Hiatus Break: NFL Protests and Tax Reform

I have previous written about the original NFL protest by Colin Kaepernick. This post basically tells Kaepernick to put his money where his mouth is. He did exactly that. Now the protest has spread around the league. President Trump has tweeted, spoke and commented on the protest on multiple occasions. In apparent backlash, NFL ratings are down pretty significantly. The owners and players are seemingly at odds. (I’ll get into this more) I won’t just be talking about the NFL protest in this post. I also want to touch on tax reform which is currently the hot issue in Congress. I hold an extreme belief about taxes. I mean extreme by that its a position that isn’t possible in today’s circumstances. However, it doesn’t mean its not achievable eventually through some means. I will lay out my own set of tax reforms in the second part of this post.

I have been an NFL fan my whole life. Quite literally since I was in second grade I remember watching the Jets. I remember wearing Jets jerseys (I still have them). I absolutely love football. Although I never played in an organized manner. If I was athletically gifted I would be a Quarterback in the NFL. Generally I’m one of those people who doesn’t care to mix politics with anything but politics. So when Kaepernick started his protest I wasn’t that happy. Its not that I don’t care about the issues he is protesting or that I dislike him. Its just I watch football to watch football. I don’t care about the political leanings of the players or owners or coaches. Aside from that, they all get paid handsomely (Players) or are extremely wealthy to begin with (owners).

The problem with the protest now is that its gotten way out of control. At first it wasn’t too crazy. The craziest comes from a unlikely source in President Trump. Now Trump himself isn’t shy about creating controversy or saying incredibly inflammatory things. However, the President of the United States typically doesn’t pour gas on a fire like he did with the NFL protests. I basically have two issues here and the main issue is Trump’s position on this. Trump wants the owners and NFL to force the players to stand for the anthem. I think that many conservative thinking people probably agree. They think its disrespectful to the flag and the military. Which I don’t fully disagree.

However, the constitution has a bill of rights. In that bill of rights there is a first amendment. The first amendment is the freedom of speech. Over the years the Supreme Court has ruled that speech isn’t just talking, it can also cover symbolic speech and others. In this regard I have disagree with Trump, he or the government can’t make a law forcing them to stand. Its the players right to protest and there is nothing that Trump or the government can do. However, the NFL could do something like fire the players. But they won’t do that. Let me tell you why they won’t: Backlash would very bad for the NFL probably twice or three times as bad it is now. However, the NFL could force players to stand, its not a violation of first amendment rights. The reason is because the players represent the NFL as brand and the NFL has right to protect its brand from being unnecessarily tarnished especially by its own employees. The NFL also has a collective bargaining agreement which apparently does state that players must stand. If its true, then its over because the players agreed to that agreement and therefore would have to follow it or be fired.

In my opinion, I think that players should stand because of the ratings and money. I mean they are only affecting their own livelihood. If the owners still feeling the pinch then so will they. In the end, its better if they stand and try to protest in a different way or become an activist and use all those millions to do something about the problem. I don’t think anyone can deny that police oppression is real. However, I think the solution lies within criminal justice reform. I won’t get into this because I’m not an expert and I didn’t do any research yet. However, look out for future posts.

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Tax reform is one of my favorite topics to discuss. Its because they are a lot of solutions to a problem that seems to never go away. I think one thing that is always missing from the tax reform debate is spending reform. You might say that’s a totally different reform! But actually taxes are based projected government spending.  For example: the government spends approximately 600 to 700 billion dollars on the military each year. In order to cover that they need to raise that in taxes.

Generally the federal government’s budget is anywhere from 2 to 4 trillion dollars. It is supposed to be a certain percent of GDP or gross domestic product. (I have a post dedicated to this subject of GDP) So my ideal tax reform in a perfect world would zero taxes. You may have heard taxation is theft. If you haven’t then its pretty plain what that means. Yes the government is stealing from us. This is a very extreme way to view taxation but its not as crazy as you think.

Originally the US government didn’t really collect taxes. In fact, the US government taxed products and used tariffs up until about 1913. So our government was able to run entirely without any income tax. Income tax is now the largest category of revenue of the US government. Its also the worst way to fund the government. Income tax really sucks. There will never a true, fair way to split up the weight of paying it. Its awful. However, there is no way the government could survive with 20 trillion dollars of debt and absolutely no tax income. That insane.

My proposal is essentially this get rid of the current tax format. Install a universal basic income (See this post). Then install a flat tax starting around 15 percent. No more brackets. No more loopholes. My plan does a lot of things but the two main things is that it cuts spending and will eventually lower taxes! So with basic income it would cut out most of social welfare programs and replace it with a government check to everyone over 18 and not a criminal. This saves approximately 200 million dollars a year. Each year for about 10 years you fix or pay off the debt. Plus the 15 percent over ten years would generate enough income to really pay off the debt and run the country. After ten years you lower the tax rate to 10 percent for another 10 to 15 years. Essentially the goal is to make the government so lean that it won’t need tax money. Its definitely possible over time.

This a simplified version which I think is good start. The details and actual numbers would have to be worked out by someone in a math oriented field. I can only hope that this tax plan eventually happens. Its not a popular one because usually conservative politicians advocate flat taxes. Basic income isn’t too popular either because it sounds a little crazy. But I feel like the two very different approaches really balance each other out. Also you can’t possibly say a flat tax isn’t fair. Its fair by nature. Also it still ensures that the poor pay less and the rich pay more. Which is why I don’t understand why people don’t like it. I guess they would rather get fleeced by the current system.

