I Love Graphs

I saw this post on one of my blog trawls (using Google Reader... If you don't use Google Reader, then you are a buffoon - try it out immediately. I'll wait. www.google.com/reader).

Anyway, it was a graph showing the value of the US Dollar from 1800 to 2009. It is a FANTASTIC example of what I was preaching about in my earlier post Government Intervention in the Economy. I love it because it shows how absurdly terrible the Federal Reserve is at regulating the value of the US Dollar. It also graphically illustrates the number of recessions the US has gone through (up in the corner) which the Federal Reserve has been unable to stop. Even the frequency of recessions is staggering - the Federal Reserve is an utter Failure. Here is the proof:

The Gloves Come Off

First I want to start out by apologizing for the end of my last post. It went a little out of control with my rant which didn't add anything meaningful to my argument. I will strive to never let that happen again.

Let's have a discussion regarding life sustaining care for Medicare and Medicaid. Back in the sixties when these plans were created, they originated as universal government health care plans. There wasn't enough country-wide support for them in that form, so they evolved into plans primarily for the elderly (surprise - the elderly at the time didn't have to pay into the program with their tax money because they either already qualified for the program, or were not far from it... and the elderly make up the highest percentage of the voting public).

Since this is a very sensitive subject for a lot of people, I'll give you a little personal background to convince you that I am not totally disconnected from the real world. Firstly, no one is suggesting that the country should go cold turkey with these programs - this would cause irreparable harm to people that depend on the care these programs provide. Additionally that would represent a breach in trust between the government that has made a promise to people deeply invested in these programs (not that the government hasn't broken promises before - just that I'm not advocating breaking any more than they already have). My own grandmother depends on these programs ever since the day I took her to the hospital after a stroke. It is with this in mind that I would like to propose a road map to a better system for the entire country.

Did you know that there was a time when doctors advertised their prices? They even had sales in order to bring in new business. There was also a time when it was economical to fund research into new medical technologies in an effort to provide better services at a reduced cost. Doctors and Hospitals would compete for your business by striving to offer you the most advanced care in the nicest facilities with the most thoughtful staff. This was back in the time when the cost of health care meant something other than "its too high." Why don't you try this exercise: How much do you pay for your medical insurance? How much did that last prescription cost (not the co-pay - the actual per-pill cost)? How much does it cost for a physical at your doctor's office? What about a routine vaccination? Did you know the answer to any of these questions off the top of your head? If the answer is no, then you must either be super rich to the point that you don't have to worry about money or that you rely so much on someone else to watch over your medical care that the money doesn't matter. My guess is the latter over the former... but if that is the case, then why is the cost of health care so important to people now?

The simple solution to this problem is to put you back in the loop regarding the direct costs of your health care. If suddenly you had the choice to go to two identical doctor's offices where one charged you $35 for a check-up and the other charged you $50, then you could make a conscious choice as to which would be best for you. When the $50 guy sees his business drop, then he will find ways to get his costs down to compete with the $35 office. This model is called the Free Market. The problem with today's market is the government has come in and said that if you get Medicare, you won't have to see the cost to visit the doctor. So if you no longer care about cost (because the government is picking up the tab), why would the first office keep their prices at $35 when the guy down the road is doing the same thing and getting paid $50? And not only do the lower cost facilities get paid at the higher rate, the only thing they have to do in order to get your business is to be put on the "approved doctor" list. Anything else (like a comfortable waiting area, courteous staff, timely service, advances in efficiency) are unnecessary because the doctor's office no longer needs to compete for your service.

Now, to make this a good argument, I'll give you some an example. Back in 2004, Dr. Robert Barry was invited to testify in front of the Joint Economic Committee of Congress regarding a revolutionary type of clinic he had opened (here is his full testimony). In 2001 he left his practice as an ER doctor so that he could help the less fortunate in his community. His clinic began to attract people that were "political exiles within our healthcare system". I'll allow you to read the whole thing at your own pace, I just want to quote Dr. Barry's findings:

It seems that centralized bureaucracies simply cannot manage healthcare. Medical decisions are much too complex and personal to entrust to distant bureaucrats many of whom lack basic medical knowledge. The most efficient and humane solution is to allow ordinary Americans to manage their own care by giving them control over their healthcare dollars. It is, after all, their money and their health. They should control both.

