The US and UK - Past and Present

As you know, there’s a royal wedding coming up in England, and I wish them well. The media coverage is off the charts, as it rightly should be because it’s a big deal. Royal weddings don’t happen very often. But, why should we care?

We should care because the US and UK have a very unique relationship. To understand where it is today, we need to understand where it’s been. The truth is there’s no other nation on Earth that the USA has such an enduring and dynamic history with. Remember, England was once the most power nation on Earth. “The Sun never sets on the British Empire,” as the old saying went. The USA today is the most powerful nation on Earth. We wouldn’t be what we are today if not for England. We also share a similar structure and language. Yes, I know the USA doesn’t have a monarch or an official language and I know that British English and American English are like night and day in some cases, but we’re similar enough. It’s like a father-son dynamic in many ways. There’s a reason it’s said that if you want to see America’s future, look at England today.

England helped establish our colonies. In the earliest stages of our development in the Americas, things started off ok, but they steadily degenerated and we successfully broke away from England via the American Revolution to form the USA. We had another dust-up a few years later in the War of 1812, too.

Then, the Civil War broke out. The British (and the French) very nearly intervened in the war to aid the Confederacy, which approached them for help and recognition. The Union victory at Gettysburg effectively put an end to this, as the Europeans suspected the Confederacy could never prevail. No doubt, the British and French were licking their chops at the thought of a divided USA.

Following the Civil War and Reconstruction, the USA began its rise to global prominence. We expanded ocean to ocean, fulfilling our Manifest Destiny, and then we looked beyond our shores. Our victory in the Spanish-American War illustrated our rise. By this time, the best days were behind England. A few years later, World War 1 broke out. The USA helped the English first by providing supplies and weapons, then eventually with force as we were drawn into the war due to German aggression against us.

World War 2 followed, with Germany laying mainland Europe to waste, leaving England as basically the last opponent to Germany (remember, Hitler and Stalin had a non-aggression pact, which Hitler would eventually break for reasons unclear to this day). We were not directly involved in the fighting until Japan attacked us at Pearl Harbor, then we declared war on Japan and Germany declared war on us to honor their Axis Pact.

After we won World War 2, saving the world in the process, England was a shell of its former self, rebuilding following World War 2. England effectively passed the superpower torch to us at the start of the Cold War era. We won the Cold War, too. The post-Cold War era hummed along for about a decade or so until 9/11 and our war in Iraq. The English were our staunchest ally in our victory in Iraq. Indeed, George W. Bush and Tony Blair seemed to get along quite well, like FDR and Winston Churchill before them. It was indicative of the special relationship.

Sadly, our relations with the English have soured considerably, and Obama deserves blame for this. Nile Gardiner wrote a top 10 list of insults by Obama against Britain in the Telegraph here. One Gardiner didn’t mention is how Obama recently said, “We don’t have a stronger friend and stronger ally than Nicolas Sarkozy and the French people.” This was earlier this year, and will no doubt be included on his follow-up list. With insults like this, it should come as no surprise that the Obamas didn’t get an invitation to the wedding. It’s not technically classified as a state event, but several other heads of state got invitations anyway.

I’d love to see things improve, but it’s hard to envision that happening. Either Obama would have to realize the error of his ways or he’d have to lose in 2012 (the latter is far more likely, in my view). This is more than an isolated incident. It’s a pattern that must be broken.

Links: http://blogs.telegraph.co.uk/news/nilegardiner/100027838/barack-obama%E2%80%99s-top-10-insults-against-britain/

Tim on Taxes - Tax Year 2010 Edition Part 2

This is the follow-up tax post I mentioned before. Here, I want to look briefly at what tax policy is supposed to be, what’s wrong with it in America, and a bit about how it can be improved.

I’ve heard that taxes are the price we pay for civilization and the only two certainties in life are death and taxes. I agree with those. I’m ok with them. We can’t live in a zero-tax country, otherwise anarchy will ensue.

What I have a major problem with is how taxation is viewed in the USA. The goal of tax policy is supposed to be to efficiently collect money to run the government without acting as a strong headwind on the economy. As usual, the problem is the politicians because they don’t view tax policy that way. They tend to view it as a tool for their own careers first and foremost. Four major errors come to mind, one the left is particularly guilty of and three both left and right are guilty of.