Thank you for reading! Have a awesome day!

 

 

 

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Tariffs: America’s Oldest Tax Plan Revisited

In history class, I distinctly remember talking about tariffs. It’s usually something you learn about first especially in American history. The American revolutionaries were unhappy with the tariffs being put on their exports by the British. This is what the revolution started over to a degree. You might not remember what a tariff or tariffs are. The definition of tariff is: tax or duty to be paid on particular class of imports and exports. In other words, a tariff is a tax on imported or exported goods. Every country typically imports and exports goods and services. The goods that are typically exported are those in surplus in that country. The goods that are imported are those which are either cheaper or not in supply in that country. Tariffs have been long a part of the American economy. Tariffs have even long been a part of the government.

In the post, I’m going to first review why tariffs were such an integral part of our nation’s history. Then I want to discuss how we went from a tariff based revenue system to the current system of income tax. After that I want to put forward an idea that seems to have been lost in time. The tariff in the United States was after the revolution used to fund the government. Almost as the sole source of income. Alexander Hamilton had designed the whole system. He set up and got funding for a series of lighthouses and inspection clerks up and down the Atlantic coast. There clerks were to inspect all incoming and outgoing goods. They also had to determine the tariff on each item. They were called Customs Officers. Hamilton became the Secretary of the Treasury and further install his government revenue engine on the back of the Tariff act of 1789. The act is simply explained in its first section:

“Whereas it is necessary for that support of government, for the discharge of the debts of the United States, and the encouragement and protection of manufactures, that duties be laid on goods, wares and merchandise:” — Section 1; Tariff Act of 1789

The tariff is essentially an indirect tax on goods coming and going out of the country. Hamilton saw the huge war debt from the revolution and knew that the US government had no source of income. There was no income tax or anything like that. (Wouldn’t come til 1912, I’ll explain later) So Hamilton being the genius he was, decided to convince President Washington to take out a loan and install the customs system (Tariff Act). He argued in one of many papers that America need to build credit. If you have a credit card or student loans like me then you know that building credit is paying off your debt. Hamilton’s system allowed the US government build credit, in fact one of the best credit ratings in the world for many years. Not everyone was on board with the plan. People like Thomas Jefferson and James Madison. However, they couldn’t stop Hamilton’s plan because war debt was owed to France and other creditors. The US didn’t have many options at that time.

So tariffs were the main source of income from 1789 to about 1911. The US government added liquor taxes, postage taxes, corporate taxes, tobacco taxes and the Panama canal as other sources of revenue. In 1912, tariffs made up about 20 percent of the income of the government. In 1913, the government passed a law that changed the source of US government forever. The law called the Revenue Act of 1913 or the Underwood Act was passed to impose an income tax and lower tariff rates from 40 to 25 percent. This marked the end of tariffs making up a significant portion of US government income. This act was possible by the newly passed 16th amendment. (For another post, the 16th allows for income tax under the direct taxation requirements in the constitution, which was previously ruled unconstitutional by the Supreme Court) Since 1913, our tariff income has only been about 1 percent of revenue. This figure is according to this website here, it also breaks down the tariff income based on type of good. All in all, 2013 saw about 30 billion dollars of income. This is compared to 311 million in 1912. In 2016 dollars, that tariff income would be about 7 billion. Obviously, since the early 1900s the conditions of the economy and our government budget has exploded.

You might be asking yourself but isn’t 7 billion dollars in 2016 or 2017 (Happy New Year) like chump change for the US government whose budget is around 2 or 3 trillion dollars. My answer would be yes. However, if you look at these numbers in terms of percentage and scale then you can imagine a viable tariff system for 2017. Remember tariffs made up 20 percent of the 1912 budget. Now tariffs make up 1.7 percent approximately in 2013. So lets say for argument that our budget under President Trump is 3 trillion. Trump decides in order to cut taxes he needs to increase revenues. (In some alternate logical world) So Trump orders an increase on tariffs. His cabinet comes up with about 600 billion in tariffs or about 20 percent of the budget. I think that 600 billion dollars is a pretty nice chunk of change. Imagine what that could pay for? Social Security? War? Food Stamps? But what would those tariffs look like?

Obviously to understand the role of tariffs, you need have an understanding of the global economy. I think its obvious that the world is complex. A significant part of an economy is trade. The trade between two countries or more is essential because it allows scarce resources to be spread. It also widens the markets for such goods. Its been in the news a lot lately about all the trade agreements. These agreements in a basic way remove the barriers and allow trade to flow freely. One of those barriers can be tariffs. There are two types of tariffs. Import tariffs are a tax on goods that imported from other countries. Import tariffs are often seen as protective to a country economy. This was the primary tariff beginning in 1789 because it (artificially) protected the US economy. Export tariffs are a tax on goods being exported to other countries. Export tariffs are typically seen as way to limit the exports of a certain good. For example, if oil became very scarce then the US might want to put a high export tariff to help curb the sale of oil abroad and keep here in the US.  (An export tariff would increase the price of oil outside the US)

I believe that introducing a new tax plan including tariffs might be beneficial to the US. I think you have to carefully consider what to put tariffs on and what kind of tariffs. But its definitely a source revenue that is not used as it once was. Now we rely on income tax so heavily, its crushing many Americans. Its a liberal fallacy to think that you can tax your way out of poverty. Its an irony. Taxes create more poverty than eliminate. I think I need to do another post on the subject of trade because this post is merely just one part of it. I need to do some further research before I offer any specifics on what a tariff revenue might look like. So I will leave this post as to be continued, my next post will try to figure out how to successfully incorporate tariffs into a free trade world.