The simple truth is this: there is no competition with the government. If the government gives a favorable deal to anything short of every health care provider, then those providers outside of the system suffer because people can't afford to pay the taxes required to sustain the government program AND to pay for the care they really want. Here is the road map:

1. End the tax benefit for employer health plans.
2. Begin to allow young people to opt-out of Medicare and Medicaid taxes (with the understanding that they will not be applicable for the programs in the future).
3. Begin a phase out government support for treatment of uninsured patient care.
4. Reimburse the people of the United States for the costs of these programs in the form of lower taxes.
5. Return freedom to the people.

Finally, just to hammer home the point that I am not crazy in my thinking that the government can't force people to be charitable, check out this article about the Christian duty to "actively seek the demise of all government welfare programs."

Government Intervention in the Economy

Everyone knows the problems the are facing with health care and the economy - either they deal with them all of the time or surely heard about the problems in the news. I think it is appropriate to discuss this country's path down the welfare road. This is beneficial because for the vast majority of people, no one knows why they were brought into being much less their specific roll in our current debacle. The key to a successful future is an accurate understanding of the past.

Most of the country's welfare programs began, as one would expect, during and shortly after the Great Depression (which started in 1929). Whatever the real cause (which is still a topic of great debate today), ultimately the blame fell to the president at the time: Herbert Hoover. Franklin Delano Roosevelt defeated Hoover in the election of 1932 with an economic recovery plan called the New Deal, saying:

Throughout the nation men and women, forgotten in the political philosophy of the Government, look to us here for guidance and for more equitable opportunity to share in the distribution of national wealth… I pledge myself to a new deal for the American people. This is more than a political campaign. It is a call to arms.

-Franklin Delano Roosevelt, 1932 Democratic National Convention

Not only did Roosevelt beat out Hoover, but the democrats won in a land-slide, ousting the incumbent Republican majority in congress as well. Before I go into the New Deal, I think it is interesting to note that some economists of the time believed that the US economy was turning around in 1932 regardless of the next president.

President Roosevelt's New Deal was a significant shift in government policy giving the government more control over the economy and money supply, intervention to control prices, and agricultural production. The New Deal saw Roosevelt meeting with congress for the first 100 days he was in office. During these first 100 days, congress granted every request made by the President. This period also saw the creation of the Federal Deposit Insurance Corporation (FDIC). Wikipedia has a good list of New Deal Programs - I'm not going to talk about all of them. This is where Social Security, Farm Subsidies, the move away from the Gold Standard, the National Labor Relations Act (NLRA - This allowed the formation of labor unions), and the foundation for most modern welfare programs came from. Basically the New Deal was an effort to give the government more control over areas that the Constitution expressly prohibits (see my arguments in this post regarding this topic). Clearly any problem of the complexity of the Great Depression has more than one solution - FDR's approach assumed the government would know best.

For those eagle-eyed readers out there, you noticed that my graphic above included a section called the "Recession in Depression." In FDR's second term in office, there was a sharp spike in the unemployment rate. By this time, the second stage of FDR's New Deal was in full swing, including federally backed Unemployment Benefits and Mandatory Minimum Wages designed to increase the spending power of working-class Americans.

Today there is still fierce debate as to whether or not the New Deal helped or hurt the economy. According to One thing that is certain is that there were still other recessions (haven't you read the news lately?). With these new recessions come a host of recurring events: the incumbent president and political party catch the blame, the opposing party wins the next cycle of elections in a land-slide based on a platform of giving the American people the support they need, followed by a fury of legislation designed to increase government control over the economy with the intention of preventing further recessions.

When do we (the American people) put our foot down? When does it become blatantly obvious that the government has tried this trick before with the same results repeated time and time again? When do we demand to the federal government to stop arbitrarily assigning value to our currency? When do we demand that the government give back our money so that we can do with it what we choose instead of seeing it thrown away on another policy that we know won't actually fix anything in the long term? When do we the people demand that our rights outlined by the Constitution and Bill of Rights are once again honored by our chosen representatives?

What Does The Country Want?

