Barack Obama recently released his budget for 2010. The budget results in an estimated $1.75 trillion deficit for 2010 – the largest deficit ever.  This, just a couple days after President Obama had announced that he will cut the deficit from his predecessor in half by the end of his first term in 2013 (source).  Not only that, but the budget of $3.6 trillion with the $1.75 trillion deficit does not include extraneous trillions upon trillions in spending on such projects as the stimulus, bailouts,  etc.  Do not be fooled by these politician tricks.  The “deficit” as announced in the news is only on the actual budget, but the budget is separate from the other projects put into place in the last few months.  Realistically spending and the deficit are trillions more than the $1.75 trillion deficit that is commonly reported.  In his budget, President Obama outlines a number of programs.  I won’t get into these programs, despite their being completely absurd.

What frustrates me even more than these programs, though, are the taxes in his new budget.  The simplest expansion of taxation is his increasing the top two marginal tax rates from 33% and 35% to 36% and 39.6%, respectively.  Increasing the taxes in the top marginal tax brackets serves to do one very important thing: it dramatically decreases the incentive for the rich to earn more money!  This means that it makes less sense for your boss to keep you in your job than it did before.  Your boss stands to make only sixty cents on every dollar you produce instead of sixty-five cents.  That means that you have immediately become 7.7% less valuable to your boss than you once were.  Additionally, a new worker that is hoping to get hired to a job is 7.7% less valuable to the person he is interviewing with, making that worker less likely to be hired.  This from a President and Congress that has been pushing hard to “create or save 4 million jobs.”

In addition to raising the top marginal tax rates, President Obama also increased the capital gains tax from 15% to 20%.  To clear things up, capital gains taxes are levied whenever an asset is purchased, held for at least one full year, and then sold for more than the initial purchase price.  The amount that is taxed is the difference between the purchase price and the sale price and is not adjusted for inflation.  So, if you purchase a house for $100,000, rent it out for five years, and then sell it for $150,000, you will owe taxes equal to 20% of that $50,000 gain, or $10,000.  The same is true for any investment you make (stocks, bonds, companies, real estate).  Most people in this nation pay less than 20% taxes on their income.  As such, any one of those people has absolutely zero incentive to invest their money.  In fact, they have an incentive to not invest their money because they will be taxed more if they do invest it.  People that pay more than 20% in income taxes also have far less incentive to invest their money because they are paying 33% more taxes on that investment than they were a year ago.  What does this mean?  Well, among a slew of other disastrous consequences, it means that fewer people will purchase houses.  With the capital gains tax incentive of home ownership decreased, home ownership becomes less appealing.  As fewer people have an incentive to buy a home the demand for homes decreases.  As the demand decreases the price will also decrease because there is no sound way to decrease the supply.  So, higher capital gains taxes will almost certainly contribute to falling home prices as well as falling prices for virtually every other asset.  Not what you would expect from a President and Congress that have been preaching the importance of stopping the fall of home prices.

A sad thing is this: the capital gains increase was not the only step the President took to ensure that people would buy fewer houses.  As part of his budget, the President decided it would be a good idea to not allow people in the top two tax brackets to write off as much of the interest they pay on their mortgages.  Home owners are able to deduct the interest they pay on their mortgages from their incomes each year to decrease their tax liabilities.  This effort helps incentivize home ownership.  The President, however, does not think it is right that people with more money should be able to write off the full amount of the interest they pay and has told them that they must limit their deductions and thus pay more taxes.  What does this do?  Simple, it even further decreases the incentives for a portion of the population to purchase houses.  Not only that, but that portion of the population that it disincentivizes is the portion that would be the most likely to go around buying up multiple homes and, as a result, increasing the value of all homes.  Once again, the government’s efforts essentially guarantee a softer housing market in this nation.

This has nothing to say for all of the other ludicrous ideas the government has come up with to improve the housing market and it also has nothing to say for all the other problems that higher taxation will bring.  What should be taken away from this, however, is that we must read between the lines.  In one ear we have big brother telling us that they want to help us out by increasing the value of our homes; they want to keep us in our homes.  However, in the other ear we have them telling us that if we want to stay in those homes we are going to have to pay them dearly for it.  It does not make any sense.  The government once again has proven to be an animal with no rhyme or reason.  We have the same people that are telling us one thing doing the exact opposite.  We have to all open our eyes and see things as they are, not as they are presented.

Source: Wall Street Journal 2-27-2009 front page

Today the office of Hillary Clinton, the Secretary of State, announced that the United States would be issuing a donation of over $900 million to Gaza for rebuilding after being devastated by Israel in ongoing conflicts.  On the other side of the fence, the United States gives Israel $3 billion per year in “aid.”  Approximately 94% of this “aid” is directly in the form of weapons (guns, missiles, planes, helicopters, etc.) and other military assistance.

So, let us all get this straight.  This is essentially a conversation that must go on in the Secretary of State’s head (note that this is not just Hillary Clinton, but the last few Secretaries of State, Presidents, and other officials):

Here you go, Israel.  Here are a ton of weapons with which you can blow up your neighbors as you have been doing so consistently over the last few decades.

