Yet another Obama cabinet appointee has had some tax skeletons unearthed – this time it’s Labor Secretary nominee Hilda Solis, whose husband hurriedly settled some 16 year old business tax liens this week:
Labor Secretary nominee Hilda Solis became the latest Cabinet nominee to face questions about unpaid taxes Thursday as a Senate panel abruptly postponed a scheduled vote on her confirmation. The postponement came after revelations that Solis’ husband settled tax liens on his California auto repair business this week that had been outstanding for as long as 16 years.
The discovery posed another political headache for a White House already chafing after tax problems and other controversies derailed some administration appointments, including former Sen. Tom Daschle’s nomination as health secretary. President Barack Obama pledged in TV interviews this week that he would "make sure that we’re not screwing up again" in the vetting process.
Coming in the wake of tax revelations for three other cabinet appointees – Daschle, Killefer, and Geithner – it’s certainly going to dent the new President’s political capital. It’s also likely to push our ‘Tax Revolt II’ thesis along. Consider the serious questions these mini scandals raise in voters’ minds – the party that (let’s be honest) favors higher taxes in the aggregate has some luminaries who don’t care much for paying their own share. That’s not just irritating, it’s maddening. It’s also ethically untenable and utterly indefensible, as it means that they want to force others to surrender a significant portion of their wealth to them, to use as they see fit, all while making minimal sacrifices of their own. When you’re in the private sector, that’s called cheating or theft. When you’re in the public sector, it’s the raw material of tyranny. Although some might bother, we’re not wasting any time wondering if these recent tax settlements arose from sudden crises of conscience and improvements of character among the nominees, or from their willingness to pay up for the privilege and power of holding an important public office. We’ve just gone ahead and assumed the latter, and if it makes an ass of us ("me"), so be it – the "u" has already been taken care of.
Meanwhile, the President spouted some dangerous nonsense on taxes in an address yesterday. We certainly understand his impatience to pass a stimulus bill, given his conviction that the end of the modern world lies just around the corner. And we have no problem with resonable arguments for public investments in health care, education, and energy. But his claim that in the "last ten years, maybe longer", tax cuts have been tested and found wanting, is nonsense. It might appear that way if you only look at the U.S. But if you look globally, or compare states and regions of the U.S. on the basis of taxes and other barriers to productive investment, it becomes fairly apparent that taxes can have a profound impact on economic development (his own CEA, Christina Romer, has demonstrated this idea academically). We’ll admit that the first part of his argument was nuanced (see first paragraph below), implying that perhaps government activism and tax cuts might not be exclusive. But the second part of his remarks has an unmistakably bearish tenor, and let’s not forget that President Obama has campaigned on the idea that tax credits and transfer payments somehow constitute "tax cuts". As quoted in and interpreted by the LA Times:
And [Obama] singled out for criticism the repeated calls from Republicans for more tax cuts.
In the last few days, we’ve seen proposals arise from some in Congress that you may not have read but you’d be very familiar with because you’ve been hearing them for the last 10 years, maybe longer. They’re rooted in the idea that tax cuts alone can solve all our problems; that government doesn’t have a role to play; that half-measures and tinkering are somehow enough; that we can afford to ignore our most fundamental economic challenges — the crushing cost of healthcare, the inadequate state of so many of our schools, our dangerous dependence on foreign oil.
So let me be clear. Those ideas have been tested, and they have failed. They’ve taken us from surpluses to an annual deficit of over a trillion dollars, and they’ve brought our economy to a halt. And that’s precisely what the election we just had was all about. The American people have rendered their judgment. And now is the time to move forward, not back. Now is the time for action.
It’s disconcerting that President Obama is interpreting his mandate so broadly. While a voting decision is usually a binary outcome – one either votes for or against a candidate or a proposal – electoral calculations are far more complex. Only sycophants and cheerleaders, who tend to be a very small proportion of the electorate, vote for every single plank of a candidate’s platform. Responsible voters decide which policies are important to them, then weigh the pros and cons of each candidate’s planks, and decide accordingly. Assuming a broad, sweeping mandate is a recipe for two things – bad policy decisions, and being turned out by the electorate. Just ask the members of Congress who had to brush up their resumes in the wake of 2006 and 1994.
The President went on to say that in this historic challenge lies opportunity. The important question to ask is, opportunities for whom, where, to do what, and with whose money? He claimed that the majority of the activity induced by the stimulus bill would occur in the private sector. But that’s really not the point – the right question is how much control the government should have over the allocation of resources in the economy. If government becomes dictator of the activities of the private sector, that is no longer free market capitalism, but rather part and parcel of fascism. And it’s not clear yet whether President Obama is well acquainted with the concept of opportunity costs. What investments will be crowded out by government dictates? What future possibilities will be squelched by decisions made in the Beltway today? There’s no way to know, but the reality of those kinds of consequences can’t be denied.
We’ve argued for some time that the U.S. will soon be due for a repeat of the 1970s Tax Revolt, calling it Tax Revolt II, and now "TR2" for short. We’ve seen some nascent signs and blogged about them in the past year, and we’re seeing more of them in the wake of the Obama Cabinet’s tax scandals.
We still have a Mulderish desire to see the Obama administration succeed wildly, so we don’t relish taking the gloves off – in fact, we intend to put them back on for now. We’ll just close with some important and very timely ideas from a 2001 profile and interview of economist Reuven Brenner:
Prosperity, [Brenner] writes, is a consequence of "matching talent with capital, and holding both sides accountable." Open, democratized financial markets and access to capital promise the most benefits to the most people. Private, as opposed to public, institutions have the most incentive to distribute capital wisely and prudently. Government, he writes, "can make many more and greater mistakes, and they can also fail to correct them."
Why? Because they have a monopoly on the power to tax. Given that, they are unlikely to face bankruptcy and, hence, the urgency to change. An exception would be the case of the Soviet Union, which survived on repression and monopoly control of the economy until the state was finally bled beyond financial recovery.
"The best system is one of stable institutions that move as fast as possible to correct mistakes,&
quot; he explains. And private institutions have incentive to act quickly; neglecting to do so means financial ruin. Governments, on the other hand, merely compound their mistakes and then raise taxes to cover them.
This discretion to raise funds takes away the incentive to change. "Only when they go bankrupt or are leapfrogged by other states will governments be forced into action. Until then they can simply carry on."
He continues, "We are living with years’ worth of mistaken regulations that impact today. It is difficult to erase old regulations, so instead we pile new ones upon them. This is what creates the habit in people of going to government for solutions instead of responding with private initiatives," he says.
URLs:
http://news.yahoo.com/s/ap/20090205/ap_on_go_pr_wh/labor_solis
http://latimesblogs.latimes.com/washington/2009/02/barack-obama-1.html
http://www.mcgill.ca/reporter/33/16/brenner/
News and Views | art February 12, 2009 | 
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