Thanks for reading!

 

On the Basis of Democracy: John Locke, Part 2.

Welcome to Part 2 of on the Basis of Democracy with John Locke. If you missed Part 1, you should read that first. The purpose of this blog post is to simply figured out the origins of Democracy and how it works within our American democracy. In Part 1, I went over some of the ideas of democracy from Aristotle. Political theory is a pretty easy theory to follow because each political philosopher usually builds off philosopher’s of time past. Therefore, the more ancient political scholarship you understand, the more modern/current political thoughts you can understand. In Part 2, we will be discussing John Locke and his ideas on democracy.

Who is John Locke? He is an english born political philosopher. Born in the early 1600s. He was influenced by Aristotle. Locke has a deep range of writings. He is often considered to be one of the fathers of the enlightenment. Similar to part 1, I won’t give a full biography but go to straight to Locke’s ideas about democracy. Starting from his first writing and going forward, Locke’s main premise is the consent of the governed. In his first writing called “Fundamental Constitutions of Carolina”.  In this piece, Locke and his mentor, wrote a constitution meant for the Providence of Carolina in England. It was never adopted. However, the ideas that he mentioned became the basis of political philosophy going forward.

The most influential of Locke’s writings came in his Two Treatises of Government. Instead of trying to paraphrase his great words, I will just show you. Then I will explain how the founding fathers use Locke’s ideas especially in the Declaration of Independence. Here is just a few excerpts of Locke’s Two Treatises of Government:

Sect. 95. MEN being, as has been said, by nature, all free, equal, and independent, no one can be put out of this estate, and subjected to the political power of another, without his own consent. The only way whereby any one divests himself of his natural liberty, and puts on the bonds of civil society, is by agreeing with other men to join and unite into a community for their comfortable, safe, and peaceable living one amongst another, in a secure enjoyment of their properties, and a greater security against any, that are not of it. This any number of men may do, because it injures not the freedom of the rest; they are left as they were in the liberty of the state of nature. When any number of men have so consented to make one community or government, they are thereby presently incorporated, and make one body politic, wherein the majority have a right to act and conclude the rest.

Sect. 96. For when any number of men have, by the consent of every individual, made a community, they have thereby made that community one body, with a power to act as one body, which is only by the will and determination of the majority: for that which acts any community, being only the consent of the individuals of it, and it being necessary to that which is one body to move one way; it is necessary the body should move that way whither the greater force carries it, which is the consent of the majority: or else it is impossible it should act or continue one body, one community, which the consent of every individual that united into it, agreed that it should; and so every one is bound by that consent to be concluded by the majority. And therefore we see, that in assemblies, impowered to act by positive laws, where no number is set by that positive law which impowers them, the act of the majority passes for the act of the whole, and of course determines, as having, by the law of nature and reason, the power of the whole.

If you want to read more of Locke: Click here.

Locke’s main point is that the governed hold the power of the government. Locke believes that a government cannot operate without the consent of the government. This is a basis of democracy. The reason why Locke believes that the consent of the governed is so important is because of the freedom or liberty that it offers. If the government is ruled by the people it can prevent tyrants and better rule the people. Locke is also coming from a monarchy in England and in a time when the dark ages we’re not that far off. In the dark ages, it was a small oligarchy who wealthy that ruled over the poor and working class who had no say. Locke’s ideas are perhaps best expressed in Thomas Jefferson’s document.

Thomas Jefferson was a philosopher in his own right. Jefferson also understood that Locke’s philosophy fit perfectly with the American cause for revolution. If you didn’t pay attention in history class then you want to know to that one of the rallying cries was “no taxation no representation”. The American people were clamoring for representation in the British parliament. The unilateral rule of the British Monarchy over the American colony was directly what John Locke was trying to get at. In the Declaration of Independence, Thomas Jefferson took a page for Locke and wrote this:

We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness. — That to secure these rights, Governments are instituted among Men, deriving their just powers from the consent of the governed, — That whenever any Form of Government becomes destructive of these ends, it is the Right of the People to alter or to abolish it, and to institute new Government, laying its foundation on such principles and organizing its powers in such form, as to them shall seem most likely to effect their Safety and Happiness.

Thomas Jefferson essentially took Locke’s words and used it as a justification for the revolution of the American people. Locke’s vision for democracy did not just end with Jefferson but kept going. Locke’s idea that the consent of governed is needed in democracy still holds true today. Unfortunately, in today’s America we have gotten lazy. We seem to have ignored the fact that our democracy is supposed represent the people. Many people blame our representatives. We should look at the majority of governed who don’t vote. I think in a very indirect way, Locke is also advocating for participation in government. I feel that political participation has gone down as politics has become more polarizing.

