhead added on to it and medical care is no different from any other transactional service be it getting served dinner at a restaurant or purchasing a computer from an online store.  To put it simply, the cost of the system is increased with middle-men and their burden added to the system as a whole and YOU pay for it either directly or via cost shifting to others.  As with all other transactional systems, the fewer intermediaries that there are, the lower the end-user cost will be in the aggregate and often for each individual summed up for their entire usage of the system in their lives.

Today the system is so rigged, so encrusted with tax changes, with so many kick-backs at the federal and State level, with so many cronies and lobbyists seeking line items in the budget for themselves that NO ONE knows the true cost of medical care in America save that without all of this burdened overhead it would cost FAR LESS than it does now.  Coming from the federal government and seeing industrial and governmental non-productive time and generic overhead cost burdening that delta could be as small as 15% and as high as 65%: what you pay, overall, for all medical treatment and medications in your lifetime could drop by 15% to 65% overall, in aggregate without trying to make the damned system 'fair' to treat 'special cases' with high cost and even higher overhead differently from everyone else.  That delta is picked up by this thing known as 'charity' run by religious institutions, citizens dedicated to the cause of helping others, and special interest charities dedicated to single diseases and their medical costs.  By depending on insurance and government this charitable system is on the rocks and slowly being eroded away in its entirety as it doesn't have the lobbyists or the capability to write-off as much as larger institutions because they lack the scale to do so.  Once they are gone the lowest cost anchor of the system will go with it and the costs that had been merely way too expensive will go to impossible to pay because there is no way for charity to compete in a crony system dedicated to undercutting charity to the benefit of the cronies and politicians.

That is not only immoral it is reprehensible.  Yet you sustain it via tax write-offs for yourself in the tax code.

And all in search of the objective: lower taxes.

5) That bottom line is what we are all seeking via this system, and yet we achieve it in the very worst of all possible ways.  The income tax was promised as never going beyond 7% and that only for the fat cats, yet in 7 years its highest rate was 70%.  One of the interesting drivers for the tax code, beyond 'soaking the rich' was in the quest to get the US federal government another source of revenue beyond its main one: liquor taxes.  The hard drinking US had problems, which first brought about individual organizations seeking to reform drunkards (like the Washington Society) so that the familial problems of drinking could be alleviated by reforming those who drank too much liquor.  Yet most of the US government's income was on liquor and it sustained the Nation up to the Progressive era.  Temperance, sobriety and using government to enforce these things was a Progressive agenda item, backed by powerful lobbying organizations like the Anti-Saloon League.  Getting dry counties and dry States was not enough as people could go elsewhere to bring drink back home.  The idea was that if the US Constitution represented the moral fabric of the Nation, then amending the Constitution would change the people to a more sober and moral people.  Yet the only way to do this was to find an alternate revenue stream as liquor was very much the life-blood of government.  Thus the income tax, warned against and written against in the Constitution, had to be put into place before the political power of the Temperance Movement could come into play.  With an alternative revenue stream, Prohibition quickly passed and proved that human nature is stronger than the US Constitution.

We are left with the artifacts of a directly elected Senate system and an income tax system, both prohibited by the original Constitution of the Framers.  That system had everyone being assessed equally for the cost of the US government and then apportioning that to the States for getting the revenue.  The States figured out how to get the revenue: sales taxes, property taxes, direct levies, bake sales, it was left up to the more local to figure this out, not the National system.  That is both a moral system and a 'fair' system in that it adapts to local situations as dictated by the people at a much easier level to control.  Everyone gets a stake in the system.

Today the idea is to avoid taxes, have the rich pay the way of the poor and do everything in one's power to pay as little as possible to a government that must stand for all of the people.  Instead of passing the burden to States, we now have the problems of the States at the federal level and we are left with only the people as the means to address the ills of this system.  The failure of our government, our businesses and ourselves via human nature have now put us into a desperate situation.  To gain earthly goods we have accepted pay-offs to avoid questioning the moral cost of them.  For the pursuit of having someone else pay, we now pay in the dearest coin of all: our own self worth.

