Democracy or Republic?

The title of this blog is also the title of an essay by Walter E. Williams that was published in the June 2007 edition of magazine The Freeman: Ideas on Liberty.

I am about a third of the way through a book by Walter Williams entitled American Contempt for Liberty. It is a compilation of many of his essays. Each essay is only about a couple of pages long. The book is hard to put down. I find myself underlining something on almost every page.

Separately, while organizing my office today I found about 10 photocopies of the essay referred to in the first paragraph. I just reread the essay and understand why I made copies to give out to people who I thought might be interested. It is a concise essay that explains the difference between a democracy and a republic and how clearly our founding fathers wanted to establish a republic and not a democracy. So, below is a link to the relatively short essay. I expect that you will enjoy reading it.

https://fee.org/articles/democracy-or-republic/

Can’t our federal government spend money on anything that promotes the general welfare of citizens?

Here is what one of our founding fathers, James Madison, said about our Constitution and the ‘general welfare’ clause:

“With respect to the two words ‘general welfare’, I have always regarded them as qualified by the detail of powers connected to 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.”

We have gone far outside the Constitution with respect to both corporate/business welfare and social welfare.

As Walter Williams might say, most Americans and politicians have contempt for our Constitution. They very much have violated its clearly written provisions and think that is best. They think we should have a pure democracy where the majority gets whatever they want. (We have a republic with a constitution that protects the rights of minorities.)

If they really think the Constitution is wrong, the proper way to amend it is by getting three-fourths of the State Legislatures to agree. That may be hard. It is intended to limit the power of the federal government and leave other powers to the states or the people. As it should be.

1/6/21 Insurrection was not a real attempt to take over the government.

By the definition of the word,  the event that occurred at the U.S. Capitol on January 6, 2021, was an insurrection.  The participants are properly being treated as criminals under federal law.  At the same time, it’s hard to imagine that any participant really thought they would actually overthrow our government.  It appeared to be more like a political demonstration that turned into a riot and ended with a lot of people following a herd mentality and things got out of control.  Nevertheless, it is appropriate to take steps to see that it never happens again and to punish those who were involved.

Our republic is not a pure democracy!

I disagree with the letter to the editor in The Des Moines Register written by Ivan T. Webber that, “The United States Senate is an outdated relic that can no longer be justified in the modern world.”  He noted that none of the upper houses of the other G-7  nations can block ordinary legislation.   (“The US Senate is unacceptably undemocratic” published 11/11/2021)

We elect our representatives democratically, but our founding fathers and our Constitution created a Republic that protects certain fundamental rights of minorities against the will of majorities.  The Senate was specifically designed to protect smaller states from being abused by larger states.  If a minority in the Senate blocks the majority from achieving their goals, it is a feature, not a bug.

  
Important decisions made by our government that affect the lives of everyone should require more than a simple majority vote.  As we’ve seen, when the party in power has passed laws by a slim majority, whether Democrat or Republican, it has created a very divided populace.  We have an increasingly diverse population in the U.S., so our laws should, as much as possible, allow people to pursue happiness in their own way, not forced by government policy, if we want to maintain a civil society.

Don’t make Washington D.C. a new state!

Some Democrats are pushing to make most of Washington DC a State. (Washington DC would be reduced to the Capitol, the White House, the Mall and not much more. The remainder would become a new State.) More people live in Washington DC than in some of our smallest states. They say they do not get fair representation in Congress. If the area were to become a state, it would have two Senators and, I think, one Representative. About 75% of the registered voters in DC are Democrats. 6% are Republican. The rest are other parties or no party. So, it is easy to see why Democrats would like to have it added as a new State.

As you might guess, Republicans have another idea that would get the current citizens of Washington DC the representation that they want. That would be to return the land to the states that it originally came from: Virginia and Maryland. I understand that neither Virginia nor Maryland want the territory returned to them. Both of those states already appear to clearly have a Democrat majority, so it may be that they don’t want the territory returned because they already have control of those states and think it would be best for Democrats for Washington DC to be a new State.

