Steve Daines has it right on spending cuts

Do the hard things first -- good advice for almost any job, but certainly for those who would presume to balance budgets at the federal level.

Montana's newly elected Congressman had some thoughts that were reported on in a Lee Newspaper article. They boil down to this:

“President Obama’s proposal of raising taxes brings in revenue that will be about 8 percent of the deficit, so that leaves us 92 percent to chew on,” he said in an interview. “We need to start the discussion on where we can find ways not only to slow the growth in federal spending, but actually see some decreases.”

Indeed. And politically, raising taxes on 1-2% of Americans, as President Obama proposes to do, is relatively painless. In the last election, President Obama demonstrated that the very wealthy are at least as likely to vote Democratic as Republican (the states, counties, and Congressional districts with the wealthiest residents actually are more like to vote Democratic -- even when you are promising to take more of their money away from them.) Those who benefit from government spending, on the other hand -- those who work for the government or who receive government payments of some sort -- tend to be very punishing to anyone who presumes to take their goodies away.

Ergo, it is always politically easier to raise taxes (especially on the dastardly rich) than to cut spending. So, when 92% of what needs to be accomplished has to come from spending cuts, and those cuts are politically hazardous, it is the spending cuts that need to be given priority.

Past political experience has shown that politicians consider reductions in the rate of increase of spending to be spending cuts, when they really aren't cuts at all. Past political experience has shown that any cuts (or decreases in the rate of rise) that actually materialize only occur when politicians are forced to make them. Tax increases, furthermore, are always real, whereas spending cuts often prove to be ephemeral. Much ado was made about "austerity" in Great Britain, where what was promised was a ratio of 3 to 1 -- 3 pounds in spending cuts for every pound in tax increases. Subsequent experience has shown that most of the spending cuts were fake, whereas the tax increases were real. And this is with a "Conservative" government in charge.

We can expect the same here in America, where the tax increases that President Obama and the Democrats have been promising us will be very much real. Spending cuts? Without vigilance, they will be no more real than were the spending "cuts" that House Speaker John Boehner extracted from the Democrats in exchange for Republicans voting for an increase in the debt ceiling. (What Boehner obtained as "concessions" were a joke and an insult to any right-thinking American's intelligence.)

In light of all of this, Congressman Daines is exactly right to stand with those who refuse to vote for tax increases, and who insist on seeing real spending cuts (and not just reductions in the rate of increase of spending) before considering any moves that increase revenue.

If President Obama and the Democrats in Washington were serious about reducing the annual deficit (let alone reducing the national debt), they would long ago have been furiously looking for places to cut spending -- but they aren't and never have been. Trust us, if Republicans in Washington were to allow them to raise taxes without insisting on spending cuts, that is exactly what would happen.

Republicans in Washington have often been rightly accused of not being serious about cutting spending. What they have to commend them is that the alternative is so much worse, as we discovered between 2008 and 2010. Many of us rhetorically asked ourselves prior to the 2006 and 2008 elections, "could the Democrats really be any worse than the Republicans when it comes to spending too much?" Alas, we found that the answer to that question is a simple one: "oh yes... and how..."

Montana governor's race: Steve Bullock's 11th hour conversion on oil and gas taxes?

We were happy to learn that Democratic gubernatorial candidate AG Steve Bullock has had, at this late point in the campaign, an apparent conversion experience on oil and gas taxes.

In a recent debate, Bullock stated that he did not favor repealing the tax "holiday" by which new horizontal wells pay no taxes for the first 18 months of production. Keep in mind that Democrats opposed this holiday, which makes Montana oil and gas taxes regionally competitive, and that they have proposed legislation to repeal the holiday in pretty much every legislative session since it was first instituted in the 1990s.

Let's pose a hypothetical here: suppose by some miracle, Democrats retake control of both houses of Montana's legislature sometime in the coming 4 years. And suppose that Bullock is elected governor. Are we to believe that Bullock would veto legislation to raise oil production taxes if a Democratic legislature passed it?

Montana voters who want to promote oil and gas production in our state need to decide whether they trust Bullock's sudden enlightenment on this subject. Bullock, of course, doesn't really need to worry about such matters, since the Montana legislature would appear to be safely in Republican hands for at least the next couple of cycles. Oil and gas taxes aren't going up as long as the GOP is in control of the legislature, so he can safely say pretty much whatever he wants to about this.

We do, however, already know how Bullock votes on the state Land Board when it comes to oil, gas, and coal development issues, and he is definitely to the left (to the extent that left and right have meaning in this context) of his fellow Democrat, Gov. Schweitzer. If you thought Gov. Schweitzer dragged his feet on traditional energy development even while saying all of the right things, then you will likely be even more unhappy with Steve Bullock as governor. If you thought that Gov. Schweitzer got it just about right, well... you'll still be unhappy with a Gov. Bullock.