We can blame Trump. We can blame Hillary. We blame our politicans. However, I think that democracy in the words of Locke lies with “the consent of the governed.” I think to wrap up this series, I want to just conclude a few major considerations for the basis of democracy. One basis that Aristotle outlined is the authority over aduits. In other words, Aristotle thought that the people should hold purse strings and keep the government accountable. Aristotle gave us a second basis that is the foundation of our judicial system. The right to a fair trial with a jury of your peers. Locke gives us the basis of the consent of the governed. The theory that democracy should always be run by the people and for the people. The majority of people should have the power to control the government. This means everyone must vote. Everyone must participate. These are the three main bases of democracy as written by Aristotle and John Locke.

This will be end of this series for now. I may continue it with different philosophers at another time. Below you will find my sources especially for the quoted stuff. Thank you for reading!

Citations:

https://www.johnlocke.org/about-john-locke/who-is-john-locke/

http://www.gutenberg.org/files/7370/7370-h/7370-h.htm

http://www.ushistory.org/declaration/document/

 

 

 

Economic Series Part 3: What is Gross Domestic Product?

Welcome to the third part of my economic series. This final part will explain what GDP is and why it is so often used as politicians go to economic figure of success or failure. Gross Domestic Product or GDP as I will call it by the acronym, is an economic indicator. It measures a very specific part of the economy in any given country. If you have not read parts ONE and TWO of this economic series I strongly suggest that you do. My first two parts of the series describe the arguments for and against minimum wage in part one. In part two, I  go over the basics of government budget and taxation. It’s important to recognize that economics is a very complex subject and many topics involved having an understanding of other topics. In this case, I think that GDP is definitely the most advanced of all the topics that I have covered thus far. In order to properly discuss GDP and the politics that usually surround it, I feel its necessary to explain how it come to be and what it involves.

The book that has inspired me to write on this topic and my primary source of information is called GDP: A Brief but Affectionate History by Diane Coyle. Coyle’s book gives a full rundown of everything GDP. I would strongly recommend it because this post won’t even cover 1/4 of what she does in this book. Coyle gives a simple word breakdown of GDP. Gross meaning not deducted as opposed to net (Her example was like net weight of a cereal box, it’s only the weight of the cereal without the packaging) Product meaning stuff made, and Domestic is simply at home.(Page 7) GDP is much more complex than the three simple words that make up its name. The history and founding of GDP begins at the start of World War II. However, the idea goes back throughout the ages.

One of the many controversies over GDP that still exist today was first explored by one of the greatest economic scholars to ever write. Adam Smith wrote the Wealth of Nations. In his book, he went over some relevent facts of GDP. His point to paraphrase is this: The manufacturer that produces something with their labor creates value and adds it to the economy. The person who employs many menial servants grows poor while the person who employs many manufacturers grows rich. The point here being that Smith sees the production of goods as adding value to an economy. He sees the services of a servant or a service in general adds nothing. GDP has often not included services because it’s too hard to measure the true output of a teacher. Also the word “Product” in GDP lends itself to the production of goods not services. (Page 10)

GDP’s history comes out of collection of statistical data and economists. Colin Clark calculated the expenditures and national income of the United Kingdom. Clark based his work on a publication by Alfred Marshall who wrote Principals of Economics before the Great Depression. Franklin Roosevelt encourage more research and work on the national income and expenditures during the Great Depression. This led to Simon Kuznets to work with the National Bureau of Economic Research, which earned him a nobel prize. One of things that Kuznets brought up is an important facet of GDP. Kuznets thought that he was working to measure welfare rather than just output. GDP is often used to measure the welfare of any given country. However, because like I said previously, GDP is typically measured by the output of an economic. The problem of welfare and GDP is one of modern criticisms of GDP. Coyle dedicates two chapters to the subject of GDP and welfare. (Page 12-14)

I want to focus more on the particulars of GDP and how it’s calculated. Coyle covers this topic quite well. I want to save welfare and GDP for another post because it’s too much for this post. Coyle goes over the three different ways to measure and calculate GDP. She gives a two charts. One chart shows how these calculations are done. Since I don’t have the chart, I will just describe each way. The first way is a Value Added production. Value Added production adds up the Gross Output. The gross output is the all the sales made in an economy. The gross output excludes the inventory because it’s counted by the next category of intermediate inputs. Which stuff like staffing, inventory, and other things that businesses pay money for to make their business work. Finally you get to a number that tells you how much value added each industry in an economy.

The second way to calculate GDP is through Income (by type) approach. This approach uses a set of different incomes and expenditures to make final figure of Total Domestic Incomes earned. There are rental income, profits and proprietors’ income, Taxes on production and imports, Less: Subsidies, Interest and miscellaneous payments, and depreciation. These are the categories of the Income (by type) approach. The third way to calculate GDP is through Final Demand (or Expenditures) approach. This approach uses the sum of these categories to make up the final sales of domestic product to purchasers. The categories are the consumption of final goods and services by households; Investment in plant, equipment, and software; Government expenditures on good and services; and net exports of goods and services (export-import). No matter how you calculate GDP, the measurement always is trying measure how much an economy produces and what kind of income the country who benefits from it makes. (Page 25-26)

The most popular and most used method in modern times is the Expenditures approach. Coyle also goes over the equation along with an awesome chart. The equation simply is GDP= C+I+G+(X-M). The letters stand for Consumer Spending plus Investment plus government spending plus exports less imports. (Trade deficit/surplus). Coyle also tries to show some problems with the GDP equation which is mostly that GDP is not so simple. The categories have multiple sub-categories. There is a lot of gray area. The numbers can be shaky. However, in the end GDP is the most reliable measurement of economy. Coyle mentions other indicators which can help round out the welfare aspect and government impact. The awesome chart I was referring is a two circles. On the left side there is the word “Individuals” and on the right side there is “Business”. The top of the circles, have two words. On the bottom circle it says Expenditures, and on the top circle it says Goods and Services. In the lower two circles, the top one says Income and the bottom says Labor. (page 26-27)

