Tea Party Patriots: The Second American Revolution - Hardcover

If industry and labor are left to take their own course, they will generally be directed to those objects which are the most productive, and this in a more certain and direct manner than the wisdom of the most enlightened legislature could point out.
—James Madison

As we look ahead and plan for the next forty years, we must never lose sight of the fact that America is a nation that was built on fundamentally correct principles. These principles have been proven to work in practice, and when they’re ignored, failure is the result.

Glenn C. Graber’s cut-flower thesis of morality states that morality cannot endure when it is cut from its roots. So too will America’s prosperity wither when cut from the roots that nourish it. Not immediately, of course. As we all know, flowers look vibrant after they have been cut. But eventually, without the nourishment that comes through its roots, every cut flower will die.

In America today, the foundational roots of our economic prosperity are being cut by the very people who swore oaths to nurture and protect them.

Politicians think short term, like someone picking a flower to enjoy for the moment. We must think long term, like farmers who plan beyond the next harvest. For the long run, the only way to ensure economic growth is to study and guard the principles that have graced America with the greatest prosperity in world history. We must guard against those who work to destroy our economic roots, either intentionally or through well-intentioned ineptitude.

In the previous chapter we discussed the imminent economic challenges facing our nation. We saw that the greatest threats to our way of life come from our fellow Americans, from those who are elected to represent us.

Despite proclamations from politicians and the media on the left that America is in recovery and we can all relax, we in the Tea Party movement know the truth. The Great Recession is upon us. Things are bad, and they are not getting better. In fact, it appears they are getting worse.

What is holding America back? Why is its economy suffering? Why are so many people still unemployed? As of August 2011, the Bureau of Labor Statistics reported a 9.1 percent unemployment rate. That statistic does not include the underemployed and the hundreds of thousands of people who have simply lost hope and given up looking. In reality, almost one in five Americans who would like to work simply cannot find a good job. With unemployment historically averaging less than 6 percent, something is definitely wrong.

The government has pumped billions of dollars of “stimulus” spending into the economy, with President Obama promising that doing so would keep unemployment under 8.5 percent. And yet unemployment is still far higher, inflation is on the rise, food and fuel prices are skyrocketing, and it seems there is no end of trouble ahead for the average American family.

Meanwhile, Washington, D.C., is booming. As of summer 2011, the average sale price for a home in our nation’s capital was $415,000. This represented an increase of 7.8 percent, or $30,000, in just three months, and 18.6 percent compared to the prior year. Home prices have appreciated 3.8 percent over the last five years in Washington, D.C., while property values in the rest of the country have plummeted. While the center of government thrives, the rest of the nation is suffering. No surprise there.

So what must we do to return America to the free-market greatness that took us from the Jamestown settlement to the great pioneer migrations to the West, through the industrial revolution, to the moon, and now into the modern era of mobile communications and social media? We have to unlock the spirit of entrepreneurship that has always driven Americans to economic greatness. Men and women invest their time, their smarts, and their money into the economy—not to feed a bloated government or to “spread the wealth around”—because they are motivated by the desire for economic gain. They are motivated by the idea that, through their own hard work and ingenuity, they can improve their lot in life. They are motivated by the American dream. But that dream is now gasping for life in this country, and our government is largely to blame.

We need to get government off our backs and free the people to do what Americans do best: create wealth, jobs, and prosperity.

Historically, the government has been most involved in the American economy in four ways:

• Taxation
• Regulation
• Monetary policy
• Direct spending

Each of these is a lever used by politicians to control and manipulate what was intended by the Founders to operate as a primarily free economy based on private property rights. Yet each of these levers is now intended to replace the wisdom of the market with the wisdom of a “ruling elite” that believes it knows better.

