A Day to Rejoice

Dear friend,

Happy Cost of Government Day! Today, August 12, is Cost of Government Day (COGD), the day of the calendar year when the average American worker has earned enough gross income to pay off his or her share of the spending and regulatory burdens imposed by government on the federal, state, and local levels.

COGD falls 26 days later than last year's date, and it's 23 days later than the previous all-time high of July 20, in 1982. There are numerous reasons for this explosive growth in government spending including TARP, the so-called Stimulus, and the big three auto "bailouts." If Congress and the President had not pushed for TARP, Americans would have celebrated COGD on July 25 rather than on August 12.

As your Congressman and Senators hold their town hall meetings this recess [questions to ask], you should ask them why you needed to spend 224 days working to pay off your share of government. You should also ask them if you've already spent this much time working to pay off government, why would you possibly want to spend additional days working for a government takeover of healthcare?

View the COGD report at www.CostofGovernmentDay.com and arm yourselves with the data to ask your representatives the necessary and hard questions about the astonishing growth in government. The report contains a state-by-state breakdown so you can find out how your state ranks by visiting www.CostOfGovernmentDay.com.

Onward,

Grover Norquist

The Healthcare Bill Town Hall Meeting Guide

In order to assist interested parties seeking to read and review the health "reform" legislation (H.R. 3200) introduced by House Democrats, the Republican Conference has compiled a list of important page numbers and provisions in the 1,018-page "America's Affordable Health Choices Act:"

Page 19 - Section 102(c) prohibits the sale of private individual health insurance policies, beginning in 2013, forcing individuals to purchase coverage through the federal government

Page 30 - Section 123 establishes a new board of federal bureaucrats (the "Health Benefits Advisory Committee") to dictate the health plans that all individuals must purchase-and would likely require all Americans to subsidize and purchase plans that cover any abortion

Page 74 - Sections 202(c) and (d) protects Members of Congress with existing federal employee coverage (as defined in Section 100(c)(6) on page 9) from joining the government-run health plan offered through the Exchange

Page 116 - Section 221 establishes a new government-run health plan that, according to non-partisan actuaries at the Lewin Group, would cause as many as 114 million Americans to lose their existing coverage

Page 139 - Section 245 includes language requiring verification of income for individuals wishing to receive federal health care subsidies under the bill-however, the bill includes no requirement for individuals to verify their citizenship or identity before receiving taxpayer-subsidized health benefits

Page 167 - Section 401 imposes a 2.5 percent tax on all individuals who do not purchase "bureaucrat-approved" health insurance-the tax would apply on individuals with incomes under $250,000, thus breaking a central promise of then-Senator Obama's presidential campaign

Page 183 - Section 412 imposes an 8 percent "tax on jobs" for firms that cannot afford to purchase "bureaucrat-approved" health coverage; according to an analysis by Harvard Professor Kate Baicker, such a tax would place millions "at substantial risk of unemployment"- with minority workers losing their jobs at twice the rate of their white counterparts

Page 197 - Section 441 imposes additional job-killing taxes, in the form of a half-trillion dollar "surcharge," more than half of which will hit small businesses; according to a model developed by President Obama's senior economic advisor, such taxes could cost up to 5.5 million jobs

Page 331 - Section 1161 cuts more than $150 billion from Medicare Advantage plans, potentially jeopardizing millions of seniors' existing coverage

Page 425 - Section 1233 makes end-of-life care consultations eligible for Medicare reimbursement

Page 501 - Section 1401 establishes a new Center for Comparative Effectiveness Research; the bill includes no provisions preventing the government-run health plan from using such research to deny access to life-saving treatments on cost grounds, similar to Britain's National Health Service, which denies patient treatments costing more than £35,000

Page 835 - Section 1802(b) includes provisions entitled "TAXES ON CERTAIN INSURANCE POLICIES" to fund comparative effectiveness research, breaking Speaker Pelosi's promise that "We will not be taxing [health] benefits in any bill that passes the House," and the President's promise not to raise taxes on families with incomes under $250,000.

The Law of Pies

Let's say you have six people over for dessert, and you have a delicious cherry pie. You slice it up into six pieces, serve it up with coffee and everyone is happy. Now let's say six more people suddenly drop by. You can slice up the existing pie into twelve tiny, unsatisfying pieces where nobody is happy, or you can bake another pie for the six newcomers. You have now bumped up against the Law of Pies.

Apparently, lawmakers do not understand the Law of Pies. You cannot satisfactorily feed six more people unless you have additional pie. You cannot just redistribute the pie you have to more people, you need more pie. The same is true for government spending.

