A short piece, nevertheless it points out that Otto von Bismarck was the father of the welfare state, and maintains that Obama is following Bismarck’s vision of government. Read below.
The November congressional elections are not so much a referendum on the Obama administration as a check on whether President Barack Obama’s implementation of a Bismarckian vision of government will continue.
Otto von Bismarck, the Prussian prime minister/German chancellor from 1862 to 1890, is the father of the welfare state. He advanced the vision that government should serve as a social services institution by taking earned wealth from the rich and from businesses to deliver services to those who are not as advantaged. Bismarck’s Kulturkampf campaign intended both to keep radical socialists at bay and undermine the church’s role in meeting the needs of local citizens by positioning government to be the primary source of social services. He initiated the ideal of an ever-expanding, beneficent government, which was subsequently imported to the United States in Franklin Roosevelt’s New Deal, expanded further with Lyndon Johnson’sWar on Poverty, and currently drives the policies of the Obama administration. Barack Obama is not a 19th-century socialist, but his agenda is unquestionably Bismarckian.
In 1891, William Dawson, in Bismarck and State Socialism, explained that Bismarck believed it was the duty of the state to promote the welfare of all its members. On November 22, 1888, in response to Germany’s 1873 economic crisis, Bismarck proclaimed, “I regard it as the duty of the State to endeavor to ameliorate existing economic evils.” In Bismarck-like fashion, commenting on America’s economic crisis, President Obama declared in January 2009 that, “It is true that we cannot depend on government alone to create jobs or long-term growth, but at this particular moment, only government can provide the short-term boost necessary to lift us from a recession this deep and severe. Only government can break the cycle that are crippling our economy—where a lack of spending leads to lost jobs which leads to even less spending; where inability to lend and borrow stops growth and leads to even less credit.” In a Bismarckian world, “only” government can set the national economy right.
Regarding universal health insurance, on March 15th, 1884, Bismarck asked, “Is it the duty of the State, or is it not, to provide for its helpless citizens?” He answered, “I maintain that it is its duty.” It is the duty of the state to “the seek the cheapest form of insurance, and, not aiming at profit for itself, must keep primarily in view the benefit for the poor and needy.” Similarly, under the federal healthcare reform law, Congress forbids health insurance companies from raising insurance premiums until insurers submit to Obamacare officials “a justification for an unreasonable premium increase prior to the implementation of the increase.” In effect, government determines health insurance premiums.
On unemployment, Bismarck believed that government is ultimately responsible for finding jobs for those unemployed through no fault of their own, those lacking opportunity to work and thus prohibited from properly sustaining themselves. On March 15, 1884 Bismarck exclaimed, “If an establishment employing twenty thousand or more workpeople were to be ruined . . . we could not allow these men to hunger”—even if it means creating government jobs for national infrastructure improvements. “In such cases we build railways,” says Bismarck. “We carry out improvements which otherwise would be left to private initiative.” Likewise, in July, President Obama proclaimed, “I believe it’s critical we extend unemployment insurance for several more months, so that Americans who’ve been laid off through no fault of their own get the support they need to provide for their families and can maintain their health insurance until they’re rehired.” Then, in September, President Obama announced a six-year, $50 billion infrastructure proposal “to rebuild 150,000 miles of our roads,” “maintain 4,000 miles of our railways,” and “restore 150 miles of runways.” To keep America working, Obama is channeling Bismarck’s vision of government as creator of jobs.
By the 1890s, for several reasons, Germany was forced to abandon many of Bismarck’s specific reforms. However, Bismarck’s method of using of government as the ultimate provider of social services paid for by the earned wealth of others is the modus operandi of the Obama administration. The outcome of contests for congressional seats will determine whether the nation continues down the path chosen by Barack Obama, but blazed long ago by the visionary of the omnicompetent state, Otto von Bismarck.
As we head into the election homestretch, I wanted to share with you a brief but poignant essay by economist Thomas Sowell over at the Jewish World Review. Sowell reminds us of the disastrous effects of government intervention into the economy during the Great Depression–a situation that is being paralleled today.
Songs that are “golden oldies” have much less pleasant counterparts in politics– namely, ideas and policies that have failed disastrously in the past but still keep coming back to be advocated and imposed by government. Some people may think these ideas are as good as gold, but brass has often been mistaken for gold by people who don’t look closely enough.
One of these brass oldies is the idea that the government can and must reduce unemployment by “creating jobs.” Some people point to the history of the Great Depression of the 1930s, when unemployment peaked at 25 percent, as proof that the government cannot simply stand by and do nothing when so many millions of people are out of work.
If we are going to look back at history, we need to make sure the history we look at is accurate. First of all, unemployment never hit 25 percent until after– repeat, AFTER– the federal government intervened in the economy.