When Gov. Romney puts forward the morality test in spending, it must be something that is far beyond spending because spending requires a source of that revenue, and that can only be taken from the people of the Nation or borrowed from others.  We put ourselves and our future in the hands of others when we do that, and it matters not if it is other Nations or 'the rich': you dance to the tune of the piper and when you pay nothing you are obligated to dance to their tune.  It isn't immoral to hand our children and grandchildren our debt, it is immoral of us to incur it in the first place and shows our own lack of self worth and valuation to accept that cheating pays, that avoidance of paying taxes pays, and that instead of expecting all citizens to take up our common burden, we seek to shift it only in one direction: ever upwards to others.  To be a free people we must all pay our way, even the destitute as I am sure that we, as moral people, will form charities to help them pay for some small citizen so they can learn the value of being a citizen.  That is also an obligation to actually be productive, of course, and to care for not just oneself but one's fellow man.  If we do not expect it of ourselves, the non-rich but not destitute, either, then how can we expect it either of the rich or the destitute?

Once morality of government in its size, scope, power and cost are all brought into question, the very tax code we have then comes in for scrutiny.  In my fictional one for people of moderate means I get something between 10 and 17% as a net tax rate.  If we shear out the immorality of the system, get a flat tax of a given amount, and then say 'we must live within that', then we are on the path of being moral and righteous in our actions because we sustain ourselves and our society by swearing to pick up the burden for those who fare less well and to pay our own way to sustain us all.  No matter how much you may like the special treatment, the kick-backs, the pay-offs... they get you the cronyism, the complexity and the resulting immorality of treating people differently when we are all citizens and created equal.  To claim ownership of yourself you must be able to deny government the right to control you via economics and its own petite tyranny, which soon grows fat and becomes a true tyrant in its own right.  The tyrant of the bureaucrat.  The tyrant of the rules.  The tyrant of the cronies who seek to escape scrutiny by buying off government to get paid-off by you.

I am sure Gov. Romney hasn't gotten down this far in his thinking.  But that he has taken a step in this direction is not just unexpected but refreshing.  Because once you start to question the morality of borrowing and expecting your children to pay it off for you, then you must begin to question the taxation and just what it is you are seeking from it in the long run.  A Nation of free men must be able to admit the burden they bring, carry their own and help others less able and to do so openly, honestly, and not via subterfuge of collection via the shopkeeper or the ease of the transaction stealthily burdened by the politicians in the back room.  Force it into the open, force it to be discussed, and then come to an agreement in common and cement that baby down and make it toxic for any power hungry ideologue to even think of touching it.  You don't win your freedom and keep it by paying stealth taxes, but by putting the tax man out in front of all to see and saying: do your damn job and stop trying to steal us blind behind our backs.  For what they rob is far dearer than mere coin, and far harder to win back once lost.

Pathway to recovery

The following is a personal perspective paper of The Jacksonian Party.

What follows are my current set of thoughts on the general state of the federal budget.  Do note that these have changed from my earliest articles and now represent a better understanding of the impacts of federal spending and attempting to cover certain areas.

Getting the federal deficit and debt under control requires that the size, scope and cost of government be addressed so as to remove those portions that are costly, too large or not Constitutionally mandated.  In rough times Americans understand the need for austerity and our government should be a reflection of the people and do the same so as to get its fiscal house in order.  This will mean changing how we view the form, fit and function of government at all levels from the local to the National, and none can be spared.  The best place would be to start with the local, but that is something that must be done locally, and even within the States it is the fiscal position of each State that is different that will require different remedies, so cannot be addressed in an overall fashion.  Only at the National level can the federal government be addressed for all people, because it represents We The People.

Any austerity program at the federal level must include the following:

ENTITLEMENTS

These are the goodies that government promises to sectors of the populace by taking money from the productive sectors of the economy, which includes working individuals.  Government bureaucracy has proven startlingly ineffective, inefficient and incapable of actually keeping money in a 'trust fund' and has had that concept made obsolete by laws passed under the Johnson Administration.  The there is no 'trust fund' and no place where money placed in it is 'held' for you.  The 'trust fund' is IOUs from the Treasury with a promise to pay them back when needed.  Whenever current receipts cannot meet outgo, those funds are called upon from the Treasury.  Social Security went into the 'red' this year, which means it ran out of current receipts and now was getting money by cashing in the IOUs.

It should be noted that this increases the deficit by removing available funds from the rest of government, and goes directly into the debt.

Medicare and Medicaid are both medical systems made to help the poor and elderly that are also famous for having a poor bureaucracy, bad finances, a history of negligence and a basic inflator that keeps moving the cost of treatment up over time while never covering the full cost of treatment or medications.  These programs are pure outgo: they take from the general funds and are always in red ink due to skyrocketing costs of providing funds via this system.

Together these three entitlements account for all the income taken in by the federal government.

All else, including interest on the debt, is paid for by deficit spending that increases the debt.

This system is terminally broken and will break the Nation if it is not shed from the National level.