The story is that Individuals and Businesses interact in two different ways. The circles represent the different ways. The bigger circle with Labor and Goods and Services basically shows that Individuals supply the labor for business. The Business supplies the good and services. This is basic economics, it shows a supply/demand for labor and good and services.  The smaller circle with Expenditures and Income show that Businesses supply the Individual with income and the Individual supplies the business with Expenditures. The vice-versa is also true. Businesses make income on the Individual’s expenditures. This is a simple economics lesson that can help you understand GDP. (Page 27)

GDP is an important facet of economic measurement of any given country. As Coyle notes in later chapters which this post won’t cover, that GDP is not accurate in second and third world countries because of faulty accounting and statistics. She also covers a great deal of debate over whether welfare should be measured by GDP or not. These are more complex questions than I really want to go. I think the point of this post is to say that GDP is important to understand. GDP is not a true measure of welfare. It’s the statistical measure of economic input and output. As an example, GDP measures the number of phones that Apple sells after the release of the Iphone 7. It doesn’t take into account the welfare of the people who buy those phones. GDP is also a political tool especially when it comes to arguing over the economy.

Moving away from Coyle’s book in some ways, I want to briefly discuss why politicians like to use GDP. I think that much of the political controversy surrounding the use of GDP comes from the myths of GDP. Many people don’t realize the history of GDP. The misunderstanding of what GDP represents. Many politicans including present candidates for President seem to think that GDP shows how well the economy doing or more often how bad it’s doing. However, the reality is that GDP can fluctuate just based on how you calculate it. One increase or decrease in any given category there could be a 1-2 percent fluctuation. Another important myth to dispel is that government spending actually helps GDP. The debate that surrounds government spending and its effect on the economy is prevalent.

This is where I want to end this post and this series for now. My last words is that government spending doesn’t necessary make for the best economic move. The problem with government spending is that the government is NOT a business. Government makes their money from taxpayers. Its mandatory, you can’t just not pay taxes. It also makes a problem with counting the statistics for GDP. The government doesn’t have a real income with the exception taxes. This means that when the government tries to invest in anything it only represents an expenditure. If you recall the chart, the point of an economy is a cycle of labor into good and services that make income provided by expenditures. One example, that I know the best is that of the spending on the military. Military spending has often been one of the biggest items on US government budget. The national debt is nearly 20 trillion dollars. Some scholars have estimated that 16 trillion of that was spent during the cold war on military research and wars. The way that the DOD (Department of Defense) and the government have gone about spending this money is the problem. The military contracts assigned to military contractors during these years were given without little scrutiny. Many of the biggest contractors were able to contracts with no competition. The contracts included very little accountability or responsiblity especially in regards to money spent.

The point being is that GDP has actually suffered since the Cold War. This mainly due to stagnant economy. I mentioned that GDP doesn’t measure services which now is the most prominent feature of our economy. The reckless spending and bad fiscal policy by the government has given us some unfortunate consequences. GDP will always be controversial because of its complexity. I believe that its important to understand how GDP works. If you understand economics and GDP then you can understand that fallacy that politicians try to push on us. For me, this topic is fairly new but I wanted to try to introduce a little bit of the controversy and facts of economics and GDP.

Thanks you for reading! Have a great day!

 

Citation:

Coyle, Diane. GDP: A Brief but Affectionate History. Prinction University Press, 2014. 

 

Economic Series Part 2: Government Budget: Taxation and Spending

The most dreaded time of year is when everyone must file their taxes. Taxes are certain like death. Taxes are a necessary evil. To many people it seems that our taxes do very little for our own interests. Taxes are supposed to help the people who pay them but rather they seem to help special interests or people who don’t pay them. The responsible party of handing our taxes is the government. The IRS is the collector, Congress is the spender. I believe that this Economic Series Part 2 is probably one of the more important topics. This part will be a sort of contextual background for the last part of this series on GDP. (Gross Domestic Product) I think its very important to understand how the government balances or fails to balance the budget. The topic I choose is quite broad. However, I want to focus on why taxes are collected and how they are spent. I also want to point out how the national debt is growing and what we might do to stop it.

My own view on government taxation and spending is very much libertarian. I believe the government should spend as little as possible. This way our taxes are not the burden they have become. Government spending tends to go to ineffective programs and usually becomes wasteful. I think the best way to understand the federal government budget is by understanding some of the history behind. The creation of our federal budget and tax system was mostly implemented by one man. Alexander Hamilton is the responsible person for most our budget system.  If you remember from history class there was a lot of rebellion and distrust among the citizens of our new country. Many of Hamilton’s critics thought he wanted to become a pawn of the British or king of America through a tight relationship with England. Luckily for us, Hamilton’s set up turned out to be brilliant, and was kept in place until now.

