The Political Bear

The Hamas Legislature just legalized crucifixion. I don’t know what to say about this, but here is link to an article if you want to read more.

On Tuesday, Hamas legislators marked the Christmas season by passing a Shari’a criminal code for the Palestinian Authority. Among other things, it legalizes crucifixion.

The fighting in this area is hard to understand, but the reasons that the fighting never seems to stop makes perfect sense with the recent air attacks, rocket attacks, possible ground offensive, and of course proclamations like this one.

The ongoing conflict aside, what does Hamas feel the upside to this legalization is? A scared enemy retreat at the prospect of crucifixion? No. International sympathy? No. This is just childish lashing out, and while I don’t really think that it should be ignored, ignoring a three year old when they are obviously throwing a tantrum seems to work fine.  I just can’t believe that, even though they are extremists, grownups can be so childish in their actions.

New York’s Governor released his new budget today and it is an amazing example of the way that an inneficient tax code can be mishandled, manhandled, and manipulate the public in unforseen ways.

Here are a few of the proposed cuts:

• An “iPod tax” that charges state and local sales tax for “digitally delivered entertainment services” – in other words, that new Beyonce song you download.
• State sales tax at movie theaters, sporting events, taxis, buses, limousines and cable and satellite TV and radio.
• Costlier driving with the repeal of the 8-cents-per-gallon sales tax cap on motor and diesel motor fuel, plus and increase in the auto rental tax.
• Tuition increases at SUNY and CUNY, $620 and $600 a year respectively.
• A 50 cent tax on cigars. The current tax is equal to 37% of the wholesale price, or 34 cents a cigar.
• No more sales tax break on clothes and shoes worth $110 or less, except during two weeks a year.
• Higher taxes on wine, beer and flavored malt beverages. He would also impose an 18% tax on non-nutritional drinks like soda.
• The rich would pay more for luxury items through an additional 5% tax imposed on cars costing more than $60,000, aircraft costing more than $500,000, yachts costing at least $200,000 and jewelry and furs costing in excess of $20,000.
• In addition, a host of a fees, including those related to motor vehicle licensing and registration, parks and auto insurance, would go up, as would various state-imposed fines.

The numbers that really matter though are the expected $51 billion shortfall over the next four years and the expected tax revenue drop of 6.6% next year.

Taxes imposed this way will have several effects neither of which the Governor will like, and it is likely that neither has he or his actuaries accounted for the perverse effects which would only be seen through dynamic scoring. However, there is one bonus that the Governor gains by raising taxes this way, most New Yorkers won’t understand what or where they are paying the increased taxes. No, New Yorkers aren’t ignorant of taxes or prices, but the more complicated the less apparent the tax is.  (How much sales tax did you pay last week? Even better, how much was your sales tax for lunch?) Of course the less evident a tax is the more a government can increase spending without the public caring. The perverse effects that the Governor didn’t accounted for are, however, more important than a bunch of misled New Yorkers.

One of these effects is a decrease in demand, in this case a multiplied decrease in demand on top of an already slumping economy, that will lead to less of an increase in revenue than predicted by the static scoring models and even a possible decrease. While many people might not know exactly how much tax they have paid they do know how much something is worth. Companies put lots of research in identifying the correct price point, and assuming that the companies or at lease the market have correctly decided the equilibrium point then these cost increases will therefore decrease the demand.

Another unintended and likely consequence will be the loss of revenue because of competition in neighboring states. This is already seen in many states with alcohol and cigarettes, so it should be part of the scoring process, however, bureaucracies don’t like data that is not helpful to their agenda. Tax competition is well documented by many groups, but my favorite is the Tax Foundation.

So, what should be done? A flat tax increase of about $3000 is one solution. Of course that can also be adjusted for progressivity, but the ineficiencies associated with decreased transparency and increases in marginal tax rates decrease the effectiveness of a progressive tax vs a static score and even if this is a point of disagreement then at least this is worth debating. Additionally, because of bad tax on the federal side, a highly progressive tax increase might be the most advisable since state taxes can be deducted from tax liabilities transfering the cost from your state to the federal government.

An innovative solution would be to slash spending programs. New Yorkers have an expensive government, while states that are currently still succesful like Texas do not. I don’t expect them to curb spending, but this would easily correct their issues without raising taxes.  A good place to start would be just to hold spending level, because even with all of the additional taxes to combat projected shortfalls New York’s new budget proposal includes increases in spending over last years.

This is just another example of irresponsible spending by an irresponsible government.

This bridge loan that is currently being debated on Congress only for show before it is passed by a Congress power hungry for nationalization and eager to throw good taxpayer money at bad companies will be passed in just a few short minutes. The bridge loan to nowhere is an unbelievable waste of taxpayer money.