The results speak for themselves. We could take this moment to remind everyone of the repeated and predictable failures of government intervention these past years. But instead, let’s ask the following questions. If Stimulus 1 was such a good idea, why did we need a Stimulus 2 or all those other rounds of stimulus under different names? If Quantitative Easing 1 (QE1) was such a good idea, then why QE2—or, even worse, a proposed QE3? If propping up mortgage giants Fannie Mae and Freddie Mac was the right thing to do, why did Fannie Mae report a net loss of $6.5 billion in the first quarter of 2011 and have to come back to the taxpayers for yet another multibillion-dollar bailout? Why are people’s homes still being foreclosed upon? Why is the housing market still in collapse? And where are all those jobs we were promised?

The onus is on government to prove the merits of its anticonstitutional, interventionist, never-worked-any-time-they’ve-ever-been-tried policies. We offer, as a counterpoint, the entire arc of American history, which proves that when we adhere to America’s free-market founding principles we succeed. Period. Works every time it is tried.

Right now, there are hundreds, if not thousands, of people in Washington, D.C., and in departments of economics at universities around the country who are trying to come up with new programs to help the economy. They truly believe that getting our country back on its feet is a matter of developing a new government program, or figuring out which new infrastructure projects to spend your money on, or which new technologies to subsidize.

The truth is that the American economy is like a muscle car, revving its engines and ready to go, but trapped at a government stoplight. Instead of getting out of the way, and letting the economy roar and speed back to life, the government would rather tax those cars to extinction and waste billions of dollars on high-speed trains that are a drag on the economy, not a driver.

Those who run businesses in America, and who don’t depend on huge government subsidies, just want to be left alone. They know where growth comes from. It’s not from Washington. The chief economist of the National Federation of Independent Business, William Dunkelberg, put it clearly: small business owners in particular “do not trust the economic policies in place or proposed . . . The U.S. economy faces hurricane force headwinds and the government is at the center of the storm, making an economic recovery very difficult.”

Or as Ronald Reagan stated, “Government is not the solution to our problem, government is the problem.”

So what can we do right now to take the shackles off the American economy? Let’s start with our tax system.

The American tax system, both individual and corporate, is incomprehensibly complex and growing worse every day. As a simple measurement of this fact, it is worth noting that the number of pages of federal tax rules increased from an absurd 26,300 in 1984 to an astounding 71,684 in 2011. That’s thirty-five times longer than the King James Bible.1 And while the average corporate tax rate in the thirty largest industrialized countries has declined from 38 to 25.5 percent between 1992 and 2011, our comparable rate is now 39.2 percent.

Canada’s corporate tax rate is 16 percent. And its economy is doing better, its unemployment rate is lower, and its dollar is now worth more than ours—none of which was true just three years ago.2

At the individual level, few taxpayers are even capable of figuring out or filing their own income taxes. When America’s treasury secretary can’t even figure out how to file his own income taxes, as was revealed in January 2009, something is radically wrong.

Individual taxpayers spent an estimated 2.43 billion hours in 2010 complying with America’s income tax laws. That is an incredible amount of wasted productivity at the national level. According to the National Taxpayers Union (NTU), “Using the most recently reported average employer cost for civilian workers by the Bureau of Labor Statistics of $29.37 per hour, this time is worth an incredible $71.4 billion!”

And the cost is not just in lost productivity. It’s also money directly out of pocket for American taxpayers. Again, according to the NTU, “Individual taxpayers will spend a lot of money too: an estimated $31.5 billion this year [2010] for tax software, tax preparers, postage, and other out-of-pocket costs, according to the most recent Internal Revenue Service (IRS) regulatory filing.”3

There are serious moral considerations with our tax system as well. Today, more than half of American households pay no income tax at all.4 That means there are now more takers in America than makers. Which means the majority of Americans now have a financial incentive to vote themselves more money (government handouts) by supporting wrongheaded government policies that punish the productive.