The left often confuses tax rates with tax revenues. They assume that if we raise tax rates, we’ll always raise tax revenues, and if we lower tax rates, we’ll lower tax revenues. This implies inelasticity in society’s behavior, that we behave the same in various tax environments. Conversely, the Laffer Curve postulates that there's an optimum tax level that maximizes revenue and that tax revenue will fall if the tax rates are above or below that sweet spot rate. Basically, too low or too high of a tax rate lowers tax revenue. History has shown time and again that the Laffer Curve is a more realistic view and the inelastic assumption is overly simplistic and factually wrong. In the 1920’s under Coolidge, the 1960’s under Kennedy, the 1980’s under Reagan, and 2000’s under Bush Jr., we saw that as tax rates were lowered, tax revenue increased. One point is a random point in space, a line can be drawn between any two points, three points make a trend, and four points confirm the trend. When tax rates are lowered, capital is taken out of inefficient, low-risk, low-reward tax shelters like municipal bonds and put to work in higher-risk, higher-reward ventures like business expansion and creation.

My second error is one I’ve touched on previously in the context of charitable donations. If the government controls so much of our money, then they have the power to spend it as they please. Their error is thinking they know better than us and thinking that it’s their money to spend. They're wrong on both counts. Lower taxes would restore power to the people. I’m reminded of a quote by Alexis de Tocqueville that reads, “The American Republic will endure until the day Congress discovers that it can bribe the public with the public’s money.”

Third, politicians on both sides use tax policy to reward friends and “good behavior” and punish enemies and “bad behavior”. Another old adage is that if you want less of something, tax it. This is why tobacco taxes are so high, for example. On the flip side, if you want to encourage something, reduce taxes on it or create deductions/credits for it, like home ownership. With more benign examples like home ownership, this may not seem like much of a problem. However, when framed using more sinister examples, this does become a problem, such as with crony capitalism.

My last point is a direct result of the behavioral modification point I just made. Because of all these, the government has created a needlessly complicated tax code. Do we really need this complex of a tax code? Seriously think about that. Sure, it’s kind of fun in a way to hunt for tax deductions and credits. It’s like being a treasure hunter or trying to solve a giant puzzle. I know “Indiana Jones and the Temple of Doom” sounds way cooler than “Indiana Jones and the Tax Code of Doom” but you get the point.

All those special interests carve-outs make the tax code absurdly complicated. I’ve heard we would save 1-2% of our GDP per year if we seriously simplified the tax code. That’s a major growth tailwind. Sure, a lot of tax lawyers, accountants, and tax preparers would be unemployed, but with the money that goes back into the economy through the savings, these people would likely find other work.

I'll lay out some possible simplifications in a future post.

Tim on Taxes - Tax Year 2010 Edition Part 1

It’s everyone’s favorite time of year, namely tax season. Hopefully you’re already done and hopefully you didn’t get back or didn’t owe that much. A lot of people will probably read that and wonder why I didn’t say I hope you got a big refund. It’s pretty simple. If you got a big refund, then that means you gave Uncle Sam a big, interest-free loan. You can avoid that by tweaking your W4 form to increase the amount of money you want withheld from Uncle Sam per paycheck. I’m guilty of not following my own advice, but that’s because I just bought my first house last summer and I want to see a full year of data first. :-p

In general, I believe people not only should focus on trying to earn as much money as possible, but also focus on trying to keep as much as possible. The way I see it, if General Electric can do it, we can and should cut our own burdens down, too.

I think it’s in our collective best interests to reduce our tax burdens as much as possible using legal and ethical means. Uncle Sam is probably the biggest single money drain many of us have. I did my initial calculation of taxes owed and it came out something like this.

25% Federal Income
5% State Income (Connecticut)
12.5% Social Security
3% Medicare

That’s 45.5% total. I understand that I only actually pay half of the Social Security and Medicare taxes and my employer pays the other half, however self-employed people pay the full amount of both and an employer would adjust a worker’s pay accordingly (down) to account for these taxes.

This total also doesn’t include other taxes I pay such as state sales tax (6%), local property taxes, and any other miscellaneous taxes. Sales tax is particularly nasty because it’s a tax on after-tax dollars versus a tax on pre-tax dollars like the others I mentioned. On that note, here’s hoping the national sales tax (aka value-added tax or VAT) never comes into play. So, if we add those in, it’s not unreasonable to take the total over 50%. Of course, this is before deductions and credits.

Yes, the government takes 50% or more of the money we earn before deductions and credits. Several people I know see nothing wrong with that. I think that’s lunacy.