For SSA any attempts to change the 'retirement age' or index pay outs or any other side-issue is an attempt to foist this disaster on our children so that they get stuck with a massive bill and a country that can't pay it back.  That is immoral, unethical and sounds something very like indentured servitude, which is outlawed.

Thus these must end at the federal level.

For those receiving current payouts on their 'account' from SSA, they should continue to get their payouts as it is what they expect.  All others should receive their money back.  While I would prefer a one-time, lump sum payment, that is probably unworkable.  Thus allowing individuals to use the credit in their 'account' against taxes owed would allow for the repayment of funds via people keeping their money so they can invest it on their own.

With this should come the end of the FICA tax, so that SSA draws only from the general account.

Together these two create the largest tax decrease that the American people will ever see, and would allow many lower income families to write-off their taxes for some years before their SSA account drops to zero.

For Medicare and Medicaid these two programs should be combined, divided in half, fiscally, and handed out as simple medical aid block grants to the States apportioned by population, and decreased annually so that after 5 years it is phased out.  This gives the States time to figure out if they even want to run such a program and how to do so on the State level.  Note that this will bolster the Medicaid-type system, remove Medicare completely, and put funds into the hands of State legislatures to cushion the change over of a federally backed system to a State backed one.

At current demographics SSA will take 20 years or so to disappear completely, and the tax write-offs will have ended in 5-10 years.  During this time the entire program runs in the red, as does the much lower medical block grant system.  When the last payee drains their account, SSA will be over.

No one currently getting a benefit is dropped.

The 'retirement age' is abolished.

Those now working get to keep more of their pay than has been seen in eight decades.

 

DEPARTMENT ABOLITION

Parts of this section are based on ideas from Adakin Valorem at PJM.

There are a number of government agencies and functions at the federal level that just do not work and are not given to the federal government as a responsibility.  The agencies, bureaus and such include:  Education, Energy, Agriculture, EPA, FDA, Labor, NASA, OSHA.  It is not an exhaustive list and needs to be generously expanded. For these organizations a simple stoppage of payment to them by not passing spending legislation for them is enough to end them.

Government organizations that run under federal imprimatur that also must go: Federal Reserve, Fannie Mae, Freddie Mac, Sallie Mae, Ginnie Mae, the bailed out auto companies, the bailed out banks, indeed anyone gotten 'bailed out' by the federal government as it shouldn't be bailing out anyone, ever.

Direction should be given to the GAO to seize the assets of all of these organizations that were not once private and to sell them off, which includes all the buildings, land, merchandise, equipment and all other things of real value held via these organizations for the federal government. 

Those organizations that were once private or are a form of 'corporation' are to have stock issued for the amount held by the government and one share issued to every tax paying citizen of the United States.  Similarly the debt held by each is to be issued in bonds, one per every tax paying citizen of the United States.  When the government fails, it is the people who are left holding the bag, thus the people are seen as the cure to solving what happens with government corporations or bailed out companies that it is not allowed to run.

At this point much of the red ink for the remains of SSA and the medical block grant system will be paid for by redirecting funds from these closed down functions to the legacy entitlement functions.

Further there will be cash generated by the sale of land, buildings and equipment from government hands, which can help to off-set the massive tax breaks given to the American people so that government does not go too far into the red ink.  This is not a minor point, and selling assets off during an economic downturn puts value back into the economy by encouraging economic activity.

Note that HHS and SSA will also fall into this area as they no longer serve any purpose as those drawing money from SSA accounts will get it directly from the Treasury Department, and the move to block grants removes the need for HHS.  Once any individual has gotten their account to zero, they can destroy their Social Security card: that system is phased out over time.

The laws that enabled these organizations can be removed via a general 'sunset' law or per organization.

 

RIGHTSIZING

The DoD has many functions, bases and responsibilities that need to be reduced.  Overseas bases, while nice to have, are a drag when not in wartime use.  As was done for US bases, so should our overseas bases be cut drastically, particularly to any foreign Nation that has their own resources and ties to the US.  Any bases not critical to logistics for current warfighting must go, and even those that are necessary should be examined for scope of size and activity.

The modern Aircraft Carrier Battle Group is an awesome wonder, to keep acres of US territory afloat in so many places, and is horrifically oversized for the needs that are being met by UAVs and UCAVs.  There will always be a need for some human manned aircraft, to be sure, but these needs must be sized to an expected threat envelope against Nation States.  As surveillance and ability to go after individuals has become a highlight of UAV/UCAV platforms, these can be increased while the active manned fighter/fighter-bomber capacity decreased.  What is needed is the ability to intercede in hostile airspace, remove threats to it and then allow the smaller, lighter, cheaper and more efficient unmanned platforms take over on the lower end threats.  Similarly, once airspace domination is gained there is little need for 'stealth' bombers and something very like a 'bomb delivery platform' based on modern commercial jetliners should be examined as a possible replacement for the venerable B-52 which has had its lifespan extended to 2030-2050.