It isn't a mystery - the health care system in America is Broken: Prices are high, customer satisfaction is low, insurance premiums are unfordable, medical students don't want to become primary care physicians because they aren't able to afford their school loans, and medical malpractice suits are rampant. But you don't need me to tell you this - every where you turn there are people shouting for change from our terrible health care system. So what do people want to happen? Gallop had a poll back in July 2009 that asked people if they wanted health care reform.
95% of those poled want congress to do something. I noticed immediately that the questions posed wasn't "Pass the new healthcare reform law..." but rather "Pass a new healthcare reform law..." If you do a little more snooping around on the Gallup site you can find a much more interesting poll regarding health care reform.
If everyone is so upset at the cost of their health care, why then would they encourage their representatives to vote for a bill that they feel would increase the cost of health care even further? Does this make sense to anyone? Maybe they are okay with it because they feel the quality of health care they would get would increase, right?
This Gallup poll says that those polled felt that their own personal health care quality was more likely to WORSEN because of a new government health care reform bill.

So let me summarize: people in the US want health care reform, they expect that the country as a whole will pay more for health care, and they expect that the quality of their personal health care will worsen. Does this sound logical to anyone? Why would you vote for something like this?

The Real Issue Behind Health Care

The most talked-about topic today is the battle over health care reform going on in the US House of Representatives. It is absolutely clear that this country needs to do something about the way it handles health care. Insurance Premiums, prescription drugs, emergency care service, and routine doctor visit costs are all the highest they have ever been. There are people on every side of the argument that are very passionate about their views. This all sounds like a perfect mess for me to jump into!

Here is my sticking point, right off the bat: our country has an established process for dealing with social issues of this magnitude. The country is split very passionately right down the middle with very few people residing in the gray area. What is worse is that the two opposing sides are so passionate about their views that instead of having a real debate, they are demonizing the opposition and spreading false information. This doesn't do anyone any good because it only acts to hide what is actually important: The real issue.

The real issue is whether or not the Congress has the power to enact a health care reform plan regardless of how you feel about health care. I am not a monster who wishes death and inadequate health care onto those less fortunate than myself - I am a person that volunteers my time to help out my community. I am not rich to the point that I don't worry about money, so clearly I am also in favor of affordable care. My biggest concern right now is that I am watching the government stick its fingers into places it has no right being and I don't want it to get any worse.

The process I alluded to previously is detailed in the US Constitution. Some people will argue that the buck stops here with regard to the Health Care Reform Bill because Article 1 Section 8 of the US Constitution states exactly the Powers of Congress. It is quite clear that congress has no authority when it comes to telling the citizens of the United States what they must and must not do with regards to their health care. For an issue like this, there are constitutional amendments. The constitutional amendment (which most people forget about) is used when the people want to change or add something in the Constitution (such as congress' power over health care). It is really simple to add an amendment to the constitution - the process is outlined in Article 5 of the Constitution. The one catch is that 3/4 of the house of representatives AND the senate must ratify the amendment. 75% of the population must be on the same page in order for it to happen. If health care was such a no-brainer, then it would be easy to get enough votes for an amendment.

Before I go too far, I have heard a surprising number of people present the question of whether the constitution is even a relevant point of argument. Examples are thrown up such as warrant-less wire tapping and suspension of habeas corpus. If a government is willing to commit such acts which go against current constitutional amendments, what makes me think they will care about this issue? The US constitution is the guiding light for the country - the one document that can always be looked to when the country is divided. I say that the people have let this country stray too far from this path. Our government is straying from the constitution because the people don't care and let them get away with it. Why else is it that so many public figures are found guilty of corruption and still get re-elected into office? The function of government is to serve its people. The function of the people is to tell the government what they need. It is similar to the argument of who is to blame when a dog attacks a person: the owner for not controlling their dog, or the dog for directly committing the act? The constitution is absolutely relevant, and it is our job to make the government fall in line. Moving on.

The foundations of the current health care bill seem to be rooted in this one pesky line in the Constitution. One of the powers granted to congress is...

To lay and collect taxes, duties, imposts and excises, to pay the debts and provide for the common defense and general welfare of the United States; but all duties, imposts and excises shall be uniform throughout the United States;

-Article 1 Section 8, US Constitution

That part in there about collecting taxes for the "...general welfare of the United States" has been widely interpreted to mean all sorts of things from the government's responsibility to help educate US citizens to providing for all of their health care needs. To really understand this statement, we need to first remember that the founding fathers wanted us to think of the document as it applied at the time of ratification and not construct an interpretation for today's world. What I mean by this is the constitution isn't a living document in the sense that it was made so long ago that the meanings have changed but rather today's words have changed around the meaning of the constitution. The meaning of the constitution is the same now as it was back when it was ratified - we have to come up with words that make sense to fit those meanings. James Madison (the 4th President and the principal author of the US Constitution) once said...