In that same debate, Rick Hill pointed out that he was working as an adviser for Gov. Racicot's office when the concept of the oil and gas tax holiday was being developed. Bullock snarked back that Hill was trying to "take credit for the oil and gas boom."

Not really, Mr. Attorney General. The point is that when voters are trying to decide whose promises to believe on this issue, they will look at past behavior and past associations. There is nothing in Rick Hill's record and associations that would indicate anything but that he will promote a safe and responsible development of traditional energy sources like oil, gas, and coal. There are disturbing indicators in the Bullock record and associations that point toward obstructionism and toward favoring the positions of radical environmentalists.

Voters will have to decide what they want.

Meanwhile, over in North Dakota... property tax wars

This caught our eye in the Bismarck Tribune recently: Measure 2, if passed, would eliminate all property taxes in North Dakota. It is an idea that has political legs primarily because of state coffers that are bursting from oil-related revenue. Unlike Montana, North Dakota has aggressively worked to develop oil exploration, and that makes everything that much easier.

The tack that supporters of the measure have taken is brilliantly simple. They maintain that as long as there are property taxes, it isn't really every possible to own property -- one only gets to keep it as long as one is able to "pay rent" to the government in the form of property taxes, making any government that taxes property the real owner of said property.

Sarpy Sam wrote something a few months ago to the same effect, and it really got me thinking when I read it. Most people don't notice property taxes on their homes because most are still paying a mortgage (often refinancing over and over again, extending the life of the loan,) with the taxes wrapped into their monthly payments.

For those who manage to pay off their homes or other property, however, the cold reality is that if one is unable to pay the taxes, the property will be confiscated faster than you can say "Department of Revenue." The burden is particularly heavy on those who bought a house a long time ago and paid it off, but who now find that the value of their property has gone up sharply, and with it the taxes. Since many of the homeowners who fit this profile are retirees on fixed incomes, they can be forced to sell their homes because they can't afford the taxes.

The idea is a seductive one -- what would it be like to have property that one actually owned? In other words, what if you could actually pay it off and owe nothing else on it? What if no one could take it away from you once you had burned the mortgage? An amazing thought, really!

The drawbacks are significant, though. This particular law wouldn't allow even local entities to levy property taxes, meaning that local governments would have to be funded by the state government. The net effect would be a loss of local autonomy, essentially turning city and county governments into administrative districts of the state government, rather than uniquely responsive local government entities.

The temptation to raise income taxes to make up the difference would be very high -- one of North Dakota's strong points when it comes to taxation has been that North Dakota has a very balanced schema: modest income, sales, and property taxes, none of which carries a disproportionate load. A related point is that property taxes, unlike income taxes, are very stable taxes that provide a steady flow of income not subject to the vicissitudes of economic cycles. Even sales taxes, while far more stable than income taxes, are somewhat cyclical. Cyclical taxes such as income taxes tempt governments into greatly increasing government spending during booms -- spending that a government then must struggle to pay for during inevitable economic downturns.

All in all, from an MH perspective, while all taxes are evil (even when necessary,) property taxes are less evil than are income taxes, since they do not directly punish productivity (although they do punish investment and saving.) We would favor very low property tax rates, with creative ways of addressing some of the worst aspects: perhaps having lower rates for those over the age of 65 with fixed incomes, or maybe even having property tax rates drop significantly once a mortgage is paid off, which would have the effect of encouraging families to reduce their debt burdens.

These creative proposals are things that can't be explored anywhere but in the legislative process. Bills to eliminate property taxes failed to pass the North Dakota legislature during the last session, a fact that should sound a warning bell for any "small-r" republican. In general, law made by referendum and ballot initiative tends to be poorly written law -- there is no formal debate and testimony, there can be no amendments to deal with problems that a bill's authors hadn't thought of, etc. While legislative wheels grind slowly, they tend to grind fine and to produce results that, because they usually involve compromise, reflect as close to a consensus view as can be reasonably hoped for.

We will watch with interest to see how North Dakotans vote on this matter, hoping that whatever they decide will be good for their state. Let us also hope that the Montana legislature looks across the border for inspiration and finds ways to lower our own taxes... of every kind. Of course, before that can happen, Montana will need elected officials at every level who creatively encourage a robust development of our oil and coal resources -- until that happens, any tax relief that we can hope for will be symbolic rather than substantial.

Thumbs down on the Gazette's coverage of tax rebates

The Billings Gazette editorial page rightly gives a "thumbs down" to the IRS sending out a postcard to tell everyone about the tax rebate they will be getting. Well, some people will be getting those checks, but not the people who pay most of the taxes -- but we won't get into that part of it. After all, as Sen. Baucus implies in his postcard, those who make more than a certain amount are "undeserving" of a tax rebate.