However, I guess the unbelievability of it has dimenished over the past several months as more and more congressman have resorted back to economic and fiscal policies of the 1930’s and with reckless abandon have moved the country towards socialism.

Here is the basic outline of the package that is being passed:

Summary: Draft Legislation Providing Financing to Enable Domestic Automobile Manufacturers to Restructure to Achieve Long-Term Viability

The draft legislation would provide bridge financing to keep automobile manufacturers out of bankruptcy long enough to negotiate and to implement a restructuring plan to achieve long-term viability. The legislation would accomplish this without tapping TARP funds, preserving those funds for their intended purpose of stabilizing the financial markets.

The President’s Designee: The President will designate an individual to facilitate the restructuring necessary to achieve the long-term viability of domestic automobile manufacturers.

· The President’s designee will be empowered to lead negotiations between the parties with a direct financial interest, for each eligible automobile manufacturer, for the purpose of producing an agreement on a long-term viability plan.

· Eligible automobile manufacturers are those who submitted viability plans to Congress on December 2, 2008. The submission of these plans establishes eligibility for the process, but the designee is not bound by the contents of these plans.

Bridge Loan to Restructuring: Bridge loans toward restructuring would be authorized from funds appropriated previously for the auto companies under Section 136 of the 2007 energy legislation.

· In the event of a failure to produce a plan that will achieve viability by the statutory deadline, the President’s designee shall require repayment of the bridge loan within 30 days.

· The designee also has the authority to otherwise accelerate the repayment of the bridge loan if there is a failure to make adequate progress toward a viable plan.

Timetable and Process:

· After 45 days, the designee will report to Congress on progress toward a successful restructuring plan.

· No later than March 31, 2009, each eligible manufacturer must submit a viability restructuring plan to the President’s designee.

· The designee can extend the March 31 deadline by 30 days, one time only, if he believes that negotiations are proceeding in good faith and making good progress.

· The designee is authorized to provide financing to implement an approved viability plan. Conditions for approval are described below.

· If at the end of the negotiation period, the designee finds a failure to produce an adequate negotiated plan, he will submit his own viability plan to Congress. This plan may be executed via Chapter 11 reorganization.

· The legislation is explicit that, otherwise as provided in the Act, no other funds from the U.S. Treasury may be used for the purpose of helping automakers to achieve financial viability or to avoid bankruptcy.

Standards for Long-Term Viability: To be approved, the President’s designee must determine that a plan for long-term viability will result in:

· The repayment of all Government-provided financing.

· Achievement of a positive net present value, taking all present and future costs into account, including the repayment of government assistance provided under the legislation.

· Efforts to rationalize costs, capitalization and capacity with respect to the manufacturer’s workforce, suppliers and dealerships, and proposals to restructure existing debt.

· The ability to produce advanced technology vehicles and to comply with fuel efficiency standards.

· A product mix and cost structure that is competitive in the U.S. marketplace.

Taxpayer Protections

· Firms receiving assistance must provide warrants for the purchase of non-voting stock equal to 20% of the value of the loan (with common stock purchases limited to 20% of all outstanding common stock, any remainder being in preferred stock.)

· Firms receiving assistance must accept limits on executive compensation.

· Taxpayer investments in these auto manufacturers will be protected by placing other obligations in a subordinate status (to the extent permitted by the terms of other obligations, liabilities and debt as of December 2, 2008).

This irresponsibility and reckless spending of money needs to stop! Some say that the risk of not acting is larger than we can allow. To this I answer, by acting, we risk getting hit by the Invisible Hand of the free market. Government is not smart enough or fast enough to choose the right path for capitol. The free money policies of Alan Greenspan, mean that capitol is in the system. If government would just get out of the way, that capitol would flow.

Opening up the Capital Visitors Center (CVC) Senate Majority Leader Harry Reid made a couple of comments to the press.

“My staff tells me not to say this, but I’m going to say it anyway,” said Reid in his remarks. “In the summer because of the heat and high humidity, you could literally smell the tourists coming into the Capitol. It may be descriptive but it’s true.” Link

Interestingly, he does mention that his staff didn’t want him to say it, so while Reid’s staffers might not be elitists-or at least know how not to sound like one, Reid pushed them aside and jumped into the deep end of the truth pool. I frequently mention on PoliticalBear that the democrats are the party of the elites and the Republicans are the party of the common man, so here is yet another set of proof.

Why is talking about BO elitist. It isn’t, but complaining about it is. Many people work outside. Many people pay a lot of money to visit the Capitol. Many people have waited in long lines to see the capitol. He sounds like someone who wouldn’t walk up to those people, put his arm around them and take a picture. He should!

People that care enough about history and government to wait through the long lines and heat just to walk around the capitol for 2 hours with red coated tour guide or an intern who has read a pamphlet on the capitol that they probably read on the airplane out here deserve respect.

BTW: Pricetage on the CVC= $621 Million