Huckabee's Economic Stimulus Plan

First, a note on Michigan. I'm sad that Huckabee didn't win, as the polls indicated he might a few weeks ago, but I'm glad that Romney broke McCain's "momentum." This should deflate the McCain bubble and give Huckabee a better chance at winning South Carolina on Saturday. It's do-or-die time!

Romney seems to have won Michigan because of his conversion in the past week to the idea that the economy is hurting and maybe the government can do something helpful. In Romney's case, that "something helpful" is promising to shovel billions of dollars to Michigan in corporate welfare while mandating health insurance coverage for every American, thereby saddling the whole nation with similar health care costs as the auto industry. I guess Romney has decided that buying elections with his own money wasn't working too well, and buying an election with the taxpayers' money is cheaper for him and apparently more effective too.

Meanwhile, Mike Huckabee, who has been characterized by certain quarters as an "economic liberal" for having acknowledged the looming economic problems months ago, has put out an economic stimulus plan that addresses the struggles of the entire nation. Called the "Fair Deal," Huckabee's plan is both forward thinking and remarkably, well, conservative in its economic tone.

First off, Huckabee explains that "I know that Main Street, as well as Wall Street, is threatened by a weakening economy. But we are all in this together." Doesn't sound like John Edwards to me...

Principle 1: Strengthen the economic health of middle class families. Eliminate the marriage penalty. Cut taxes on savings. Make the Bush tax cuts permanent. Stem the tide of housing foreclosures. Cut bureaucratic red tape that hampers small businesses. Open new foreign markets for exporting U.S. products and services. (Weird! I don't see anything about capping executive pay or raising taxes on the rich.)

Principle 2: Work with the Federal Reserve to take a balanced approach to stave off recession while not encouraging inflation. (This is the key short-term element of the plan.)

Principle 3: Create jobs by building up the strength of our military, borders, and critical infrastructure. We desperately need to do these things anyway for the safety of our nation. It so happens that getting them done creates new jobs too.

Principle 4: Invest in energy independence. Not just for cars to buy Michigan's votes, but for all forms of energy, to get us off dependence on foreign oil entirely.

Principle 5: Make the tax system more competitive. Of course Huckabee advocates the Fair Tax, but recognizes it will take a long time to get there. In the meantime, reduce counterproductively high personal and corporate income tax rates and eliminate the death tax. (Super weird--he even wants to reduce taxes on the rich!)

The great thing about this plan is that it is balanced and addresses the long-range problems that are causing economic security and the move toward a recession. Some on Capitol Hill are proposing band-aid stimulus ideas, like retroactive tax cuts for 2007 to put rebate checks in people's hands this spring. A rebate check is nice and all (just got one from Sears tonight) but it doesn't address the core insecurity. For families that are really struggling it pays their fuel bills for a couple of months, and then what? For people who aren't as strapped, maybe they'll go out and buy golf clubs like someone I know did with his 2002 tax rebate check, but a tiny, temporary spike in consumer spending isn't going to cause employers to hire more people or give raises or stem the tide of home foreclosures.

Huckabee's plan is designed to address, over the long haul, the core problems of stagnating wages, rising energy costs, and an anti-family tax system. Bravo, Governor! If only our country could get past partisan hatred and pigeonholing to actually enact such sensible solutions!

Living Wages: Moral and Practical

Continuing my series of blog posts on Catholic social teaching, here is another section of Rerum Novarum:

45. Let the working man and the employer make free agreements, and in particular let them agree freely as to the wages; nevertheless, there underlies a dictate of natural justice more imperious and ancient than any bargain between man and man, namely, that wages ought not to be insufficient to support a frugal and well-behaved wage-earner. If through necessity or fear of a worse evil the workman accept harder conditions because an employer or contractor will afford him no better, he is made the victim of force and injustice. In these and similar questions, however - such as, for example, the hours of labor in different trades, the sanitary precautions to be observed in factories and workshops, etc. - in order to supersede undue interference on the part of the State, especially as circumstances, times, and localities differ so widely, it is advisable that recourse be had to societies or boards such as We shall mention presently [i.e., workingmen's unions and mutual aid societies], or to some other mode of safeguarding the interests of the wage-earners; the State being appealed to, should circumstances require, for its sanction and protection.