Whether or not you agree with the spending on TARP, Auto Bailouts, Stimulus, Cap and Trade, ObamaCare, and the countless other spending priorities of the liberal agenda, there can be no doubt in anyone's mind that there is insufficient Federal revenue to slice up to handle all of these new and expanded spending programs. There just ain't enough pie.

Liberals would say that the answer is simple, "Let's tax the taxpayers more and increase the Federal revenue." Nice try. There is a glaring problem with this approach, the Law of Pies stands in the way.

By taxing more, are we really increasing the size of the pie? Show me one main-stream economist (liberal or conservative) that does not agree with the proposition that if you take disposable income from people in the form of taxes, they react by investing and spending less money. The decrease in spending results in a decrease in the national GDP (the overall measure of the value of transactions in goods and services). So, while the Federal pie gets bigger, the GDP pie gets smaller at approximately the same rate. The size of the overall pie remains the same. Remember the reason for wanting the Federal pie to get bigger? It was so more people can eat the Federal lemon meringue. And like our example above, we end up trying to feed 12 people at the Federal dessert party with an overall GDP pie that formerly served six.

In the 1970's, Art Laffer proposed that "[t]he basic idea behind the relationship between tax rates and tax revenues is that changes in tax rates have two effects on revenues: the arithmetic effect and the economic effect." Simply stated, the arithmetic effect says that as tax rates go down, revenue goes down, and as tax rates go up, revenue go up. Superficially, this seems to make sense to everyone and it is the primary justification used by liberals when establishing tax policy.

Laffer's breakthrough is the concept of the economic effect. Laffer explained that if tax rates are lowered, people will act in their best self-interest. They will earn, invest and spend more money since the government would not be raking it in the form of taxes. This growth in consumer wealth, under the right conditions, increases the amount of money subject to taxes and, under the right circumstances, may actually INCREASE the amount of revenue to the government. The overall GDP pie gets bigger, and government receipts go up. Laffer's theory has been tested three times in modern history. Tax rates were lowered in the mid-20's, the early-60's and the mid-80's. All three intervals were times of significant growth in government revenues. Only profligate spending by legislators cause problems resulting in a deficit and its cousins, inflation and recession.

In 1993, Kurt Hauser, a San Francisco economist, offered an idea now known as Hauser's Law. Based on decades of data, Hauser observed that no matter what the tax structure, no matter how high or low the tax rates are, Federal revenue is about 19.5% of the national GDP.

Surprising?

Not really. The rises and falls in GDP correspond to the rises and falls of the amount of money subject to taxation. If more money is available to be taxed, the government will have increased revenue, as the GDP falls, government revenue falls. This observation is way more than just a restatement of Laffer's ideas.

Hauser's Law sends a strong message to legislators. It doesn't matter what the tax rate is, the government will generate revenue of about 19.5% of GDP. If legislators choose policies that decrease GDP, there will be less overall Federal revenue. If they choose policies that increase GDP, there will be more Federal revenues (Let's not even talk about fiscal policies of spending more than you receive, or the priorities of those expenditures.).

The long-standing economic assumption of Laffer and others is that people act in their own best interests and that GDP will rise and fall as a function of the environment established by the government. It is clear that the more money that remains in people's hands results in more money available for government to tax, and the higher the available Federal revenues. If spent wisely, sufficient revenues are available for the necessary operation of government.

People like investors, and businessmen, entrepreneurs and inventors create wealth. It is these people, spurred on by innovation and consumer spending that control the size of the pie. Government does not create, it redistributes. Government does not bake pie, it slices up what is available. Government consumes pie, and consumes it with a voracious appetite.

Legislators must realize that no matter what the tax rate, they will have only about 19.5% of GDP in Federal revenues to spend. Any policy (on taxes or other priorities) politicians make that reduces GDP (like the Nixon Wage-Price controls and the Obama Cap and Trade proposal) shrinks the pie and ultimately hamstrings politician's ability to push their political agenda, no matter what it is. The bigger the agenda, the more revenue needed and the more economic growth must be stimulated. Our lesson here is that if you want government to spend money, you must want the government to create an environment of incentives that spur economic growth.

There is absolutely no evidence that Obama and the Democrats in Congress have an understanding of these simple economic concepts.

Democrats are feasting on a large menu of their own creation (whether or not you agree with the selections), and it would seem they demand a piece of your pie for dessert. They obviously don't know they need to get in the heat of the kitchen and bake more pie. They need to limit the amount of people at the party, as well as institute pro-growth initiatives. It's the Law of Pies.