How atrocious!  Palestinians are living in ruble after these Israeli bombardments! Oh the humanity!  This can’t go on!  Here, Gaza.  Here is $900 million to rebuild.

That is, without much exaggeration, exactly what transpired in the U.S. involvement in the conflict.

How can this possibly happen?  I am trying to say nothing of the conflict between Israel and its neighbors.  That would require far more than this small blurb.  I am, however, trying to point out the absurdities that come along with too big a government.

Here’s an idea, let them squabble and give the American tax payers a $4 billion tax break.

The process of critical thinking is far too easily overlooked among the people of the United States.  It is especially crucial to use critical thinking in times like this when the freedom for which our country stands for is being jeopardized. It is our responsibility as citizens to be concerned with the decisions which are being made by our politicians and to use cognitive skills to assess the actions.  Lack of critical thinking among our leaders and the people of America is becoming increasingly prominent and must be addressed.

To make things simple, I am going to focus on the recently passed $757 billion “economic stimulus package.”  The name of the bill sounds very promising, but it does not exactly portray what it really is.  The term for describing this is called ‘Euphemism,’ which takes place when the substitution of a desirable term is made for a less desirable or offensive one, a very common habit among politicians (Thought and Knowledge, pg. 112).  Although the bill is two parts spending, it is not called the “spending package,” because of course, that does not sound very appealing; “economic stimulus package” gives the illusion that the package will save the economy (key word being “illusion”).  The process of thinking about even the name of the package and how there may be some deception in it is a part of critical thinking.

Critical thinking is going beyond the surface in order to solve problems, such as those having to do with our failing economy.  By using skills and strategies, critical thinking helps us to make desirable outcomes more likely.  The intentions of the economic recovery package are, according to President Obama, “particularly aimed towards provid[ing] jobs to reduce unemployment in order stimulate the economy to help us get out of the current ‘crisis.’”  Unfortunately, I find it hard to believe that it was possible for critical thinking to really take place while making decisions on this nearly trillion dollar bill.

The stimulus package was constructed in just over four weeks, which is an extraordinary pace for Congress considering major bills can sometimes take years to become law.  In addition, the bill itself is over 1,000 pages, which the House of Representatives was given less than 24 hours to read and comprehend before being rushed into placing a vote.  Considering the situation, I can confidently say that I do not believe one Congressman or Congresswoman really read nor understood every provision in the bill.  The lack of time put into creating the bill and the extreme haste of passing the bill shows a dire lack of reasoning in order to obtain well-thought-out conclusions.  Reasoning and critical thinking are important in every aspect of life, but critical thinking among our leaders carries the utmost importance because their actions have the power to affect each and every American life.

One of the most defining aspects of critical thinking is the willingness to change conclusions when sound evidence warrants a change.  I am disappointed in President Obama’s ability to do this.  When a final passage of the stimulus bill was still awaiting approval by the Senate, Obama stated clearly in a speech that he did not want to hear the reasons as to why some people felt that the best option was to actually do nothing at all.  This lack of consideration shows that Obama is closed-minded to alternate options, a hazardous trait for a leader to possess.

While working to receive approval for the stimulus package, Obama came off more as a dictator or preacher than a President.  He was exposing obvious partisanship, and had little to no sympathy for any concern relating to the problems in the plan.  Mr. Obama made it clear that his plan was to convince the members of the Congress and the American people that the stimulus package is absolutely needed in order to survive from the “crisis” (a term terribly overused as a tactic for creating fear).  Instead of listening to Obama’s convincing words and believing them right off the bat, the American people can learn to detect deliberate pressure by understanding how to recognize propaganda through clear thinking.  It is absolutely essential that the American people do not fall prey to information that is blown out of proportion by realizing deliberate deception, analyzing unstated assumptions in arguments, and considering the credibility of an information source (Thought and Knowledge, pg. 8).  By doing this, people can equip themselves with the tools needed to think a problem or decision through in the best way possible in order to have the best chance in reaching the most desirable outcome.

While many politicians are outraged by the lack of thought put into such a huge bill and the consequences that may come out of it, others believe it is absolutely essential to the survival of our economy.  For instance, in an article from Wall Street Journal, Martin O’Malley, the governor of Maryland, made it clear that the Democrats are committed “to pulling our national economy out of the ditch that George Bush ran it into.”  He went on to state that “If some of the fringe governors don’t want to help us do that, they need to step aside and not stand in the way.”  I found this statement to be concerning because the whole point of a democracy is to make sure one side does not have too much power over the other.  The “fringe governors” are actually very important in evening the waters and providing a different perspective and should therefore absolutely not be pushed aside.

No one can say for sure what will be best for the well-being of the United States in the future.  This is because there can never be guarantees about the future, even for the best of thinkers.  The greatest power we do have is substantially increasing the likelihood of a desirable outcome through critical thinking; this is the best hope for the future anyone can offer (Thought and Knowledge, pg. 7).  We think critically about different situations each and every day, and in order to improve the state our country and salvage our true freedom, politicians and citizens alike should begin to asses different issues that arise and think critically about the best way to solve the problems that are placed before us, particularly during this time of turmoil.