One of the first ways that Hamilton helped set up the federal budget was by creating an import and customs service. It was necessary because when Hamilton became the secretary of treasury, the US had a war debt due to the revolution. In order to pay this war debt off, Hamilton created what is now the Coast Guard. He also set up customs and import agents along the ports. These agents were to collect the duties on the imports to America. The duties or tariffs were basically a tax on imported goods. This was the main source of income for the federal government after the Revolution. Another piece of the system that Hamilton created was the banking system. Hamilton realized that the US need a national bank. In part because of the debt and in part because of the wide range of currencies that existed among the former colonies. The Bank of America (similar to the one we have now) was created. Congress wrote a charter for it and it opened up by selling shares. These shares is how the bank made its money. The controversy came when it lead a lot money speculating among men who wanted to risk an investment in the bank.

The Bank of America also set up a line of credit for the federal government. This is was necessary because in order to pay back the war debt the US would need to take out a loan. Hence this created what we call credit. Hamilton’s system was much criticized by Republicans like Thomas Jefferson and Aaron Burr. One of Hamilton’s primary supporters was actually George Washington. With increasing responsibility due to the growing population and turmoil in France, the US needed to increase its revenue. Hamilton proposed and got a whiskey tax passed. This whiskey tax would put a small tax on whiskey and liquor. This lead to the Whiskey Rebellion in western Pennsylvania. Hamilton himself lead a rather big militia to help quell this protest.

Hamilton’s role in the banking, budget and tax collection in the US is monumental. It is often forgotten that he nearly created the whole system by himself. An impressive feat. It wasn’t until the 16th amendment that make income tax a thing in the US. This was passed in 1913 long after Hamilton’s death. Woodrow Wilson brought us into the modern era of taxes with the 16th amendment and the Federal Reserve Act. The Federal Reverse Act created the Fed as its usually called. The Federal Reserve Act basically moderates the US dollar according to the economic conditions. It also prints and controls the US dollar. Unfortunately, the Federal Reserve is mostly privatized. You may have heard the phrase “Audit the Fed” from politicians like Rand and Ron Paul. The problem is essentially, the Fed is undermining the US dollar and devaluing it. The Fed has its own agenda and nobody except the Fed knows what that agenda is. (Another post, another day)

Now in 2016, after over 200 years running our government, we find ourselves in 19 trillion-dollar debt. What could have gone wrong since Hamilton? The answer is hard to pinpoint. However, my working theory is that after War World 2, during the cold war, we started to spend more and more on defense. Defense spending became out of control and the Department of Defense was not held accountable. The DoD was allowed to “cook the books” on their budget numbers. Some estimates that I’ve seen put our spending during the Cold War at 16 trillion dollars. I would encourage you to check the national debt clock that shows our debt in real-time. It breaks down the debt into categories. The national debt being so high is due to overzealous spending and lack of accountability in the government.

As for a breakdown in spending and what we spend our tax money on. I found a nice infographic that shows how we spend our federal budget. It focuses on how the debt is effected by certain factors like raising and lowering taxes. You should definitely check it out right now. It’s from the Congressional Budget Office, a government agency. I think that paying taxes is obviously important however, I believe that some of our tax dollars are wasted. One of things that needs to happen is for the federal government to cut spending. Unfortunately, we don’t hold our government accountable for the money that it spends. A good analogy is like when you take your parents credit card and go on shopping spree. Your parents may give you the credit card with a reasonable expectation of what you will be spending it on.  Instead though, you spend it without any kind regard for how much or on what. Imagine if your parents never held you accountable for spending all their money. They would probably go bankrupt in most cases because without restrictions, then what’s the point of spending less?

This is how the federal government and taxpayer relationship basically works. The federal government is you as teenager with a parent’s credit card. The taxpayers are the parents. As taxpayers we are pretty irresponsible parents. We don’t hold our government accountable for their actions in spending money. The tragedy is that the US is in big trouble because of reckless government spending. The 19 trillion-dollar deficit is almost an insurmountable sum of money. Rather than discussing who is to blame for the problem, I think its more productive to discuss how to remedy it. The blame can be distributed to many people and government agencies. The blame can be put on US foreign policy too. However, there is a relatively easy and pain-free way to help cut the deficit and still keep our standard of living intact without raising taxes sky-high.

There are two primary solutions that I feel would work to greatly reduce our debt. One of those is a simple cut in unecesary government programs and spending. One of our biggest expenses is the military budget as you can see below:2016-budget-chart-total-spending2

So just imagine if we pulled back most of military troops from abroad and cut most of the unecessary research and development budet. I would only cut about half of the military budget. At nearly 634 billion dollars, let’s cut it down to 300 billion. The 300 billion left for the military would go towards the salaries of personnel mostly and all the war material necessary. In the case of an attack on us or our allies, then obviously the money could be restored. So where would that 334 billion that I cut off go to?

Take a look at the pie chart again. 60 precent of our budget is spend on healthcare and social security. Social Security, by the way is going bankrupt. So let’s put 334 billion into both of those. Approximately 150 billion to each service. In addtion, lets cut off the foreign aid to other countries and add another 30 billion to the pot. So imagine over eight years during just one president for two terms, with approximately 165 billion dollars going to sinking welfare programs. So in 8 years, the US would put nearly 2.6 trillion dollars into those welfare programs. You could even take a step further, take about 2 billion or 3 billion out of the 364 billion and put that into higher education. You could pay off the loans of all students each year. Just think about all this, this is just cutting the military budget by half. Which by the way, is nearly 10 times as big as the next country’s military budget.