Active ground forces that no longer need to be at overseas bases then demonstrate that these positions can be downsized out of the system and put into a reserve based system.  As ground forces need mobility the current Stryker/Bradley/Abrams platforms work very well and replacements for any should be examined with an eye to keep speed and accuracy up to the needs of the modern battlefield.

The Key West agreement for division of aircraft missions is one that needs to be re-examined in the age of strategic oversight from space based platforms.  The USAF should cede the tactical ground to the ground forces, including the UAV/UCAV platforms not designed specifically for strategic overwatch.  All close combat and tactical air combat, beyond clearing out airspace for strategic overwatch, needs to devolve down to the ground and naval forces.  With that said a push to strategic recon, bombing and overwatch requires some new platforms for quick deployment of satellites for navigation, safety and comms.  These need not be ground to orbit platforms and can just as suitably be delivered from air breathing platforms.

 

The State Dept. has a problem in being unable to coordinate efforts with DoD in active war zones or against asymmetrical threats.  This needs to be addressed, perhaps by going back to the early tradition of placing the State Dept. under the military so as to ensure continuity of training for security personnel and that the overseas needs of Embassies do not need to go through multiple systems of bureaucracies to get their needs addressed.

Foreign aid should be cut, save for those items of encouraging purchase of US goods by overseas individuals or governments.

The UN should have its donation cut, completely, as the number of programs and spotlight given to those that do not support human liberty and freedom makes it a system contrary to the ideals of the United States.

 

The Dept. of Homeland Security needs to be broken up into its constituent parts, with the Coast Guard returning to direct control of the Navy.

Agencies dealing with our nation's physical security, particularly the breaching of borders by individuals and groups, need to recognize this is a military threat to the United States and is to be addressed as such.  The use of UAVs with rapid deployment ICE forces, backed by military units trained for civilian encounters (much as was done in Iraq and Afghanistan) needs to be stood up as part of the Reserve responsibilities so that all State military Reserves take part in enforcing our common borders.

 

The Dept. of the Interior needs some paring back to essential functions on the mapping and charting areas, particularly for natural resources including fish and wildlife.  Areas held by the Bureau of Land Management can be sold off to the States as the legacy of the US government grabbing large portions of land is one that was done before the States were fully settled.  Now that they are settled, the land needs to revert back to the States.  A distinction between National Parks and National Landmarks needs to be abolished, and States need to be asked if they can better run these facilities than the federal government can, while keeping their current protected status.  Multi-State parks and landmarks can be administered by multi-State organizations if the States wish to do so.

 

The Treasury and Commerce Departments will see many of their organizations and affiliations slashed by removal of Departments and Agencies.  Such things as the FDIC can be better run by private insurance firms and should be either sold off as an insurance company or legislation passed to allow private concerns to offer this protection so as to remove the federal part of it.  With Fannie, Freddie, Sallie, Ginnie along with other quasi-governmental organizations put out either as public stock organizations or sold off, there is no need to have them backed by the Treasury Department.  Similarly the Federal Reserve has put too much power into the hands of too few individuals who are not accountable to the public, and it needs to be removed: the US did without it between 1831 and 1913 and can do without it again.  There is a statistical need to track the economy for the government to understand the impact of its legislation and regulations, but this is a minimal requirement and can be met by standard private accounting firms.

 

INTERIM GOALS

No Congress can tell another Congress what to do.  Congress can pick up responsibilities left to it by a previous Congress, but this is voluntary: there is no way to make law compelling a following Congress to do anything.

That goes for taxation, spending and all the functions of government that source from the Legislative Branch.

Congress has obligations to fund the other Branches of government, but that need not be to entirety of all Departments, Agencies and organizations.  The Supreme Court must be funded as must the President and Ambassadors.  Military expenditures come up every 2 years for review.  All else is optional.

The amount of dislocation and change that the Nation can take is up to Congress, and if the goal of the Progressive Left has been to expand government so as to put us all in debt, the goal of a fiscally conservative Congress must be to remove excess parts of government, cut spending and devolve programs out of the federal purview.  This can be done by handing them to the States, the people or just liquidating them. 