Which brings up a criticism of the Gazette. Surely, the Gazette editorial board members also received Sen. Baucus's post-card, crowing about the stimulus package checks that would be coming people's way. That, too, was at taxpayer expense.

So why the selective indignation? Why criticism of the IRS for sending out a postcard, but no criticism from the Gazette editorial board of Sen. Baucus's flagrant abuse of his franking privileges in an election year? Even some folks on the left noticed and were not amused by this waste of taxpayer money.

After all, it is arguably a part of the IRS's job description to inform taxpayers about changes in tax law. What is Sen. Baucus's excuse -- other than the fact that it is an election year, and he's running short on campaign cash (not)?

Sen. Baucus wasn't even a part of the loop in designing the stimulus package (so much for being the 4th most powerful Senator in Washington) and had to add some window-dressing to the legislation after the fact.

Montana Headlines has accepted that there will not be a viable challenge to Baucus this year, barring unforeseen circumstances (which can, of course, always arise.) But the way that the press takes it easy on Baucus is maddening, and it probably contributed to the unwillingness of any higher-profile Montana Republican to enter the race. That's no excuse -- the Montana GOP should have been able to prevail on someone to step up to the plate, regardless of the odds.

But every time we see the Montana press coddle Sen. Baucus like this, it becomes harder to blame the Republicans who chose not to challenge him.

The rich paying their "fair share"

Over at Rabid Sanity, Steve makes a point about how much personal income tax is paid by the top 1% of earners. According to the link given, the top 1% of taxpayers earn 21.2% of the nation's income, but pay39.4% of the nation's income taxes.

In response, Wulfgar contends that Steve should take payroll taxes into consideration -- and MH musings on the subject proved lengthy enough to make a post out of it.

First of all, payroll taxes shouldn't be considered to be "government income" in the ordinary sense -- after all, Congress can't appropriate these monies at will.

Social Security can be thought of as a pension plan contribution to a defined benefit pension. That this is so is reflected in the fact that there is an income cap on which SS taxes have to be paid.

Medicare taxes can be thought of as pre-paid health insurance premiums for a plan that pays out only in the event of disability or old age. These really aren't particularly fair, since there is no income cap, and since the cost of paying for an ER visit for an 80 year old with a heart attack is the same, regardless of whether the 80 year old made $20K a year or $200K a year when working.

Imagine a life insurance policy where there was only one size policy for all -- but where the premium was based on how much money one made, rather than on risk factors and the size of the payout at death. Wouldn't sell many -- unless one was forced by the government to buy it.

In addition, a question that is worth asking of Democrats who believe that the rich aren't paying enough taxes is this: If rougly 40% of the income taxes aren't enough for the top 1% to be paying, then how much is enough? 50%? 75%? 100%?

And how would that number be arrived at? How is it determined that it would be unfair for 1% of taxpayers to pay 35% of income taxes -- but fair for them to pay 45% of taxes?

Taking it a step further, we would point out that simple political calculation should be enough to disprove the idea that the top 1% of taxpayers get 40% of the benefit of government. The perfect situation for politicians would be the 51% solution: 51% of voters pay 0% of taxes and receive 100% of government spending.

Part of this is actually true -- at least since the Bush tax cuts went through. Right now, the bottom 50% of earners actually, as an aggregate, pay a negative income tax rate, thanks to the Earned Income Tax Credit. That's right -- the bottom 50% as an aggregated group not only pays no income tax, but actually gets more money in refunds than is deducted from paychecks.

Now, that 51% of voters doesn't get 100% of government spending -- but it certainly gets a lot more as an aggregate than it pays in (for that not to be true would be impossible, given the negative income tax rate.) Obviously, far more is received than is paid in. By simple math, this would make it impossible for 1% of taxpayers to receive 40% of government benefits and spending. This would mean that 99% of taxpayers would have to divvy up 60% of the benefits of government spending. -- making it nigh unto impossible for the bottom 50% of taxpayers to receive even 50% of government spending and benefits. We can leave such assertions in the realm of hyperbole.

Any group of politicians that dispersed government spending that way would be politically suicidal -- and politicians may be many things, but politically suicidal generally isn't one of them.

And finally, if the argument is going to be made that it is fair for 1% of taxpayers to pay 40% % of income taxes because they receive 40% of the benefit of government, then why not have a taxation system whereby one is taxed in proportion to the benefit one receives from government? One guy making $1 million a year might benefit from a lot of government contracts and services -- thus making his tax rate very high. And another guy making $1 million a year might get little in the way of government spending and services. Shouldn't they have two different tax rates?

Of course not, since it would then just be better to leave money in peoples' own pockets. There would be no political benefit to such a situation. If money returned proportionately to the pockets of those who paid it in, there would be nothing to be gained politically. Political gain only happens when money is taken from a smaller group of people and distributed to a larger group of people.

In other words -- kind of like it is now, where 99% of the population receives 80% of the income while paying only 60% of the taxes.