Hedgehog Party

Steeply Progressive Taxation

One of the flaws of steeply progressive taxation is about to be exposed.  One percent of the taxpayers now pay more income taxes than the bottom 95%.  It is pretty clear that major corporations and high income individuals, green shoots notwithstanding, are experiencing massive declines in profits and taxable income.  In fact, the annual profits of the S&P 500 are going to zero for the first time.

The titans of industry and finance will have large declines in taxable income...along with many many other high income individuals.  Goldman Sachs and AIG bonuses just won't be enough to make up the difference.

What this means is much lower income tax collections for the federal (and many states) government.  I'll repeat that...much lower tax collections.   Because of our reserve currency status the Treasury and Federal Reserve can print up the necessary money.  But this is a dangerous shell game when you consider what may happen to the purchasing power of paper money and the value of long term bonds and notes.  We could wake up some morning with a financial crisis that could make September 2008 piddling by comparison.

The Hedge Tax pevents financial malfeasance by our government and the citizens that support it with their votes.  We need it now more than ever.

The Tax Code and Political Payoffs

This is a partisan piece from American Thinker.  But you could easily find many others promoted by both parties when they are in power.  The Hedge Tax won't erase this activity conpletely, but voters would no longer be distracted by class politics. http://www.americanthinker.com/blog/2009/07/a_tax_break_for_trial_lawyers.html

Acey Deucey

Anyone who has played many hours of low ante Acey Deucey can attest to that fact that low probability events occur.  They always occur after enough trials...this is pretty basic statistics.  It has been my contention that the frantic chase after derivative financial instrument profits effectively created a massive number of trials.  Therefore, the event (our modern black swan) that caused our current financial crisis was easily predictable.  Of course, too much money was at stake, so the players cloaked their game in rhetoric and pseudo science.  But it was really just too much leverage.  This article lays it out.  http://paul.kedrosky.com/archives/2009/07/guest_post_nass.html

The shape of our next crisis is not yet clear.  But it is coming...bigger and better than ever.  We are throwing around massive amounts of unregulated money to fund it.

Systemic Flaw

The confirmation hearings for the new Supreme Court justice reminded me of two clauses of the US Consitution...the Spending Clause and the Commerce Clause.  The Founders recognized that these clauses held the key to control of the power of the federal government. 

Through compromise, they settled on this simple language for the Spending Clause.  "to pay the debts of the United States, and to provide for the common defense and for the general welfare of the United States."  Similarly general language enabled the federal government "to regulate commerce among the several states."  It is really hard to believe that these two clauses have evolved into the collossal Leviathan that can spend money on anything, and regulate virtually any activity in the country.

Over time, a combination of court decisions and legislation have removed the intended limitation of the federal government by these two clauses.  Beginning in the early 20th century the rise of progressive government; World War I; the Great Depression; and World War II; set the stage and enabled our current version of government.  In this current crisis, we are learning the cost of a government that cannot be limited by the constitution or the voters.

The proposed constitutional amendment supporting the Hedge Tax was devised to take one step to rein in the power of central government, and make it more accountable to the voters.  The key elements are a reconnection of taxation to spending and a requirement for a balanced budget.  The Hedge Tax will not solve every problem of governance, but it will go a long way.  It will change the focus of the voters from "what's in this for me" to "what will this cost?"  It will correct the systemic flaw in our constitution that is underminng the finance of our country.