Do not separate text from historical background. If you do, you will have perverted and subverted the Constitution, which can only end in a distorted, bastardized form of illegitimate government.

James Madison

In order to discover the intended meaning of the constitution, we have to look back at the people who actually wrote it. Madison spoke very clearly about the words "general welfare" in this section of the constitution. During Madison's time in office, congress had passed a bill that would provide federal funding for state improvements such as rural roads, bridges, and canals arguing that it would be in the general welfare of the people to have these improvements in their state.

With respect to the two words 'general welfare,' I have always regarded them as qualified by the detail of powers connected with them. To take them in a literal and unlimited sense would be a metamorphosis of the Constitution into a character which there is a host of proofs was not contemplated by its creators.

James Madison

I'm sure there are some places to argue over interpretations in the Constitution, but this clearly isn't one of them. Based on the amount of controversy surrounding the current health reform bill, red flags should be going off in your head. Whatever your view is, I am certain you must be thinking that the other half of the country is insane for believing the opposite. Maybe we all need to take a breath, re-gain our bearings, and think logically. That is exactly what the constitution is for.

The Federal Government's Revenue

Background: I have a good friend that is an avid supporter of Ron Paul who let me borrow The Revolution: A Manifesto to learn a little more about his views. In the book, Dr. Paul makes the argument that if we were able to cut the Federal Government's budget by 40%, we could abolish the Federal Income Tax outright. According to Dr. Paul, the federal government's primary source of income is supposed to come from tariffs in stead of from the people. That sounds awesome! Remembering that old saying, "If it sounds too good to be true..." I decided to do some digging of my own. The following is the result of that expedition.

I did some digging regarding the sources of revenue for the US Federal Government and this is what I found to be (what I believe is) the most accurate data available to the public. There are several sites where you can presumably get data regarding federal revenue, but nothing seems to correlate with anything else even when they claim to be interpreting the same numbers. My data has come directly from the Congressional Budget Office (CBO). While their website is terrible to get through, I was eventually able to find historical data going back to 1969 regarding the government's income and expenditures in a handy Excel format! Using those numbers, I made some graphs to see how right Dr. Paul's numbers were.


Looking at the data, it is clear that the Individual Income Tax has never been as low as 40% of the total revenue of the Federal Government since 1969, but it isn't far off from that. In 2008, the individual income tax was 45% of the overall government revenue. The thing that interested me was each of the buckets the CBO decided to break the revenue into. Remembering back to my schooling, I wasn't exactly sure what each one meant. That can mean only one thing: I need to educate myself!

Individual Income Taxes
This is what you pay to the Federal Government when you file your taxes. The income tax was originally introduced through the Revenue Act of 1861 to fund the Civil War. In the new Revenue Act of 1862, a graduated tax was introduced as well as the stipulation that the tax was to end in 1966, as the income tax was only thought to have been a temporary measure. The income tax wasn't actually abolished until 1872. During the years following the civil war, the primary source of income was through tariffs and an excise tax (explained below) mostly from alcohol and tobacco products.

From 1868-1913, nearly all federal revenue was from excise taxes. Additionally, the US Supreme Court ruled in 1895 that it was unconstitutional for the federal government to collect taxes from an individual's income that is not proportional to the population of each state. The War Revenue Act of 1899 was enacted to fund the Spanish-American War by selling war bonds, taxing recreational facilities used by workers, doubled excises taxes on beer and tobacco, and other excise taxes (including one on chewing gum). The federal government's expenditures were continuing to rise in the areas of public welfare, highways, and education.

The people were becoming increasingly upset with high excise taxes and tariffs, so congress was looking for other ways of generating revenue. The leading ideas (taking into consideration that the US Supreme Court has already ruled that an income tax is unconstitutional) was either a federal property tax or increased excises tax. This pitted representatives from the southern and western US (with a majority of agricultural constituents with lots of land) against the industrialized northeast (where most of the products were made that would suffer from increased excise tax). Eventually, the 16th amendment was ratified in 1909 which allowed the taxation of individuals and companies to be taxed without regard to the proportion of a state's population.