46. If a workman's wages be sufficient to enable him comfortably to support himself, his wife, and his children, he will find it easy, if he be a sensible man, to practice thrift, and he will not fail, by cutting down expenses, to put by some little savings and thus secure a modest source of income. Nature itself would urge him to this. We have seen that this great labor question cannot be solved save by assuming as a principle that private ownership must be held sacred and inviolable. The law, therefore, should favor ownership, and its policy should be to induce as many as possible of the people to become owners.

47. Many excellent results will follow from this; and, first of all, property will certainly become more equitably divided. For, the result of civil change and revolution has been to divide cities into two classes separated by a wide chasm. On the one side there is the party which holds power because it holds wealth; which has in its grasp the whole of labor and trade; which manipulates for its own benefit and its own purposes all the sources of supply, and which is not without influence even in the administration of the commonwealth. On the other side there is the needy and powerless multitude, sick and sore in spirit and ever ready for disturbance. If working people can be encouraged to look forward to obtaining a share in the land, the consequence will be that the gulf between vast wealth and sheer poverty will be bridged over, and the respective classes will be brought nearer to one another. A further consequence will result in the great abundance of the fruits of the earth. Men always work harder and more readily when they work on that which belongs to them; nay, they learn to love the very soil that yields in response to the labor of their hands, not only food to eat, but an abundance of good things for themselves and those that are dear to them. That such a spirit of willing labor would add to the produce of the earth and to the wealth of the community is self evident. And a third advantage would spring from this: men would cling to the country in which they were born, for no one would exchange his country for a foreign land if his own afforded him the means of living a decent and happy life. These three important benefits, however, can be reckoned on only provided that a man's means be not drained and exhausted by excessive taxation. The right to possess private property is derived from nature, not from man; and the State has the right to control its use in the interests of the public good alone, but by no means to absorb it altogether. The State would therefore be unjust and cruel if under the name of taxation it were to deprive the private owner of more than is fair.

In other words, it is both a moral imperative and a practical benefit to the State and society to promote wages that are sufficient for a decent family life and the accumulation of savings for all, though not by means of excessive taxation. Today, the Democrats wish to reduce inequality of income and wealth by means of excessive taxation, but this violates the natural right to private property and also increases hatred between the classes. But too many Republicans do not believe in the "dictate of natural justice" that an employer who fails to pay a diligent full time worker enough to be able to frugally support a family commits a grave injustice. Furthermore, they do not champion a frugal lifestyle and personal savings, preferring instead ever more consumption as "proof" of a healthy economy and driver of increasing wealth for those who already own capital.

Mike Huckabee stands apart from both parties on this issue. He isn't afraid to chide executives for raking in 500 times the income of their low-level workers, and outsourcing good-paying jobs overseas. This type of behavior is immoral. But neither does Huckabee advocate a confiscatory tax on the wealthy to change this situation. Instead, he supports a complete overhaul of our tax system (and health care system) to make our domestic businesses more competitive in the global economy, naturally creating more good-paying jobs. Moreover, he proposes that taxes should be based on consumption, increasing the incentives to be hard-working and frugal, since neither work nor savings would be taxed, but excessive spending would be. Huckabee's tax proposal even includes a "prebate" to make sure that all families would not be taxed on the bare essentials of spending--only on spending that goes above the level of necessity.

I would also note that Rerum Novarum suggests workingmen's unions as a preferable alternative to direct State intervention into unfair treatment of employees by employers. However, Pope Leo XIII recognized even then that many unions are not what they ought to be:

Now, there is a good deal of evidence in favor of the opinion that many of these societies are in the hands of secret leaders, and are managed on principles ill - according with Christianity and the public well-being; and that they do their utmost to get within their grasp the whole field of labor, and force working men either to join them or to starve. Under these circumstances Christian working men must do one of two things: either join associations in which their religion will be exposed to peril, or form associations among themselves and unite their forces so as to shake off courageously the yoke of so unrighteous and intolerable an oppression. No one who does not wish to expose man's chief good to extreme risk will for a moment hesitate to say that the second alternative should by all means be adopted.
...
[Many workers] cannot but perceive that their grasping employers too often treat them with great inhumanity and hardly care for them outside the profit their labor brings; and if they belong to any union, it is probably one in which there exists, instead of charity and love, that intestine strife which ever accompanies poverty when unresigned and unsustained by religion. Broken in spirit and worn down in body, how many of them would gladly free themselves from such galling bondage! But human respect, or the dread of starvation, makes them tremble to take the step. To such as these Catholic associations are of incalculable service, by helping them out of their difficulties, inviting them to companionship and receiving the returning wanderers to a haven where they may securely find repose.