A family of four, with two children at home, that makes less than $50,000 a year contributes no income taxes to support such things as our national defense, our federal court system—or any other constitutional functions of the federal government. And of those who do pay income taxes, an astonishing number of them now work for the government. As reported in an opinion piece in the Wall Street Journal, by Stephen Moore on April 1, 2011, “More Americans work for the government than in manufacturing, farming, fishing, forestry, mining and utilities combined,” which is “an almost exact reversal of the situation in 1960.” These government employees (takers) have a personal stake in growing the size and scope of government (their employer), and these takers now outnumber America’s entire manufacturing industry (makers) by a factor of nearly two to one.

Today, a majority of Americans have no fiscal incentive to oppose income tax increases, because they don’t pay them, and an astonishing number of Americans now have a fiscal incentive to grow the size and scope of government, because government is either their employer or their benefactor through government handouts. Such a situation is dangerous and unsustainable, and it must be rectified.

It is time to begin the long fight to restore common sense to the tax codes of the nation, the states, and all the downstream municipalities. It is time to remove the complexity, lower the rates, and reverse a decades-long trend of crushing individuals and businesses under a tax code that destroys our productivity.

At the national level the most interesting debate is the one between a flat tax and a particular kind of national consumption tax called the fair tax.

From an economic perspective, there are many similarities between the fair tax and the flat tax. For example:

• Both the fair tax and the flat tax are effectively “consumption taxes.” In other words, people are taxed for spending money, not earning it. The flat tax would require citizens to file tax returns the way they do now—although the process would be much less complicated. But under the flat tax, people would only be taxed on the money they spend; that is, the amount they make, minus the amount they save. The fair tax is a retail sales tax that would rely on merchants to collect tax at the point of sale, as they now collect state and local sales taxes.
• Both plans would eliminate the death tax and taxes on capital gains.
• Both plans are single-tax-rate systems that eliminate multiple taxation.
• Both plans would dramatically reduce the time and money Americans spend complying with the current, complicated tax code.

Whether flat tax, fair tax, or some other system, we believe that any such system must tax consumption instead of production. It is a fundamental principle of economics that when you subsidize something you get more of it, and when you tax something, you get less of it. Currently, our national tax system taxes production in the form of income, and not consumption. As a result, we get less production—and less income. That is economic insanity. Punishing production gives us less production and producers. Producers generate jobs, investment capital, wealth, and prosperity. If anything, that is the behavior we should be promoting, not punishing, in our tax code.

I think we have more machinery of government than is necessary, too many parasites living on the labor of the industrious.
—Thomas Jefferson,
letter to William Ludlow, September 6, 1824

It will be of little avail to the people that the laws are made by men of their own choice, if the laws be so voluminous that they cannot be read, or so incoherent that they cannot be understood; if they be repealed or revised before they are promulgated, or undergo such incessant changes that no man who knows what the law is today can guess what it will be tomorrow.
—James Madison,
Federalist 62, February 27, 1788

A 1996 report by the U.S. Joint Economic Committee noted that “regulations work like taxes. It makes no difference to the entrepreneur, or the economy, whether the entrepreneur must write a $5,000 check to the government for taxes or a $5,000 check to comply with a regulation. Forcing the entrepreneur to comply with regulations diverts resources to less-productive uses.” In short, regulations waste labor and capital.

Today, entrepreneurs are buried under a pile of regulations based on bills thousands of pages long, passed by a Congress that doesn’t bother to read them. And each page can lead to multiple regulations. Need a recent example?

Obamacare, the health-care reform passed against the public will, is a perfect example of government regulation run amok, regulating approximately one-sixth of our economy. And according to iU.S. News and World Report, the law is a massive regulation multiplier: “Section 3022 of the law, which is about the Medicare shared savings program, takes up just six pages in the 907-page Patient Protection and Affordable Care Act. But HHS has turned that into 429 pages of new regulations.”5

Six pages from a recent bill comprising 907 pages spawned 429 pages of new regulations that were not voted on by Congress. That is 71 pages of regulation for every page of law, written and implemented by unelected bureaucrats who have personal, financial incentives to grow the size and scope of government, and who are shielded in Washington, D.C., from the economic damage they unleash with their regulations in the rest ...