I’m obviously somewhat libertarian in my views. I generally believe the private sector can do things more efficiently (lower costs, faster, and better quality) than the public sector. Of course, there are exceptions like law enforcement, fire departments, and the military. I also generally believe that individual people and businesses know themselves, their situations, their needs, and their desires better than government bureaucrats. Said another way, attempting to centrally plan a society and an economy to too great of a degree is a surefire path to failure. History has proven this repeatedly (Soviet Russia is my favorite example) and will continue to do so (several current nations are proving this now or will prove this in time).

So, what’s my solution? If given the choice, I’d rather take home more money by having less taxes and increase my donations to charity. This offers several benefits. Think about Hurricane Katrina for a moment. Lost in the media’s (largely justified) hack job of Bush Jr.’s and FEMA’s responses was how everyone else from the military to charities to individual citizens (both as volunteers and charitable donors) to private sector companies stepped up to the plate to aid local and state efforts.

An additional benefit to increasing charitable donation is that we as citizens control not only how much we give, but where it goes and what it goes towards. It literally would give power back to the people and take it away from the government. We get to choose what causes we fund, in essence, voting with our dollars. This would reduce the problem of people seeing their tax dollars going to funding things they don’t want funded. People would also gain additional flexibility in their budgets. Maybe your car broke down and you need that money to fix your car instead of donating to charity this month or whatever.

I’ve got a follow-up post in the works about tax policy, what it’s supposed to be, what’s wrong with it in America, and how it can be changed to be better.

Could Obama be Impeached?

An interesting question has surfaced recently. Could Obama be impeached for violating the War Powers Act of 1973 with his actions in Libya?

The WPA requires the president to notify Congress within 48 hours of taking military action and requires congressional approval within 60 days if hostilities continue. The WPA also outlines the circumstances under which a president can engage the military. It describes three scenarios for the engagement of the US military.

“The constitutional powers of the President as Commander-in-Chief to introduce the United States Armed Forces into hostilities, or into situations where imminent involvement in hostilities is clearly indicated by the circumstances, are exercised only pursuant to a declaration of war, a specific statutory authorization, or a national emergency created by attack upon the United States, its territories or possessions, or its armed forces.”

Note that the bill is from 1973, in the wake of the Vietnam War.

The constitutionality of the WPA is a topic of modern debate. Let’s look at that first before exploring whether Obama’s violating it.

Congress is empowered to, “Declare War […] and make Rules concerning Captures on Land and Water,” per Article 1, Section 8. Congress is also empowered therein to make all laws “necessary and proper for carrying into Execution the foregoing Powers, and all other Powers vested by this Constitution in the Government of the United States, or in any Department or Officer thereof,” aka the Necessary and Proper Clause.

On the executive side, Article 2, Section 2 starts by saying, “The President shall be Commander in Chief of the Army and Navy of the United States.”

I can understand the constitutional question. It’s a separation of powers issue, but I don’t see this law as unconstitutional. As I’ve said before, Congress has the power to declare war, but the executive has power to wage war. The WPA is intended to simultaneously allow the president to take necessary actions to defend America in the event of an attack or emergency and prevent the president from the wanton use of the military. I believe the wording of the law is successful and constitutional in this context. It is designed as a check on executive power via the legislature.

Regardless of its constitutionality, the WPA is on the books (for now). As such, we have to ask the question of whether Obama’s in compliance. First, Obama’s ok on the time constraints. As I understand it, he notified Congress within 48 hours and we’re not at the 60-day mark yet, so he’s fine for now. Obviously, a declaration of war and a specific statutory authorization aren’t applicable here, so we’re looking at the emergency criteria.

Now, we need to ask another question. Does Libya constitute, “a national emergency created by attack upon the United States, its territories or possessions, or its armed forces?” I don’t believe it does. Gadhafi and his forces didn’t attack the United States directly, nor did they attack any of our territories, possessions, or military. In order for this criteria to be upheld, Gadhafi would have to attack us in some capacity. As far as I know, he has not, and it appears to me that Obama introduced our military to the hostilities.

Yet, there is another loophole for the president. The WPA is very clearly referring only to the US military. It repeatedly refers to, “The United States Armed Forces.” This typically excludes the CIA. So, basically, using the CIA is ok, but using the military isn’t. That’s a very important point to note, and it’s a bit unsettling to know the CIA is unchecked like that. Theoretically, the CIA could arm, train, finance, and fight alongside Gadhafi’s opposition indefinitely.