There is no obligation to keep, say, the Dept. of Agriculture going.  Or Education.  Or Energy.  They can go as easily as not funding them and letting the GAO sell off their assets and pay out the severance benefits to employees.  It is just that simple - as a sovereign part of the Nation, the Congress can just not fund things.  That is its most powerful tool when downsizing, and it is legitimate and a necessary tool to get rid of costs that the Nation cannot sustain.  That is their responsibility, too, which is why we grant them that power.

Petty corruption of tyranny

The following is a personal outlook paper of The Jacksonian Party.

Taxation is one methodology for the State to get the funds to keep itself running so as to protect society.  The Nation State has that burden and uses the tool we call taxation to burden the public for its own defense.  And yet we hear of all the great 'good' that can be done by taxation, if only we give the government more of our money.  Unfortunately government is not a good caretaker of funds nor an able spender of them, as I have looked at before.  So when government gets involved in anything, the immediate cost overhead burdens how the money is spent with inefficient bureaucracy, oversight and other compliance mechanisms required within the government.  I personally worked at one of the most efficient agencies in the US federal government that only had 35% of its budget taken up with that overhead, and worked with another that only had 41% taken up with such overhead.  The functions of defending the Nation, its borders and upholding the common law are all things that cannot be done elsewhere in the bureaucracy or by the people: these are National concerns.

Things like healthcare, education and agriculture are all better suited to local administration, the more local the better.  When government gets involved your tax dollars go less far, less efficiently and with less accountability that with State, local or personal expenditures.  As you can hold all your recipients personally accountable, you are the best place to spend any funds for things that are best done locally.  You pay a premium to get government 'oversight', and that comes in loss of productivity for the system as a whole

Higher taxation is always touted as 'necessary' and 'patriotic' to pay for such things, and yet I remember that when the Goods and Services Tax was first put in across the border in Canada, shopkeepers welcomed me with open arms as I didn't have to pay that tax!  It is the strangest dichotomy that something that gets such a 'good' is reviled or even despised by those who have it put on them.  What happens is that such taxes are not liked nor do they engender good feelings towards the overall system.  In fact just the opposite.

From this article by Pierre Lemieux originally seen in The Globe and Mail in 1994 and reposted by the author, I can see those transition years happening as I understood them, then:

As budget day nears, politicians of all stripes warn us that tax evasion is rampant in Canada. Before he started talking about tax increases, Finance Minister Paul Martin had declared that "hundreds of thousands of otherwise honest people ... have withdrawn their consent to be governed" by escaping in the underground economy.

The problem is that the politicians do not seem to draw the right conclusions. Pressed for money -- actually, nearly bankrupt --, the federal government, as well as some provincial governments, has decided to clamp down on the underground economy. Revenue Minister David Anderson has declared a war on tax evaders.

After shopkeepers defied the law by openly selling smuggled cigarettes in Saint-Eustache, Qué., Bloc Québécois leader Lucien Bouchard came out against what he sees as a new state-cheating culture. He apparently thinks that citizens should always obey the rulers. Indeed, the governing class shows a rare unanimity in bringing the Canadians back under the government's rod of iron.

That is to get the much lauded healthcare system in Canada, that now sees people not liking it all that much as services for what we, in the US, would consider routine tests, like MRI and CAT scans, now have long waiting lists.  I remember someone citing that all of Canada has the same number of MRI machines as metropolitan Philadelphia.  When government takes more money to provide fewer services than was available without government intervention, the people draw their conclusions on the efficacy of funding government.

Mr. Lemieux then looks at some of the reasons the tax cheat culture started in Canada:

First, how did tax evasion develop among so docile a people as the Canadians? The answer lies, of course, in the tax burden they have to shoulder. Tobacco, on which federal tax rates have increased by 150% over the last five years, is only the tip of the iceberg. The total tax take by all levels of government now amounts to nearly 40% of the Canadian gross domestic product. If we include the deficits, which are just future taxes, government takes close to one half of what people produce and earn in this country. In two words, tax evasion is a response to tax invasion.

[..]

Galloping regulations are another factor. Some of them come with taxes: Small businesses now have to perform time-consuming GST accounting, and prepare a complex quarterly report. I don't know if we ever were a nation of shopkeepers, but we are certainly becoming one of tax collectors and accountants. Other forms of regulation -- labor regulations, for instance -- make it much more simpler and cheaper to go underground, for consumers and suppliers alike.

The second question is, How could we ever accept such a tax burden in the first place? One hundred or 200 years ago, the great Western thinkers to whom we owe whatever liberty we have left would never have thought this could happen in a free country.