Unfortunately, the Christian unions that Pope Leo XIII called for more than a century ago have never materialized. Nevertheless, Huckabee also understands the forces that drive workers to join unions, even if the unions are terribly flawed and often support causes against our Christian beliefs (such as abortion). This is why Huckabee is willing to talk to union members where other Republicans shun them, and warns that unions will resurge unless wages and economic security for workers are strengthened.

Mike Huckabee is right on the mark: living wages are a moral matter, and good for the strength of the nation as well. But the right way to achieve this is not to "soak the rich" with ever more taxes, but to aim directly at boosting wages and encouraging savings.

More Evidence the Fair Tax Will Require a Generational Sea Change

The Bureau of National Affairs (BNA) today reports:

House Republicans Could FaceTough Floor Vote on Mortgage BillWhen legislation (H.R. 3648) to exclude from income debt forgiven as a result of a mortgage foreclosure or renegotiation hits the House floor Oct. 4, Republicans could be forced to cast a difficult vote because of the tax increase used to pay for the roughly $2 billion bill.
The legislation would establish a permanent exclusion from gross income of discharged home mortgage indebtedness and pay for it by tightening the requirements taxpayers must meet to exclude gain from the sale of certain residences such as vacation homes and rental properties that eventually are converted into primary residences and then sold.
Currently, taxpayers may exclude up to $250,000--$500,000 if married filing a joint return--of gain realized on the sale or exchange of a principal residence but, under the bill, they would only be able to utilize the exclusion for the time the second home was actually their primary residence.
The legislation also would extend, for seven years, the deduction for private mortgage insurance (PMI), and would modify the qualification tests for cooperative housing corporations.
Republicans on the Ways and Means Committee have repeatedly said they support the concept of helping people during the subprime lending situation, but believe the offset is unrelated to the problem at hand and raises taxes on one group to pay for relief for another.
The issue came up at a Sept. 26 Ways and Means markup, but it did not come to a head that day because the committee approved the bill by voice vote, meaning members did not have to go on the record as supporting a tax increase (187 DTR G-5, 9/27/07 ).
"Republican members will have a difficult time because they don't feel like the pay-for is the right one, but they do feel like the policy of forgiving foreclosure debt is the right one," said Rep. Kevin Brady (R-Texas).

My, my, we're worried about people with extra vacation and rental properties possibly having to pay some capital gains (15%) tax in order to pay for tax forgiveness for people going through foreclosure? If Republicans think this is a "hard vote" then they've really lost touch with making sure tax policy serves the common man, and are more concerned about being "on record" voting for a "tax increase," no matter what the circumstances, that could be attacked by Club for Growth.

From an economic standpoint, the people who bought second homes are a significant contributing factor to those who now face foreclosure, and so is the capital gains exclusion they were expecting to exploit. When falling interest rates in the early 2000's caused house price tags to rise (just as the stock market was falling), a lot of people decided the best place to invest, for both equity and tax reasons, was in real estate. They bought second houses as investments, raising demand and prices. By 2005, 40% of home purchases were second homes!! Because of the rising prices, people who didn't own anything yet found it increasingly difficult to afford their first home, causing them to turn to exotic mortgages and liar loans to try to grab hold of the rising barge instead of falling into the sea of lifelong renting. But of course rising demand can't continue forever when there isn't much real demand for additional places to live, so now prices are falling, and people who couldn't really afford those exotic mortgages are ending up in foreclosure with negative equity. Hence the need for the tax forgiveness.

Now you can say the people in foreclosure should have been more responsible, and I agree. And yet, many of them could have afforded a home on a responsible budget if it weren't for the run-up in price caused by the demand for 2nd homes, not as a place to live, but as a way to make money and shelter it from taxes. So taking away a manipulative tax advantage from some of the people who helped cause the foreclosure crisis makes a lot of sense, the rhetoric of Congressional Republicans notwithstanding.