What was unemployment like when the federal government first intervened in the economy after the stock market crash of 1929? It was 6.3 percent when that first intervention took place in June 1930– down from a peak of 9 percent in December 1929, two months after the stock market crash.
Unemployment never hit double digits in any of the 12 months following the stock market crash of 1929. But it hit double digits within 6 months after government intervention– and unemployment stayed in double digits for the entire remainder of the decade, as the government went in for one intervention after another.
The first federal intervention in June 1930 was the passage of the Smoot-Hawley tariffs by a Democratic Congress, a bill signed into law by Republican President Herbert Hoover. It was “bipartisan”– but bipartisan nonsense is still nonsense and a bipartisan disaster is still a disaster.
The idea behind these higher tariffs was that reducing our imports of foreign goods would create more jobs for American workers. It sounds plausible, but more than a thousand economists took out newspaper ads, warning that these tariffs would be counterproductive.
That was because other countries would retaliate with their own import restrictions, reducing American exports, thereby destroying American jobs. That is exactly what happened. But there are still people today who repeat the brass oldie that restricting imports will save American jobs.
You can always save particular jobs in a particular industry with import restrictions. But you lose other jobs in other industries, not only because other countries retaliate, but also because of the economic repercussions at home.
You can save jobs in the American sugar industry by restricting imports of foreign sugar. But that results in higher sugar prices within the United States, leading to higher costs for American candy producers, as well as American producers of other products containing sugar. That leads to higher prices for those products, which in turn means lower sales at home and abroad– and therefore fewer jobs in those industries.
A study concluded that there were three times as many jobs lost in the confection industry as were saved in the sugar industry. Restrictions on steel imports likewise led to an estimated 5,000 jobs being saved in the steel industry– and 26,000 jobs being lost in industries producing products made of steel.
Similarly, the whole idea of the government itself “creating jobs” is based on regarding the particular jobs created by government as being a net increase in the total number of jobs in the economy. But, since the government does not create wealth to pay for these jobs, but only transfers wealth from the private sector, that leaves less wealth for private employers to create jobs.
Songs that are golden oldies bring enjoyment when they return. But brass oldies in politics just repeat the original disasters.
A statistical analysis by economists, published in 2004, concluded that federal interventions had prolonged the Great Depression of the 1930s by several years. How long will future research show that current government interventions prolonged the economic crisis we are living through now?
Another example of the Obama Administration using the yardstick of “fair”.
While talking about guidelines for world exchange-rate policies, Timmy Geitner tells the WSJ, “Right now, there is no established sense of what’s fair”. If that was not bad enough, this admission came during an interview where he discussed his desire to “advance efforts to ‘rebalance’ the world economy so it is less reliant on U.S. consumers”.
“Fair” and “Rebalance” are code words for redistribution of wealth. This has been a singular goal of Obama’s, which he admitted even while he was still campaigning.
And what does he mean about the world economy being “less reliant on U.S. consumers”? This administration’s blatant disdain for America is disturbing. More ulterior motives here, which we need to keep an eye on.
Catching up on some old reading this weekend, I wanted to share Bloomberg’s wry observation of the current state of the NYC pension fund.
“It’s overstating it a little bit to say the only one who’s done that well is Bernie Madoff, but 8% for a long period of time is not something that very many pension funds have ever achieved.”
Gotta say, I love how Bloomberg (correctly) compares the pension fund to fraud. It’s just like Social Security, the biggest Ponzi scheme of all.
Because some content on Crains NY is subscriber only, I’m reproducing the article below. It’s a good read.
Mayor Michael Bloomberg says the defined benefits in the city’s pension plans are too expensive and will drive more municipal projects into the private sector.
(Bloomberg)-New York Mayor Michael Bloomberg said city pension funds have set unrealistically high assumed rates of return on investments, at 8%, which may require spending more than has been budgeted for retirement benefits.
“It’s much too high an assumption for us; I think it should be lowered,” Mr. Bloomberg said Monday at a news briefing. “That’s going to require the city to put in more money. It’s very difficult to see where we could get the money to do that.”
The city, which must balance its budget or face a state takeover of operations, has to close a $3.3 billion budget gap projected for fiscal year 2012, which starts July 1. The deficit is forecast to grow to $4.8 billion in 2014, a period in which officials expect pension costs to increase to $8 billion in 2014 from $7.6 billion now. Last month, the state pension fund cut assumed returns to 7.5% from 8%.
The real problem, the mayor said, is the pension system itself, which provides defined benefits that can’t be reduced under guarantees the Legislature has placed in the state constitution. While it permits new, less-expensive benefit tiers for future employees, savings wouldn’t be realized for 10 or 15 years, Mr. Bloomberg said.
“We’ve been trying to get the governor and the Legislature to vote a fifth tier,” Mr. Bloomberg said. “They won’t do it unless the unions ask them to.”