[..]

The third question relates to the state's reaction. Politicians argue that the individuals who do not pay their "fair share" thereby increase the tax burden of other citizens. The main thrust of the coming federal and provincial budgets may well be to increase the effective tax burden under the guise of "fair shares."

This is a naïve cliché which assumes that political and bureaucratic processes naturally lead to the optimal amount of taxes required to finance unanimously demanded public services. What actually happens (at least if we agree with the Public Choice approach in economics) is that the government will take as much as it can, it will charge what the traffic will bear. Governments satisfy minority pressure groups and buy votes through spending. If Canadians in the underground economy were to start paying their "fair" taxes, government revenues and expenses would just increase by the amount of the new taxes. In this perspective, the underground economy is a useful restraint on Leviathan, and a benefit to all taxpayers.

Yes, that is exactly what I remember from shopkeepers when the GST was put in place: they had become the accountants for the revenuers!  And loathed it.  Some even preferred 'off the books' purchases that were legal, just so they could avoid doing the paperwork on the purchases... anything to avoid the overhead of doing the government's work FOR IT without any recompense.

Looking at Recent social trends in Canada, 1969-2000 on p.468 (via Google Books excerpt), the trend of tax evasion declined from 1969-80, and then steadily increased thereafter.  In Taxation in Canada by Janet Shimbashi Denhamer pp. 55-57 (via Google Books excerpt), is a discussion of means to avoid taxes in Canada via planning, avoidance itself, evasion, or putting income into categories that are not directly taxable.  Thus when government puts in broad-based taxes that are deeper and more invasive, people lose their adherence that they are for the 'common good' and that the 'common good' is best served by avoiding taxation at all costs.

Germany has one of the highest tax rates for individuals in Europe, and yet it appears there is something going on at the lowest levels.  From this report at Marketplace at Public Radio on 19 FEB 2008, we see some of the hints of how people feel about taxes when tax evaders are caught:

Brett Neely: Well, it seems like someone who was possibly an employee at this bank in Lichenstein, the LGT bank, stole a DVD full of sensitive customer information and sold it to Germany's intelligence services for what's reportedly about 5 million euros.

Jagow: Why would the intelligence service pay for this information?

Neely: There's been a big problem with tax evasion in Germany. It's kind of a sport in some ways. And Lichenstein is one of the favorite places for wealthy Germans to stick their money. The German government's been trying to find ways to collect on these taxes for years, but they can't get through Lichenstein's bank secrecy laws. So when this data was put up on the market, it was irresistible.

To put that in US terms it would be the following: the CIA was spying on American's overseas finances to supply information to the IRS.

Mind you, everyone on the Left tells you how wonderful it is to pay taxes and how those in Europe are so glad and pay so readily... and then become tax evaders, apparently.  Mr. Neely continues on that it is unusual for people to drive to Liechtenstein with cars full of money, but that everyone gets tax consultants to help expose as little money as possible to taxation in Germany.  Everyone does it.  Mind you, that is from generally left-leaning Public Radio, and a startling admission that broad-based taxes may not be that well received in highly taxed Nations.

In Denhamer's work, it is pointed out that the ability to misrepresent  items leads to the amount of evasion being higher than expected when considering Gross National Income.  Lemieux makes that point also, and when comparing tax receipts on income versus GNI, the delta between what 'should' be garnered under taxation and what is garnered is the amount being avoided.  Government raise rates to generate more revenue... which increases avoidance as taxation gets more draconian.

In a Business Today article of 20 MAR 2008, Aseem Mahajan looks at some of the coverage of the scandal and what it reveals:

The drama began on February 14th, when police detained Zumwinkel at his villa.  The CEO was charged with evading tax payments of over € 1 million ($1.5 million) by channeling money into underground foundations set up in Liechtenstein by LGT Bank (along with Andorra and Monaco, Liechtenstein has been labeled as a tax haven by the OECD).  While many German elites tried to stay clear of Zumwinkel and his financial dealings, a deeper probe revealed that more than 1,000 German investors had also channeled money into Liechtenstein’s “foundations” to avoid Germany’s notoriously complex tax code.  To add to the situation, in recent years, many Germans have become wary of the gap between corporate managers and average citizens.  According to The Economist, “the pay of Germany’s top managers jumped 17.5% in the 2006-07 financial year,” while “globalization and economic reforms have squeezed the wages of ordinary Germans” (“The Disgrace of Germany AG,” February 21, 2008).  Although Germans voted to raise the top income tax rate in 2007, this has had little effect on reining in the wealthy.  The number of German tax advisers has increased recently, and “tricking the taxman is now widely considered a national pastime in Germany” (“Not so Fine in Liechtenstein,” February 22nd, 2008, The Economist).  In a country that delicately balances capitalism with large social-welfare programs, even a few scandals can rile critics of capitalism, which leaves it much more vulnerable than in America. 