Under the Fair Tax, there would be no tax incentive to buy multiple properties because you have to pay sales tax on each one, and they don't provide any kind of special tax shelter. One of a gazillion reasons the Fair Tax is a good idea. But how do you expect the Congressional Republicans who are afraid to say "no exclusion of capital gains for second properties actually means no exclusion of capital gains for second properties" to vote for the Fair Tax, which will discourage second-property owners even more?

We need a Club for Citizens' Growth to systematically push out the Country Club Republicans who are more interested in protecting tax shelters for the rich than reducing the size of government and making the tax system fair. But, as I've said before, this is a marathon; a fight that will take a long time to turn over enough people in Washington.

Is the Fair Tax a Good Reason to Support Huckabee?

Yes and No. But it is definitely not a reason to oppose him.

In anticipation of Vertical Day, let me offer some thoughts on an important issue that Huckabee wants to discuss with the American people, while the other candidates avoid it: a pure consumption tax to replace the federal income tax (with features to avoid hardship for the poor and lower-middle class), dubbed the "Fair Tax."

The Fair Tax is fair because it rewards both hard work and savings, no matter where you are on the income scale. It also discourages consumption, because that is what gets taxed. Wall Street would much prefer a flat income tax, which simplifies the system and rewards people who are more financially successful than average, but does not discourage consumption. Wall Street thinks consumption is the number one measure of a healthy economy, because the more you consume (buy) the more profits they make off of you, causing stock prices to rise. But is consumption really a good measure of economic health?

Let's take two scenarios.

• Scenario 1: Joe and Jane each work full time for $40,000 salary each, for total family income of $80,000. They spend $25,000 on day care for their two children, and spend $5,000 a year on commuting costs. Their house payments are $25,000 a year, they spend $8,000 a year on food (eating out frequently and buying pre-packaged food to save time), $3,000 on clothes, and $3,000 on miscellaneous necessities. They pay a 20% flat tax on their income--$16,000. At the end of the year, Joe and Jane have $5,000 more in debt than they did at the beginning of the year, but they consumed $44,000 in goods and services.
• Scenario 2: Jack works full time for $40,000 and Jill stays home with the children and does a little work from home for $10,000, for total family income of $50,000. They spend nothing on day care, and their commuting costs are halved ($2,500). Their house payment is the same ($25,000) but they only spend $5,000 on food because they eat at home more and make more from scratch. They spend the same $3,000 on clothes and $3,000 on miscellaneous. They have only consumed $13,500, far less than Joe and Jane. If they paid a 30% consumption tax on this, that's $4,000 in taxes. At the end of the year, they've put $7,500 in the bank!

Who would you rather be? I think the answer on Main Street would be nearly unanimous (unless you're a woman who really hates staying home with your children -- in which case, why did you have them in the first place?). But Wall Street much prefers Joe and Jane, because they consumed more than 3 times as much as Jack and Jill! There isn't much opportunity for Wall Street to make money off of Jack and Jill because they provide more goods and services for themselves.

This is why the Fair Tax is absolutely right from a philosophical, pro-family and even pro-environment point of view.

Now let's talk about practicalities. If Mike Huckabee is elected President, will he be able to make the Fair Tax law? Sorry to disappoint you, but almost certainly No. Here are some reasons why:

• The President can't make law himself under our Constitution. He has to get a bill from Congress to sign. Congress won't enact the Fair Tax because...
• Under our current tax system, there is a big deduction for home mortgage interest. Houses sell for about 15-30% more than they otherwise would because you're buying a big tax deduction with the house. The Fair Tax does not favor home ownership over renting. Without any tax benefit to mortgage payments, housing prices would likely drop drastically, which would enrage homeowners, i.e. the great majority of voters. The homeowners would "punish" Congressmen who vote for the Fair Tax.
• Congressmen rely on big donations from wealthy people who like to consume a lot themselves, and want others to consume even more to improve corporate profits. The donors would "punish" Congressmen who vote for the Fair Tax.
• Remember how I said that stock prices rise when people consume more? With the Fair Tax, people will consume less, causing stock prices to fall.* The media will declare that the sky is falling because the stock prices are falling, and anyone with a 401(k) won't be too happy either (including a lot of y'all on Main Street). The media and investors will "punish" Congressmen who vote for the Fair Tax.