I have a hard time trying to come up with a logical reasons why one alternative is better than another. What would happen if any state wanted to split into two or more states? Would that ever be allowed? Why or why not? For every possible scenario, it seems like what anyone would like to have happen depends on how it would affect the political party that they support. That being said, in this case, I’m in favor of returning the territory to the original states, or doing nothing. Doing nothing might be best because the other alternatives open up a big can or worms.

Our federal legislators should oppose reauthorization of the Export-Import Bank

I urge our elected federal representatives to oppose the reauthorization of the Export-Import Bank.  (The Ex-Im Bank provides taxpayer guarantees to U.S. companies that export and sell products to international customers.  Authorization is set to expire on 9/30.)  This has been and continues to be a quintessential example of crony capitalism.  If a U.S. exporter has customers who find it difficult to find financing, the seller can always guarantee a loan and get a security position to get the asset back in a worst case.  If they still cannot get financing, the seller could provide direct financing.  In any case, our government should not guarantee such loan private companies.

I’m sure that small and large Iowa export companies are heavily lobbying for reauthorize the Bank.  I hope our representatives resist the pressure and vote against this bad policy where taxpayers are asked to take the risk and private companies reap the profits.

Congress has the power to prohibit states from giving special incentives to specific businesses.

The Des Moines Register recently published an editorial that showed how out-of control Iowa and other states are in giving incentives to businesses to locate in their state.  To help reverse this situation, Congress should exercise its Constitutional power to “…regulate commerce… among the several states…” and should limit states’ ability to bribe companies to locate in their state.  States should be prohibited from giving custom incentives to specific businesses to locate in their state.  They should only be allowed to use schemes that provide uniform incentives to all companies that locate their business or otherwise create new jobs in that state.

Link to Register editorial:  https://www.desmoinesregister.com/story/opinion/editorials/2018/11/20/amazon-apple-corporate-iowa-workers-education-environment-bribing-business-workforce-jobs-money-tax/2061418002/

How to slow the growth of health care costs.

Thanks to Susan Voss for her thoughtful essay about the complexities of our health care system, and how difficult it is to reduce costs. (See link to Register essay below.)   I don’t claim to have “the answer”, but I do suggest that the following cost saving ideas be given serious consideration.

• Medicare, Medicaid and private insurance should not be required to cover every new drug, product, or procedure that is approved by the FDA. Some are very high cost but provide only marginal improvement over alternatives that cost much less.  Also, at least some covered products and procedures would likely be considered not medically necessary by most people.
• Consider shortening the amount of time that government grants a monopoly for patents.  Patents are not natural property: humans have copied one another since the beginning of time.  Our U.S. Constitution allows patents to be granted to encourage inventiveness, but there is no objective reason why a patent must be granted for 20 years. Why won’t five or ten years work?  Maybe the length of the patent should be based on the cost to develop the patented item and whether or not government funds were used to help develop the item.
• Don’t require limits on out-of-pocket payments such as co-payments, especially for very high cost items.  A person should have “skin-in-the-game” if they expect their insurance to cover very high cost items.  Today, we see the opposite: drug companies offer to help pay people’s out-of-pocket costs so there won’t be so much political pressure on them to lower their prices.
• Allow both pharmacies and individuals to purchase drugs from sellers in other countries that are “deemed” to have sufficient safety procedures in place.  If drug companies are free to charge lower prices in other countries, then pharmacies and individuals should be free to purchase the drugs from those other countries.
• Allow Medicare and Medicaid to negotiate with drug companies on prices they pay for the drugs that are covered by the programs.  Right along with that, Medicare and Medicaid should be allowed to develop formularies (lists of drugs that are preferred over other therapeutically similar drugs), that give beneficiaries a financial incentive to use the preferred drugs and a penalty for using higher cost drugs.

Our health care wants are unlimited.  Our ability to pay is not.  We, as citizens, should not expect private insurance or our government health care programs to cover everything, regardless of cost.  We should expect our government to NOT do things that increase costs, or reduce our choices.