Sources:
http://online.wsj.com/article/SB123453885966183349.html
http://online.wsj.com/article/SB123525505653141087.html
Thought & Knowledge, an Introduction to Critical Thinking; Diane F. Halpern

The link below will lead you to a list of the appropriations in the 1,073 page stimulus bill that was just passed.

Link to List of Appropriations

US House approves stimulus plan

Link to Story

Just like that, nearly $800 billion is taken away from the American people and redistributed by a small group of people that know nothing more than you or me; they probably know a good deal less than you or me.  Much to the celebration of most media outlets and seemingly most Americans, the United States took another giant leap in the direction of socialism with the passing of this bill.  $800 billion would be enough to give each working American nearly $5,500.  Those of you that gain $5,500 from this action please notify me.  $800 billion to stimulate the growth or saving of four million jobs equates to $200,000 per job.  Anyone willing to offer me $200,000 can have my job immediately.  All arrogance aside, it will be a good investment because I am paid more than the men and women they will hire to lay pavement on new interstates or sod on new Frisbee fields.

As if this $800 billion stimulus plan after a $700 billion bailout plan is not enough, the U.S. government announced this week that the first $1.5 trillion they want to spend is not enough.  No, they want to double it.

US unveils new $1.5 trillion plan

Link to Story

$1.5 trillion more dollars.  $1,500,000,000,000.  Thirteen figures.  This IN ADDITON TO the $1.5 trillion they have already allotted for a grand total of $3 trillion.  This doesn’t even include the annual budget of around $3 trillion.  With this bailout/stimulus/whatever else money that they intend to spend, the government could issue each working American over $20,500.  For the 4 million jobs that have been lost they could simply pay each of those people $750,000 each, or $150,000 per year for the next five years!  The money to be allocated in 2009, bailouts, stimuli, and the budget will top $6 trillion.  To keep beating a dead horse, that means the government could give out over $41,000 per working person!  The median income for American workers is well below $30,000!

Unfortunately this money is not simply given back to the American people; it is spent in completely wasteful ways.  Even worse, we must reverse the figures to see what is really going on.  This money does not appear out of thin air, Americans pay for this.  You pay for this.  I pay for this.  You may say, “My taxes haven’t gone up, so I’m not paying for it.”  Your taxes will go up, rest assured.  If they don’t go up then you will be taxed via inflation.  You will pay for this.  “Tax the rich,” you say.  The entirety of the United States only creates a GDP (essentially income) of $13 trillion per year.  $6 trillion of that will be spent on our lovely government.  Obama says he wants to tax everyone that makes more than about $200,000 and give everyone else a tax break.  Less than 1% of Americans make more than $200,000 per year.  For these 1% to pay for this $6 trillion, each working rich person making over $200,000 per year would have to average paying about $2 million in taxes per year.  That does not add up.  Even if the top 1% of American income earners gave their entire incomes to taxes in 2009 we would still fall well short!  We are all paying for this, not just the wealthy people of America.

Furthermore, this spending does not even include state and municipal spending, which has shot through the roof.  California has said that it may have to issue IOUs on tax refunds to its citizens because they have no more money and nobody is willing to lend them anymore money.  Many states are billions of dollars in debt, including my home state of Arizona.  Arizona recently spent $1.2 billion on a light rail that goes in a straight line and stops at red lights.  A 25 minute drive will now take you 50 minutes on the light rail, go ride it!  Furthermore, Arizona has no way of collecting payment from riders.  It is essentially an honor system.  There may be no such thing as a free lunch, but I know that most people won’t turn down a free ride.

We are facing a serious foe.  I am not necessarily a republican, but I am more republican than democrat and not one republican in the house voted for this stimulus plan and presumably not one will vote for the extra $1.5 trillion for the Fed to disperse.  Democrat has come to mean socialist and they are making our nation into a socialist one.  Freedom and capitalism are dying before our eyes.  It is time to debate, it is time to educate, and it is time to encourage our friends, family, and neighbors to open their eyes to what is happening in our world.  We cannot stand by and watch as we are stripped of our freedom and thrown into serfdom (thank you Hayek).

Recently I was asked a series of questions by a journalist wishing to write an article about the nation’s current economic situation.  What follows in this article and others following is one of those questions and my answer to it.

How bad is the situation really?  Certainly that’s an important factor to consider when judging the costs/benefits of a stimulus package?

The situation is serious but nothing compared to the Great Depression right now.  I stress right now, because if the government attempts to follow FDR’s approach in the 1930s, we could see a ten year deep recession. People are uncertain and have real concerns over their financial situation now and in the future.    Why was the Great Depression the Great Depression rather than a simple recession – why did recovery take so long?  The most important factor was a combination of errors on the part of the Federal Reserve and the hostile attitude that the FDR administration had toward the private sector.  Roosevelt said that businessmen as a class were “stupid.” Business leaders sincerely believed that the government was in evil hands…and preparing the way for socialism, communism, or some other variety of anti-Americanism. In 1935, 1936, and 1937 the Roosevelt administration requested tax legislation aimed at punishing the wealthy. This created a business hostility toward Roosevelt and resulted in an unwillingness to invest.