Corporate Income Taxes
Basically the same thing as the individual income tax, but it is what companies pay to the Federal Government. This was also enacted with the ratification of the 16th amendment to the US Constitution.

Social Insurance Taxes
Though you can't find this exact term anywhere on the internet (except when people are saying "don't you mean Social Security Tax?"), I found that it is an umbrella term used for every type of government-funded social welfare. This includes Social Security, Medicare, Medicaid, Welfare, etc. Basically, when you look on your pay check, the automatic deductions called Sociity Tax and Medicare Tax are bundled into Social Insurance Taxes.

Excise Taxes
This one is a little more vague and harder to identify because of the definition of an excise tax. Excise tax is an event tax which basically means that whenever a taxable event occurs, the government gets excise tax. An example of a taxable event is receiving money (income), selling an item, or receiving gifts. The event is taxed as opposed to the person, so excise law doesn't specify who has to pay the tax, just that the tax gets paid. Inevitably, the party that ends up paying is the person receiving something - like when you pay sales tax for something you buy.

In the old days (before the 16th amendment was ratified), excise tax changed a lot. During war times, the excise tax was essentially a national sales tax on all goods to provide funding for the war effort. During slower times, it was used more like a "sin tax" where products that were thought to negatively affect the public's welfare were taxed, like alcohol and tobacco.

Today, the excise tax seems to be used as a "sin tax." I found this source which lists several items that are impacted by excise taxes including: firearms, "gas guzzler" automobiles, and gambling.

Estate and Gift Taxes
This commonly falls under an excise tax, but apparently there is so much giving in the US that it warrants its own category on the list of revenue sources. Whenever someone dies and leaves things to other people, estate taxes may be involved. Likewise, whenever someone receives something as a gift, there are gift taxes involved. For more information, I allow you to read up on the IRS Estate and Gift Tax information. I feel like I have a pretty good handle on it and it doesn't seem to have an interesting history, so I'm not going into any more detail here.

Customs Duties
Everyone knows about customs on international flights where you have to declare the things you purchased abroad when you return to your country of origin. The duty free stores are also a good place to pick up those last-minute bulk gifts. This also includes tariffs on foreign goods... which have a much more interesting history that customs duties.

The Tariff Act of 1789 created the first national source of revenue for the United States. This act (also the second act EVER for the US) was intended to pay for all US debts and fund all expenses of the federal government. It taxed imported goods between 5% and 10%, depending on the cost of the product. It was believed at the time that higher tariffs would protect newly developing industry in the US from low-cost competition in England, so the tariff rates rose to over 50% with the passage of the Tariff of 1828.

There are some that believe that debates over tariff rates may have been another factor in the cause of the US Civil War. While the tariffs were doing a good job of protecting industry in the northeast, southern and western states that relied mostly on agriculture (and had to import finished goods from either the north or overseas) saw the costs of their necessary imports going up.

Today, tariffs have settled down for the most part, but there is still a lot of controversy. There are agreements in place which regulate tariffs such as the Canada-US Free Trade Agreement of 1987 and the North American Free Trade Agreement (NAFTA) of 1994. Since these items are a hot-button issue for some, I'm not going into them.

From what I have learned, it is quite clear that eliminating 45% of the federal budget would allow the elimination of the individual income tax. However, I have also learned that the federal government is no longer primarily funded through tariffs as the founding fathers had originally intended. In the end, I am left with more questions about why different revenue sources were changed.

I know this has been a long post, but I hope you found the information presented here clear, educating, and without bias. One of my biggest pet-peeves is when someone presents only one side of an argument to further their goal. If I missed, or misrepresented something, drop me a comment!

... and we're live!

Over the past few months, I have had a lot of great debates with my friends over lots of different topics. Topics in areas such as government, religion, society, and corporations... water cooler topics for people that don't like sports, reality television, or celebrity gossip.

We don't always agree on topics, but that usually makes the discussion more interesting and educational. My group of friends does not require you to agree with them - only that you know why you think the way you do. It helps to form a more logical argument and really understand why you feel the way you do about the topics that are really important.

This blog is my attempt to share my thoughts in an open forum to challenge me to think deeper about the issues that I feel strongly about and to hear what other people have to say. Hopefully I encourage some thought in other people.