So are the editors of National Review right when they criticize Huckabee for supporting it? Well, I think they are right that this should not be a foundational pillar of his platform, and I agree it won't be enacted. So what's the value?

The value of talking about the Fair Tax is it starts a national conversation about what our priorities should be. Do we really want to measure our economic good by consumption? Or is that an immoral and unsustainable goal for our society? Is the good of Wall Street really aligned with the good of Main Street? If not, what can we do to get Wall Street more aligned with Main Street, instead of the other way around?

The real genius of the Huckabee campaign is not a slogan like "Fair Tax." It is a conversation about what it really means to govern for the "general welfare" of this great Nation.

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* On further reflection, this is an over-generalization. For companies that have a globally diversified market, they will experience a lower cost of capital and demand for consumption in the rest of the world will more than pick up the slack for lower domestic consumption, resulting in higher stock prices. But for companies that sell goods or services primarily or exclusively to Americans, the lower cost of capital is of little help if consumption demand falls, because the main use for capital is for expanding production capacity. If demand falls, increased supply only makes the situation worse by driving down the price (which can wipe out any profit gains from a lower cost of production). Therefore, it is only the companies with primarily domestic markets that are likely to experience lower stock prices. But you can certainly expect these domestic companies to have a substantial and powerful lobbying presence in Congress.

Shame on Club for Growth

They spent September 11, a sacred and solemn day in this nation, putting up a hatchet job website devoted to slamming Mike Huckabee.

Maybe this is my own private conspiracy theory, but I am convinced that the number one thing holding Huckabee back right now is opposition from Club for Growth. Many of the big Republican donors are under their sway, and I think they've intimidated (or at least influenced) the conservative pundits into ignoring Huckabee.

I remember thinking Club for Growth was a good development when I first read about them in National Review several years ago. But increasingly they are becoming like Judicial Watch. Remember them? Back when Clinton was President and Al Gore was trying to cheat his way to the Presidency, Republicans loved this watchdog group. But founder Larry Klayman didn't know when to stop, didn't know how to choose his enemies or battles wisely, and it didn't take long for Judicial Watch supporters to walk away. Klayman left in 2003, and who has heard of them recently?

Likewise, Club for Growth has gone from opposing Democrats and RINOS to attacking anyone who votes for any tax for any reason. They are inflicting serious damage on Republicans by doing this. In Virginia, for instance, they are outspoken critics of the transportation compromise achieved in Richmond this year that will finally set aside billions of desperately-needed transportation dollars for Northern Virginia. Hey Club for Growth, did you realize that the suburban areas of Northern Virginia are a key swing vote for statewide elections, and that fully half of NoVa voters say improving transportation is the most important issue for them in state and local elections? Instead of praising the sensible Republicans who finally got a compromise through that will provide real relief for terrible traffic congestion without raising income or sales taxes, Club for Growth writes misleading talking points that go straight into the arsenal of Democrats, attacking the "abusive driver fees" that are mostly controversial because of a change made by our Democratic governor.

Oh, you poor (rich) boy, you can't drive your sports car 85 miles an hour or run a red light and get off with a $200 ticket - now it's a whopping $1,000 (over 3 years). These Club for Growth guys are perfectly illustrated in this new Onion video.

Look, I hate high taxes and taxes that discourage hard work, savings, and innovation as much as you do. But government does have the responsibility to provide transportation infrastructure, and has to pay for it somehow. Not all transportation spending is pork. When public transportation is so packed that people can't get on and all the major arteries in the area are parking lots during rush hour (and even on weekends often!) then government really does need to do something about it.

In NoVa it's transportation, and apparently that was a big issue in Arkansas when Huckabee was Governor, but the need to balance tax policy with other government priorities is a nationwide issue. A new Roll Call article notes that independent voters are most interested in positive government action on issues like health care, and Tax Tourette's Syndrome won't get a Republican elected to the White House.

Oh yes, and politics is about the art of compromise. If you want to get something done, you have to accept certain things you don't personally support because it is part of an all-or-nothing package. Counting small tax or fee hikes as black marks against politicians who vote for or sign a bill because the package is a good thing on balance is the basest form of demagoguery.

It's time for conservatives to toss Club for Growth on the "has been" heap with Judicial Watch.

P.S. Here's a great rebuttal to the Club for Growth slanders against Huckabee.