That is the crux of the social welfare state: any avoidance of taxation demonstrates that the welfare, itself, is not appreciated and that political favoritism goes to the pocketbook, directly.  When government takes healthcare and social services out of local hands, it then puts in place the avenues of political corruption that can range on a National scale, not State (or Provincial) or local one, which should be easier to catch and hold people accountable for their actions.  At the National scale entire political classes who gain benefit from corrupting the tax system to reward some over others on the public dollar then rally to say 'how good' the tax system is at going after the 'fat cats' while seeing that it is those exact, same 'fat cats' who are their backers across all political parties.  More government increases the avenue for corruption, not decreases it.  Higher taxes on the wealthy become a facade behind which the decaying State is eaten away by its own politicians.  'Progressive taxation' turns out to be a misnomer as it heavily politicizes the 'progressiviness' of the taxes and allows those who have the means to avoid them, evade them or just not pay them.

Taxation 'progression' leads to political regression.

On 20 FEB 2008 article at Euro Intelligence by Wolfgang Münchau examines the principle reason for tax evasion being... yes... taxes:

Germany has always had a problem with tax evasion, mainly because of relatively high marginal tax rates. Slovakia with its 19% flat tax has no such problem. Austria, which has one of the lowest tax rates of the industrialised countries, has no such problem either, even though, unlike Germany, it has a direct border with Liechtenstein. Nor have the Swiss. The French have a problem with Switzerland and Monaco. The Italians have a problem with Monaco. And the Spanish have a problem with Andorra. But nobody has bigger problems than Germany (which has problems with Luxembourg, Liechtenstein, Switzerland and even Austria). Germany is a country where business elites enjoy among the lowest pay packages, and the highest marginal taxes.

The German government now plans a series of measures to crack down on Liechtenstein. But to what effect? If the German government succeeds to destroy Liechtenstein's business model, this will be bad news for the plucky principality. But then, what stops wealthy German investors to go to Monaco, the Channel Islands, or the Cayman Islands?

Ah, the winds of the next World War, perhaps?  Unlikely as Germans are not about to militarize over taxes... yet.  But destroying the efforts of small Nations to be financially independent in how they do things so they can address local concerns means that they need to get understanding that their sovereignty matters.  When liberty is destroyed or put at threat by outside forces, those doing the threatening need to understand that they are harming the flow of all liberty, not just seeking their 'just due' via taxes being avoided by THEIR OWN CITIZENS.  Perhaps if they would lessen services and programs and institute a more moderate and lower tax, the people could find a way to provide for those things that government does in a piss-poor way?

That requires divesting the Nation of internal power over its own people and allowing liberty a greater hand for each individual to determine their own course in life and not seek cradle-to-grave support from a beneficent that has draconian taxes and a tyrannical system of collection that uses spies to find out just where their own people are hiding money.  As so many point out how 'good' Germany is in healthcare, the flip side is that their own espionage services are used upon their own citizens to catch them evading TAXES.

I thought the idea was to build up social cohesion and trust in government, not destroy it?

What is even worse is that the entire EU concept was supposed to ameliorate the problem.  From Businessweek 27 MAY 1996 an article on Germany's problem then:

Can German Chancellor Helmut Kohl spark a supply-side revolution in Europe? No one would have believed it just a few months ago. But Kohl's Apr. 26 announcement of plans to ax more than $46 billion from government spending and to roll back Germany's costly tax and social security regimes is the strongest signal yet that such a shakeup is on the way. Kohl's proposed budget cuts--the equivalent of 2% of gross domestic product--would slice far deeper in a single year than then-Prime Minister Margaret Thatcher ever did when she launched her bid to reform Britain.

Kohl's plans could mark the start of an economic and psychological turnaround whose effects would soon ripple throughout Europe. While his program aims to revive Germany's economy, his broader goal is to change Europe's economic mind-set. He wants to scrap the long-held expectation that Europe must have big government, high taxes, unbending labor practices, and huge social spending. "Psychology is 50% of economics," says Meinhard Miegel, head of Bonn's IWG Institute for Economy & Society.

[..]