“The taxpayers don’t want to pay for it and the economies of the world don’t really support those kinds of plans anymore,” the mayor said.
Without a change, Mr. Bloomberg said, the municipal work force will shrink, because the city won’t be able to afford a payroll of the current size and cover retirement benefits at the same level as today. The city employed 302,436 in May, according to a mayoral spokesman.
“We’re going to try to farm things out to the private sector more because the municipal workers just cost too much,” the mayor said. “The bottom line is, you can see in this country, the public is frustrated, they don’t want to spend any more money.”
Representatives of city Comptroller John Liu, who acts as the steward of city pension funds, didn’t immediately comment on the mayor’s remarks.
The state’s $124.8 billion pension fund, the nation’s third-largest, reduced the assumed rate of return on its investments as it recovers from market losses, Comptroller Thomas DiNapoli said. Mr. DiNapoli, the sole trustee of the plan, said state and local government employers’ payments to the fund will increase to about 16.3% of payroll in February 2012, from 11.9% due in February 2011. The fund covers 1 million current and retired government workers.
New York City’s five pension funds provide retirement benefits for its police, firefighters, school employees and civil-service workers with more than $103.8 billion in assets under management as of March 31. On Sept. 28, its largest plan, the New York City Employees’ Retirement System, which covers more than 180,000 active and about 130,000 retired workers, reported a 14% return in fiscal year 2010, which ended June 30.
“Some years you make money, some years you don’t,” Mr. Bloomberg said. “It’s overstating it a little bit to say the only one who’s done that well is Bernie Madoff, but 8% for a long period of time is not something that very many pension funds have ever achieved.”
If you haven’t seen this fun video on basic economics, take a 7:32 break and enjoy. It’s Hayek vs Keynes, cleverly rapped to give the fun overview of the battle of two influential economists. My link below includes the video and the lyrics. (Go Hayek!)
Ed Barnes at Fox News is one of the very few people talking about the AMT these days, but if the AMT doesn’t get its annual patch, the economic repercussions could be catastrophic. This leaves me to wonder if this is a political tactic from the Left, who will fancy themselves as the “hero for the middle-class” by passing the necessary patch adjustments at the 11th hour. Or perhaps they plan to use it as a bargaining chip with regard to the Bush tax cuts, a loathsome prospect. Worse still, the administration could be eyeing the AMT reversion as a cash windfall for our government on the backs of millions of taxpayers. In any event, the fate of the AMT needs to be watched carefully over the next two months. Below is Barnes’s article in its entirety–it’s a good overview of the AMT intricacies.
Taxpayers Anxiously Await Annual ‘Patch’ to Alternative Minimum Tax
Of all the tax issues facing Congress when it returns for a lame duck session after the Nov. 2 midterm elections, the annual rite of patching the Alternative Minimum Tax will be the most urgent.
Unlike the debate over the Bush tax cuts, which will affect taxpayers’ income in 2011, the AMT applies to 2010. And the delay in patching it is already causing problems and raising alarms for large numbers of middle-income taxpayers — as many as 25 million Americans, according to one expert — who could face a huge increase in their tax payments if Congress doesn’t act.
Enacted in 1969, the Alternative Minimum Tax was originally aimed at 155 extremely wealthy taxpayers who had avoided paying federal taxes completely. It was an add-on tax designed to ensure that everyone paid some income tax every year. Since then it has evolved into the primary tax mechanism for taxing high income taxpayers.
Under the original system, taxpayers who earned more than $200,000 — a very high income 30 years ago — were required to calculate their taxes differently, resulting in a larger tax payment for the wealthy.
But unlike most other income tax rates, the AMT was never indexed to inflation, and since 1982 the AMT has become a parallel tax system and a critical element in funding the government. It covered more than 4 million high-income taxpayers in 2009, according to the Congressional Budget Office.
But the $200,000 ceiling is no longer a small fortune, nor is it the sole criteria for triggering the AMT tax. Today a complex formula that looks at the differences between income and deductions determines who will pay. And each year Congress has to act to raise the exemption limits of the tax to prevent it from targeting increasing numbers of less affluent people.
If Congress is unable or unwilling to act on the patch, then “as many as 25 million taxpayers may see their tax liability rise by anywhere from $3,000 to $5,000,” according to Leigh Mutert, of H&R Block, “The primary victims will be middle-class taxpayers.”
In 2008 Congress set the exemption for the AMT at $70,950 for married couples filing jointly, the largest group impacted by the AMT. If it fails to enact a post-election patch, that exemption will revert to $45,000, the original exemption amount, ensnaring millions of taxpayers in a tax hike that would total $70 billion, according to Bill Ahern of the Tax Foundation.