My other option, which I have written about before and have over time, really have come to like is Basic Income. You should definitely read my post on Basic Income. I will explain in short, that Basic Income is basically a replacement for welfare. You cut all social programs including medicare and medicaid. Cut minimum wage. Cut everything related to social security.  Instead you give everyone over the age of 18 a check from the government for a certain amount each month. Now just imagine if we did as I describe in my basic income post and we cut the military budget. I truly believe that the effect of both of these actions could lower taxes and help eliminate the deficit.

The taxation and government budget problems are ones of responsibility and accountability. This in part comes from the lack of education how the taxes and spending work within the government. I hope that my brief explanation can help clear up some of the confusion and misunderstanding about how taxes and government budgets work. I mentioned that this series post prefaces my next topic of Gross Domestic Product. Its important to note that GDP is calculated without the input and outputs of the government. The government spending money on military war material and other research does not count towards GDP. This is a very significant fact in that it strongly affects the GDP numbers. As you will find out in my next post that GDP only measures the input of labor and the output of production by the private sector.

I would encourage you to research more outside of my post. Its a very interesting topic. Thank you for reading! Have a great day!

 

Introduction to Economics: A Historic Review of Modern Political Economic Argument.

Welcome to my very first series post on Economics. Don’t be scared by the long title and big words. Essentially the words: ‘Historic Review’ and ‘Modern Political Economic Argument’ are fancy ways of saying that I will be using historical findings and writings to preview how we look at various economic policies that are used in today’s politics. The word ‘Argument’ has a double meaning because it means I will also being arguing that certain economic policies are less effective than others. This particular post is just an introduction. It won’t be too long, but knowing me that could be a complete lie. In this introduction, I will briefly go over the topics which will conveniently become a post of this series. Each topic will have a dedicated post. I intend to make this a three-part series. However, I cannot rule out expanding if necessary, especially since sometimes it takes a lot of words to explain complex subjects. That being said, I’m going to try to keep it as simple as I can. Albert Einstein was once quoted as saying that any fool can make something more complex but it takes real genius to make it simple.

As I mentioned in my last post that I have been reading up and have an increasing in economics. In this blog, I have often discussed economics due to ignorance of certain politicians and in general. I take great umbrage at people who ignore the facts of economics and still repeat the same lies. However, politic disagreements aside, I truly just want to educate and show people that economics is not just made up out of thin air. It has a deep and rich historical basis. There are a broad number of scholars who made economics what it is today. Much of the Economic policies that you hear about come from the writings of these scholars. There is also the economic measures and policies that many people just don’t understand because it’s not typically taught in school (Highschool many of these subjects I will touch are probably not covered, and in college it would be an elective unless you major in economics)  and it’s just not deemed important.

The three subjects that I want to discuss and argue about are as follows:

Minimum Wage

Gross Domestic Product (GDP)

Taxation/ Government Budgets

In no particular order, I will proceed to write at least three blog posts about each of these. In each case, I will cover some history about the topic. I will draw on many different sources available either online or in book form. After I use history to help explain what the topic is and how its evolved over time then I will go into the ‘argument’ part. As example, I might take minimum wage. I might try to argue that minimum wage should not be raised. I will lay out arguments both for and against. In the end, I want you to decide how it should be. The point of this series is to educate people on how economics works and how has worked in the past. Granted, I don’t know everything. I’m sure I will miss some things. However, that’s where you come in and fill in the blanks. A healthy democracy involves a citizenry that is educated and asks questions.

Let me just introduce each of the three topics. The first one probably needs no introduction if you follow politics or read this blog. Minimum wage is the floor wage or base wage that is set by the federal, state or local governments. It’s a little fuzzy because the legality and assigned power is not specifically mentioned in the constitution. I may go deeper into this issue, my initial thought would be to say the federal government is overreaching by trying raise the minimum wage because its power that should belong to the states and local government. Let’s face it, the state and local government probably knows what best for its people. I digress. Minimum wage is a hotly debated issue that comes up almost every election cycle.

Gross Domestic Product or its better known acronym GDP is the measure of output and input of any given country. Now in my posts, I will just refer to Gross Domestic Product as GDP. GDP is a very complex and challenging economic indicator. I recently read a book about it. It has history that is very interesting and very controversial. GDP is by no means a perfect measure of economy. Its often used by politicans to justify certain policies. GDP can be misleading because its calculated by a bunch of different statistics that are pieced together. Sometimes and in many cases, the statistics of poorer or less well off countries are skewed or incomplete. This will probably be the last post of series because of its complexity and because my knowledge is somewhat limited.

Taxation/ Governemnt Budgets is a very broad subject and to narrow it down, I mainly just want to disucss how taxes fix into the government’s budget. On the other side of the coin, I want to talk about the fiscal responsibility of the government. Today more than any other time in our history, the government seems to have a dangerous spending problem. The problem is not that our citizens don’t pay their taxes but rather the government out spends the amount of taxes collected. There is a wealth (pun intended, literally) of scholarhsip on taxes. They say there are two things certain in this life, Death and Taxes. In this post, I will almost definitely argue for the fiscal accountability of the government. You will see that fiscal accountability would actually lead to lower taxes. I think everyone can agree with lower taxes?