Link to Register essay:  https://www.desmoinesregister.com/story/opinion/columnists/iowa-view/2018/09/19/dont-fooled-when-someone-claims-have-answer-soaring-health-care-costs/1355890002/

 

Is getting rid of a special interest loophole the same as raising taxes? When general tax rates are being reduced?

The title to an essay by  A.J. Spiker’s recently published in the Des Moines Register was, “Republicans must ignore pleas to raise our taxes”. (11/262017 – see link below.)  The essay advocated for not raising tax rates on carried interest income – bonuses earned by hedge fund managers and real estate development managers. He urged our Senators to make sure the tax bill did not get rid of the special low capital gains tax rate for carried interest.  Regular people who earn the same type of bonuses pay taxes at ordinary Earned Income tax rates.  For years, carried interest has been tax at this lower special rate and those who benefit from it simply don’t want to lose it.  (The same seems to be true for people in every special interest group that gets politically favored tax breaks.  The ask our elected representatives to get rid of all the special tax breaks… except for mine…  which is vitally important to job creation!)

I thought that a stated goal for tax reform is to simplify our 70,000+ page the tax code.  In large part, this means getting rid of the many many special interest tax breaks, and then lowering the tax rates for all.  If certain individuals lose their precious special interest tax breaks and actually have to pay more in taxes, so be it.  They should feel lucky for what they got in the past.  This is part of “draining the swam” that our President has called for.  I urge our elected federal representatives to resist the tremendous pressure that they are under from those who received the tax breaks and their lobbyists, and proceed to get rid of the carried interest and many other special interest tax breaks, and lower general tax rates for all.

Link: https://www.desmoinesregister.com/story/opinion/columnists/iowa-view/2017/11/24/gop-must-ignore-pleas-raise-taxes-carried-interest-capital-gains/887643001/

Trump’s proposed tax rate for “pass-through” businesses is unfair

President Trump has proposed a maximum 25% tax rate on income that individuals receive from “pass through entities”.  Pass through entities are businesses that don’t pay corporate income taxes, but rather pass their net income each year through to the owners to be taxed as part of the owners’ individual tax return.  These pass through entities include S-Corporations, partnerships, limited liability companies (LLCs), and sole proprietorships.  Currently, income from pass through entities is taxed at the same rate as any other ordinary income – up to a maximum rate of 39.5%.  (President Trump’s proposal for ordinary income for most taxpayers is a maximum tax rate of 35%.)  He justifies the lower tax rate for pass through entities because, he says, these pass through businesses are the job creators.

This begs at least two questions:  Do pass through entities really create more jobs than non-pass through entities?  Even if so, why should the income of an employer be taxed at a lower rate than an employee if they earn the same amount?  Tax fairness would dictate that two people with the same income would pay the same amount of tax, regardless of source.

Regarding job creation, it is important to know that pass through entities are not just manufacturers, wholesalers or retailers, who may or may not be job creators.  They are also professionals such as doctors, lawyers, accountants. Most hedge funds and private equity funds are pass through entities.  About 95% of all businesses are pass through entities.  Of those, about 99% have revenues of less than $10 million.  The 1% of pass through entities with revenues of more than $10 million earn about 83% of all profits!  So, some pass through entities are very large, and many owners of pass through entities have very high incomes.  Is it fair for business owners to pay at a 25% rate while regular workers with the same income pay at a 35% rate?  I don’t think so.

I expect to write several blog posts on President Trump’s tax proposal.  The idea of reducing tax rates is a good one – especially if the total plan is revenue neutral and doesn’t increase our $20 Trillion debt.  This means that tax reform that reduces rates must also reduce special tax breaks for politically favored groups and/or reduce spending.  I hope that Congress, which controls all tax legislation, will not “bet on the come” – that is assume future tax revenue will increase due to future growth in the economy.  Our government uses a 10 year look forward to determine the deficit/surplus effect of any change in taxing or spending.  In recent decades, it seems that all tax and spending changes have significant costs up front with the promise of savings toward the end the the 10 year period.  Let’s not keep doing that.

Source: https://www.brookings.edu/research/9-facts-about-pass-through-businesses/