Under the system, high-income taxpayers are required to calculate their tax returns twice. If tax returns completed under the normal procedures meet certain income and deduction criteria, the taxpayer is then required to complete the process again using AMT rules. Whichever tax is higher is the one the taxpayer must pay.
For example, according to the Congressional Budget Office, a married couple with four children and earned income of $160,000 who paid $10,000 in mortgage interest and $25,000 in state and local taxes using normal filing procedures would pay $18,150 in taxes this year.But when they recalculate their taxes under AMT procedures, they would be required to use the single $70,950 deduction but lose their deductions for the four children and local taxes. Their tax liability would then jump to $20,553.
While Congress has been embroiled over the expiration of the Bush tax cuts, there has been little debate about the AMT — other than promises that it will be taken care of before next year’s tax season begins. Usually a bipartisan and uncontroversial procedure where the inflation rate is added to last year’s exemption, no one is certain what will happen this year.
“It is getting alarmingly late in the year, and with Congress recessing for the election followed by a brief lame duck session before year end, it is not certain that Congress will get this done,” Mutert worried.
“I told everyone that Congress would never let the estate tax lapse. I was wrong. We just don’t know what will happen this year,” Ahern added.
Press secretaries for several Senate Finance Committee members from both the Democratic and Republican parties said that the patch is expected to be handled in the lame duck session, but no one is “sure” if it will be. “There are a lot of pressing tax matters this Congress hasn’t dealt with,” one said.
Even if Congress does act, tax preparers are sweating bullets that the delay will throw next year’s income tax season into disarray, because no matter what Congress agrees on, putting new rates into effect will take time. Aside from the debate over the size of the patch, tax preparers say the Internal Revenue Service will need at least six weeks to upgrade its software and issue schedules reflecting the changes to the AMT.
When Congress delayed fixing the patch until December in 2007 the IRS wasn’t able to accept tax forms from a significant number of AMT filers until Feb. 11, 2008. If Congress acts on Nov. 15, there shouldn’t be any delays this year. But if Congress gridlocks over the Bush tax cuts, or declines to act for other reasons, then the impact would be almost immediate.
It’s worthwhile to take note of the ruling yesterday in the Florida lawsuit against Obamacare. The judge wrote more than twenty pages of his ruling specifically stating that the fee imposed for not buying health insurance is a penalty and not a tax. Our federal government has been arguing that the healthcare fee is a tax, and therefore states cannot legally challenge Obamacare, because you cannot sue for a tax that has not been collected yet. As well as clarifying the penalty position, the judge also found the federal government’s use of the Commerce Clause to justify the individual health insurance mandate is unprecedented in American history.
Many other states have filed suit. Virginia, one of the first to challenge Obamacare, will argue on October 18th. These lawsuits are worth keeping up with, as our federal government continuously seeks to expand its powers unconstitutionally, to the detriment of our citizens.
The Tax Foundation has a new report out regarding the consequences of not extending the Bush tax cuts:
Retired seniors could be among the hardest hit, since they rely most on investments and savings. Lawmakers have been warning for months about the income-tax consequences for working families, including penalties on marriage and a reduction in child tax credits. But those living off investment income would see not only their 401(k) and savings accounts taxed at higher income rates, but also dividends and capital gains skimmed deeper and deeper by the federal government.
Studies of IRS data put out by The Tax Foundation show seniors over 65 earn more from dividends and capital gains than any other age group — more than $77 billion in dividends and more than $150 billion in capital gains in 2008. That means for retired workers, every penny is that much more valuable. Investment income typically supplements Social Security or vice versa, and tax analysts say that if the Bush tax cuts expire, it could mean thousands of dollars less every golden year.
Here’s what happens to that income if tax rates increase to levels of almost a decade ago:
On the capital gains side, the hit would be somewhat modest. Currently, the lowest rate for long-term gains is 0 percent and the highest is 15 percent. If nothing is changed, the lowest rate rises to 10 percent, the highest to 20 percent. The change on the dividends side is far more drastic, since it used to be taxed as ordinary income. Barring congressional intervention, the lowest rate for qualified dividends goes from 0 to 15 percent and the highest goes from 15 to 39.6 percent. Even those in the middle-class brackets could expect to see their rate rise to close to 30 percent. For instance, a couple taking in $25,000 from interest and dividends would easily see their taxes go up by more than $2,000.
Despite warnings from lawmakers, Obama and congressional leaders on both sides of the aisle say they’re intent on extending at least some of the tax cuts — unfinished business to be taken up after the election. Republicans want all the rates extended, while Obama wants the rates extended for all but the wealthiest earners. Under the Obama plan, the top-bracket capital gains and dividends rates would rise to 20 percent.
As I’ve said many times on these pages, the Bush tax cuts must be extended for all income earners; to do otherwise would be potentially catastrophic for the economic recovery of our nation.