Is it a noble endeavor to intervene and prevent the slaughter of thousands of people? Absolutely. One can easily and strongly argue that it’s in our best interests to do so. However, the fact of the matter is the WPA does not allow the president to commit our military for such a mission. Thus, as the law is written, I believe Obama has acted illegally and there are grounds for impeachment.

I don’t think Obama’s going to be impeached over it. I’ve seen no meaningful momentum for it and I don’t think the GOP wants to go there. One could certainly argue the law needs to be updated, perhaps to allow military intervention in situations like Libya or perhaps to check the CIA. Regardless, it’s something that needs to be discussed.

Thoughts and Questions on Libya

Note: I started writing a post about Libya, but then Obama gave a prime-time speech before I could finish it, so I scrapped it and started it again.

I haven’t commented here yet about Libya. I think the situation creates more questions than answers. Six questions come to mind.

First, why are we there?

Second, what’s our goal?

Third, is this a war?

Fourth, why didn’t Congress approve it?

Fifth, who’s really in charge over there?

Sixth, who really stands to gain or lose?

Obama tried to address the first two in his speech. My original line of thought is that Libya was of very limited strategic interest to the USA, as Libya provides only about 7.5% of our oil imports (5% of our overall consumption). Libya supplies much more oil to Europe. Also, Libya’s not much of a threat to us since Gadhafi willingly dismantled his nuclear program after Bush Jr. invaded Iraq because Gadhafi was scared of us. Gadhafi’s (somewhat) cooperative. By contrast, Iran and North Korea are more defiant. All three dictators oppress their people and all three sought nuclear technology, yet Libya’s the only one we go after. I still don’t understand that logic.

Obama’s argument was basically two-fold, and I think it has some merit. One, there’s the humanitarian aspect in that we’re preventing the massacre of innocent people. The natural counter to that is how such slaughter occurs in other places and we do nothing, so why should we go to Libya? Obama countered this with magnitude, saying Libya’s casualties would’ve been larger than many other places. Two, if Libya destabilizes, that puts adverse pressure on Egypt and Tunisia as they’re trying to rebuild, also potentially destabilizing them (think Domino Theory here).

Personally, I think there’s an additional political element at work. I suspect Obama wants some kind of foreign policy event for reelection. Even though his handling of the Libya situation is hurting his short-term poll numbers, it may help his chance at reelection because then he’d be able to say that he handled a foreign policy crisis.

Here’s a counterpoint to my theory (I posted it somewhere else before here) from an older fellow in Michigan who’s an extremely intelligent, staunch conservative.

“You’re ascribing too much thought to the Libya escapade. Obama was literally hectored into this by prog-harpies Clinton, Rice, and Power. His trip to Brazil was the equivalent of me going fishing when my wife gets on my case about something I don’t want to do. This also explains the WTF (“Win the future?” –well, not exactly what I meant) speech the other night. As Napoleon said, “Never ascribe to malice, that which can be explained by incompetence.”

How do you counter that? :-p

Ok, next question. Is this a war? I’ve heard it called a ‘kinetic military action’ or ‘no-fly zone plus’. I would think a no-fly zone plus where we’re attacking Gadhafi’s ground forces would be considered an act of war. We wouldn’t like it if somebody tried that here. It’s a non-war war, I guess.

Why didn’t Congress approve? In his speech, Obama said he consulted with the leaders in Congress, whatever that means. He said he had to act quickly and couldn’t wait for a vote, which sounds familiar. We have a long history of the executive branch taking power from the legislative branch with regards to declaring war. The Constitution explicitly empowers the legislative branch to declare war, but it implicitly empowers the executive branch to wage war. After all, waging war requires the agility and secrecy Congress generally lacks (only because all their bills and votes are made public, not the behind-closed-doors antics). Obama got NATO, UN, and even Arab League approval, which is all well and good for multilateralism, but the one approval Obama needs to go to war is the US Congress’, and that’s the one approval he didn’t get.

On a side note, I wonder if the right wing will try to impeach Obama. They do have a case, which I’ll detail in a future post.

Who’s in charge? It’s mostly the USA’s military, but it seems like NATO is calling the shots with limited input from us. Maybe this is Obama’s chance to experiment with multilaterialism so that he can differentiate himself further from Bush Jr.’s more unilateral orientation. This lends to my political implications theory.

Who wins and who loses? I don’t know yet, and we won’t know for a long time.

There are still many unanswered and unasked questions, but this is a start. I’m still not even sure what I think of this Libya situation, to be honest. I just know it’s very complicated.