A more favorable tax regime would also kill the incentive for tax dodgers who bank their money in Liechtenstein, Switzerland, and Luxembourg. "It would absolutely stop tax flight from Germany," says Martin Hufner, chief economist of Munich's Bayerische Vereinsbank. That, in turn, would help Germany regain an estimated $70 billion in revenues lost annually through tax evasion. Revamping the tax system is also aimed at luring foreign investors away from other high-tax countries such as France and Italy. Says Herbert Demel, CEO of Audi: "It is the first step to correct Germany's disadvantages as a place to do business."

Didn't get anyplace, did it? This downsizing government and giving back liberty deal, just didn't make headway all that much against the 'progressive' interests of unions and business.  Those two items working together for their own interest shows a major problem once big government arrives: you have a hard time getting rid of it via 'cuts'.  That was back 12 years before the 2008 scandal, and yet that is where you get when you don't give back those things government has taken from smaller concerns within the Nation.  By not increasing liberty the government now uses repressive means to squeeze the citizenry, rich and not-so-rich alike, based on 'fairness'.  Just like their fellow citizens in Canada, those in Germany see no reason to adhere to an oppressive tax code and obey it.  That disobedience engenders an adversarial relationship between the State and the people, where the State flexes the negative liberties invested in it AGAINST its own people.

In the US we see this distrust arise in a different venue one which we know all too well due to past abuses.  At The Wall Street Journal on 18 MAY 2009 Glenn Harlan Reynolds has an article on this topic:

At his Arizona State University commencement speech last Wednesday, Mr. Obama noted that ASU had refused to grant him an honorary degree, citing his lack of experience, and the controversy this had caused. He then demonstrated ASU's point by remarking, "I really thought this was much ado about nothing, but I do think we all learned an important lesson. I learned never again to pick another team over the Sun Devils in my NCAA brackets. . . . President [Michael] Crowe and the Board of Regents will soon learn all about being audited by the IRS."

Just a joke about the power of the presidency. Made by Jay Leno it might have been funny. But as told by Mr. Obama, the actual president of the United States, it's hard to see the humor. Surely he's aware that other presidents, most notably Richard Nixon, have abused the power of the Internal Revenue Service to harass their political opponents. But that abuse generated a powerful backlash and with good reason. Should the IRS come to be seen as just a bunch of enforcers for whoever is in political power, the result would be an enormous loss of legitimacy for the tax system.

Our income-tax system is based on voluntary compliance and honest reporting by citizens. It couldn't possibly function if most people decided to cheat. Sure, the system is backed up by the dreaded IRS audit. But the threat is, while not exactly hollow, limited: The IRS can't audit more than a tiny fraction of taxpayers. If Americans started acting like Italians, who famously see tax evasion as a national pastime, the system would collapse.

Or become so infamous at cheating that they would take it as second nature that to avoid government taxation, regulation and oversight meant that one easily disobeyed those laws and any others that happened to get in the way of free exercise of liberty.  Taxes are put upon liberty, and it doesn't matter where they fall. 

If upon investors, they lack the ability to invest in a robust fashion and build industry to provide jobs and productive capacity for the Nation.

If upon businesses, they are robbed of the ability to to be competitive and unequally put upon by 'progressive' tax loads that ensure big businesses will always survive and small ones never threaten them.

If upon shopkeepers, they must needs spend productive time being the unpaid accountants and tax collectors for the government.

If upon the individual, then the means to sustain personal liberty is directly taxed and, with 'progressive' taxation, the impetus is upon the rich to gain political clout so as to shield their wealth at the expense of the rest of society.

Because government is a necessary evil to give us a space to secure our positive liberties does not make it a benefactor to society.  One would think that generations of having demonstrated how 'entitlements' done through government by taxation have had the opposite effect of enriching society.  Those that have made the citizenry beholden to government have created those that will evade it and created a cheating citizenry seeking the free exercise of liberty.  Moderate and equal taxation with an exemption for the destitute gives each individual a citizen's share: everyone contributes in the exact, same proportion be they poor or mega-wealthy.  Each extra dollar earned is only moderately taxed, so there is great incentive for an individual to do more to secure their worldly life and exercise their liberty to their benefit and understand the responsibility of being a citizen to one's fellow citizens.

To do otherwise is to make shopkeepers the tax collectors... and to turn the espionage services meant to defend a Nation against its own citizens who are viewed as cheaters.  Unfortunately it is government that cheats by taking liberty in excess of the few things it must do to secure the safety of society and administer laws equally.  And when government tries to 'do more' it becomes beholden to the special interests and not the general interest of all of society.  That is no good at all.