If  you have any suggestions for other topics, drop me a line. I’m willing to write about almost anything. I think these topics will bring some good questions and maybe answers about certain economic policies. I also think it will be good to explore some lesser known economic topics like GDP. In addition to educating you, I am also learning myself. In my life, I’ve taken two economic classes. Once I took a half year course in highschool. To be honest I did not learn anything. Then in college, I took a course in economics. I believe it was Marco-Economics. I learned the basics like supply and demand. I learned about the importance of scarcity. Now after college, I have been reading up on economics and trying understand how it works. Its definitely a topic that everyone should at least a little bit about it.

In the coming days you should expect the first post of this series. Thanks for reading! Have a great day!

Meddling in the Middle East: Aid Trouble

Before I go into my headline topic on the middle east, I want to just take moment to say that I called the stock market crash and rebound after the Brexit vote last week. After nearly three days of down stocks, the market has returned almost all the losses. Once again I want to reiterate that the long-term economic and political results won’t be seen for at least 3 to 5 years. Now let me switch gears into a very controversial topic that relates to terrorism and the middle east. Today I want to discuss the absurdly of the US foreign policy toward Israel. I also want touch on tragic airport bombing in Istanbul, Turkey that was supposedly planned by ISIS. My main focus of this post is to make the point that Israel should be able to accept being an US ally without needing over 50 billion dollars for military aid.

First up, I want to mourn for the victims of the airport bombing in Istanbul, Turkey. It was a horrible and savage attack. The death toll has reach nearly 50 people with over 200 people injured. I think that its very necessary to use caution especially when traveling abroad. You never know when ISIS will strike. The US response was about as usual as it could be. There isn’t much choice but to strengthen the airport security. It’s very unfortunate for the Turkish people for whom terrorist attacks have been increasing in the past year. You can find part of the reason in the civil war in Syria which continues to raise havoc in the region. Turkey also has some domestic terrorist which are just as bad. Turkey actually relies on tourism for a good part of their economy. Hopefully the Turkish government can take the necessary steps to deter and stop more attacks. They can also thank Hillary Clinton’s foreign policy. Unfortunately President Obama and Hillary Clinton conceived a foreign policy that led to the creation of ISIS because of power void. This absence of power is thanks to George W. Bush, however, without a stable government in the area it was pretty much impossible to stop the formation of a terror group.

On the topic of stable governments in the middle east, there is at least one US ally that is not named Saudi Arabia or Jordan. That US ally is also one of the world’s nuclear powers. The small nation of Israel, location centrally in the middle east. A key ally in helping maintain a balance of power in the thick of US hatred. Recently, there was news about the agreements that happen each year between the US and Israel. This time around it seems that President Obama is standing up against Israel. The article highlights the main facts surrounding the Israeli-American defense agreement that sends 50 billion dollars a year of taxpayer to help fund the Israeli military. It also says that Obama wants to cut out his part of the agreement. The agreement also deals with civilian aid and economic aide. For once, I think President Obama is making the right move with Israel and here’s why.

First, no other country gets such special treatment like the Israeli’s do. Not the UK, not France, not anybody. Israel is the only country in the world that gets to spend its US aid on military weapons. Now granted, this policy was formed after World War 2 because of the holocaust and the need to protect the Jewish population. However, its has been a signficant amount of time since then, about 70 years. President Obama correct asserts that Israel should start paying for their own military. Second, it is not fair to the American taxpayers (that’s me and you) to have pay for defense that typically never benefits them. The reason why it never benefits US citizens is because just look at the middle east! It’s a fucking mess. I don’t think Israel has done much to help the situation.

The third problem is that America can no longer afford to keep shoveling 50 billion a year to Israel. We have enough debt as it is. We have a huge military and trust me its enough to defend Israel if its necessary. You might say “Oh but what about Iran, don’t they want to wipe Israel off the map?” Yes, that’s true. However, I think Israel will be fine since they have nuclear weapons and Iran just signed an agreement to not have them. The deterrence factor should come into play here. My problem with this is just about the money. I think the Israeli’s have always been a great ally and never tried to play us or trick us. However, many nations are America’s ally for benefits and many of them do it without 3 billion a year in military.

I am so proud of President Obama. His foreign policy has been characterized as soft and lacking. I think this is a bold move that Israel definitely won’t like but what are they going to do? Obama is so right to play hardball. Obama should absolutely stick up for American taxpayers. I honestly just don’t give shit about how good of ally and let me explain it in simpler terms. For example, let’s say you have two different friends. Both friends you’ve known for 15 years. Both friends provide you the same support and kinship that you love about them. The difference is that one friend only hits you up when they need money. The other friend is always down to pay for their own shit. Israel is like the friend that only hits you up for money. It’s not a very good way to be a friend. If you are only in it for the money!

I don’t want to sound anti-Semitic or anything, but I really think it’s an unnecessary amount of money. America is going through its own economic crisis. This crisis has been brought on in part by the spending of the military industrial complex. Trust me, 16 trillion dollars of our national debt is not just from bailouts and social programs. 16 trillion dollars is the estimation by a great scholar by the name of Paul A.C Koistnen. He is a tremendous scholar whom I gotten advice from. He is an expert on the military industrial complex with about 10 books in publication. I recommend that you read up on him. His estimate of 16 trillion dollars is the amount that the military industrial complex has cost the US since the end of World War 2. That is nearly 76 percent of the national debt. So I just want to end by congratulating President Obama on his good move and I hope that he continues to push to get rid of the 3 billion subsidization.

Thank you for reading!