Tags: David | Marotta

Anybody for a Tea Party?

Monday, 13 Apr 2009 11:27 AM

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Some people try to defend the practice of earmarks with three arguments: First that earmarks only account for 1.9 percent of the budget; second that earmarks stimulate the economy; and third that earmarks support many worthy causes. But in each case, the harm done by earmarks is much worse than the average citizen believes.

If you think earmark spending represents such a small and identifiable portion of the federal budget, you must believe it would be easy to eliminate. So let's do away with all wasteful spending as an act of responsibility, consensus building and bipartisanship.

The impossibility of doing just that shows clearly how earmarks are tied significantly to the way money corrupts. The truth is that all of government spending would change if earmarks were eliminated.

Earmarks represent the graft and bribery that grease the passage of a pork barrel budget. Congress just approved a $410 billion spending bill, 1.9 percent of which was required in personal kickbacks (called earmarks) to buy votes.

That so-called small percentage amounts to 2,484 times the compensation of the AIG executives. Bonuses at AIG were given to 400 employees with only seven receiving more than $3 million. In contrast, the average member of the House received about $18 million in earmarks.

Increasingly, in an attempt to show their transparency and responsiveness, representatives are inviting committees to review and prioritize projects based on efficient-sounding criteria. My own district representative invited the input from local bureaucrats who have the largest stake in feeding at the government trough. This tactic provides enough of an appearance of involvement for political cover without actually taking into account any of the small business owners who really pay the bills.

Earmarks themselves aren't the government waste. They are the price of the graft to corrupt politicians into supporting the real waste. For you who believe $18 million can't corrupt a politician, bear in mind that every congressional district is making off with more money annually than the $11 million perpetrator of our local Ponzi scheme scandal did over several years. Not content with the average $18 million, my representative attached his name to $159,630,155 worth of earmark requests.

This is not partisan criticism. The best we can say about members of one party is they can be bought for less pork or they cover their graft with more worthy-sounding causes. But these comparisons shouldn't lessen our outrage. Nothing can justify what Bernie Madoff did, even if he donated liberally to charity.

The second defense of earmarks claims they stimulate the economy. They do not.

Economic resources are clearly limited. Money confiscated and spent by government has alternative uses that in most cases would have better stimulated the economy. Private enterprise can only spend money where their return would be positive, creating new jobs and causing economic growth. No economic growth means it is unsustainable in the private sector.

Not so with government spending. Unlike private enterprise, the government can deficit-spend indefinitely on programs with no redeeming value in the economy. I've looked over the 51 earmarks requested in my district. None of them relates in any way to sustainable business ventures.

My first column for the Charlottesville Business Journal was coauthored with my father, George Marotta, in 2002: "Will the U.S. Go the Way of Japan?" The fall of Enron was fresh in everyone's mind, and our answer to this question was no, because, "In the United States we allow companies to go bankrupt when they cannot succeed in business. In Japan, both banks and corporations that are bankrupt are allowed to continue and drag down the economy. The ruthless culture that allows large companies to go bankrupt in the United States hurts less in the long run than the Japanese style of business subsidies. In the United States, the government keeps hands off business; in Japan the government interferes with the operations of business and commerce."

But times change. Our government's intervention in the financial markets, its dictation of contractual bonuses, and the firing of company CEOs is unprecedented statism and deserves to be described as socialism or even fascism.

Senator Charles Grassley of Iowa suggested that AIG executives should "resign or commit suicide." He advocated an attitude in corporate America that would emulate the Japanese model, saying, "People that run a corporation into a ground have violated their trust with the stockholders and maybe even the taxpayers."

The bailouts transform a private mistake into a public crime. A business goes under because of poor management, and the assets are sold or distributed as part of the company's liquidation. But if the government guarantees the enterprise, it becomes a crime against society for the company to fail. Failure now becomes a political scandal.

There must be charges of mismanagement. There must be an inquiry. Those responsible must be held accountable. Those innocently injured must be made whole. And all of this supposedly must be accomplished by government.

As a result, the so-called bailouts will prolong the economic malaise. The government should not have intervened. We would be better off if those over-leveraged financial institutions had filed for bankruptcy. No company is too huge to fail. And those that claim to be are too big to subsidize at the expense of hundreds of small companies.

Make no mistake: there will still be a recovery, but it will be in spite of government's actions, not because of them.

The very livelihoods of scores of employees of publicly-traded companies depend on them making a profit. The recovery will be on the backs of millions of workers, but congressional leaders will claim the credit, as always, if and when private enterprise can overcome government disincentives.

And finally, the third defense of earmarks claims they support many worthy causes. I expected this argument to be difficult to refute because discerning "worthy" is very subjective.

Interestingly enough, this claim isn't hard to refute because all the criteria selected are economic.

In my district, appropriation requests were prioritized based on criteria that would give representatives economic political cover: (1) the potential to transform our economy, (2) the greatest impact on economic development, and (3) the ability to create or attract jobs.

First, all of the earmark projects were solicited by governmental agencies in and around the district. They are all justified by their descriptions as "This project is a valuable use of taxpayer funds because (fill in blank)."

But in each case, simply allowing citizens to keep that money would have been a more valuable strategy. As government spending consumes an ever-larger portion of our economic output, less remains for real investment and economic transformation.

Efforts to attract jobs through subsidies or protectionism that can be done more efficiently elsewhere always lose money. If every district spends $1 million competing to attract new industries from other districts, it is a complete waste of $425 million.

Even if the jobs we are trying to steal are outside of the United States, it's still a bad idea. Spending that money to force Americans to take jobs away from developing countries that aren't profitable enough for our citizens by putting incentives in place to make those jobs more attractive is a losing proposition. Why not simply allow our citizens to fulfill the roles in the global economy where we are more competitive?

Small businesses create all the new jobs and profitable industries in the United States. But no incentives are being offered for current entrepreneurs to expand or start new ventures.

Two-thirds of small business profits are earned in households making more than $250,000, yet every spending program has been justified with promises that it will be paid by those earning over $250,000. The marginal tax rate of these small business owners is expected to rise from 44.6 percent to 62.4 percent. At those rates, small business owners will change their behavior.

Business owners will not choose to maintain their level of productivity with a 62.4 percent marginal tax rate. They will simply work less. This is not a new idea in the history of freedom.

The most productive wage earners are among the hardest workers. According to Steven Landsburg, leisure used to be evenly divided among the classes, but it isn't any longer. Although Americans as a whole have an extra four to eight hours of leisure per week, it is those in the lowest tax bracket who enjoy this extra leisure. Today, more than ever, it is the working rich and the idle poor.

I've been studying the life of John Adams and continue to be impressed by his political insights. He feared our democracy would ultimately vote itself bread and circuses at the expense of individual rights and freedoms. "Property," he wrote, "is surely a right of mankind as real as liberty."

Just because a majority of citizens think it is a good idea doesn't make it so. Half of the country doesn't even pay taxes. Among the remaining half, even a small number in favor of a project tips the scales. Compare it to two foxes and a hen voting on what to have for dinner.

For those of you who would like to vent some of that righteous indignation, Tax Day rallies are held April 15 in nearly every major city. Charlottesville's Tea Party takes place on the east end of the Downtown Mall at 3 p.m. on Wednesday. For information on the Tea Party movement, visit www.taxdayteaparty.com. More details on the Charlottesville event are available at vateaparty.wordpress.com.

The organizers are asking people who would like to speak at the rally to keep their speech non-partisan, supporting fiscal integrity and not a particular party. That makes sense to me because those who truly favor fiscal integrity probably couldn't support either party.

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