Sunday, July 18, 2010

National Malaise, Unread and Hidden Legislative Mandates, and What to Do About Them

As should be obvious, what follows is a statement of opinion. It is my opinion alone, and is not meant to be (and is probably not) the opinion of my law firm, its shareholders, or other employees.

Maybe it’s just, as one of my favorite legal blogs suggested, the Dog Days of Summer, but I’m not feeling too good about our country right now. As the President heads out for yet another vacation in a G3 paid for by the taxpayers, with the First Dog Bo arriving in another private jet, President Carter’s National Security Adviser tells CNN that he senses a growing “malaise” among various segments of the American people. Certainly, no prior administration knows more about national malaise, so these remarks should be taken seriously.

The cause of my personal malaise is that we are living through an unprecedented encroachment on liberty through the enactment of legislation affecting tens of millions of individuals and huge segments of our economy when our elected officials, not to mention the public, do not even know what is contained in the legislation. The clearest of legislation adopted for the best of reasons can have negative unintended consequences. When stealth legislation with unknown provisions is adopted, unintended consequences (at least unintended by those who did not slip the provisions in the bill) are guaranteed. For many Americans, the stealth legislation and unintended consequences lead to feelings of frustration, anger, disenfranchisement, and an ever growing realization that D.C. has become an elitist Never Never Land. Malaise for many is an understatement.

All of this is compounded by the fact that the vast majority of our legislators seem to lack even the most basic understanding of economics. Politicians, including the President and Vice President, believe that government spending creates jobs. In reality, most jobs are created by small businesses (many of them subchapter S corporations or LLCs). These businesses, and their “rich” owners, are in fact (or at least have been) the backbone of our economy.

Instead of creating clear rules and fair and reasonable taxes on small business owners, which would in turn encourage those businesses to hire and spend on new capital equipment (which would in turn multiply employment through out the economy), small businesses and their advisers are left trying to ascertain the effects of national health care and other legislation that was not even read in its entirety by our elected officials before they voted for it. In fact, only now are our elected officials finding out what they enacted. It all brings to mind the old joke about a politician asked to explain his position on a particular issue: "How do I know what I think until I hear what I say?" Some of the recent revelations (and there are bound to be more) will be discussed below.

Further showing their lack of knowledge (or, if not, their blatant willingness to deceive the public) politicians (mainly Democrats) continue to speak of the “rich”not paying their “fair share” of taxes, when the reality is that almost 50 percent of Americans pay no federal income taxes (although they pay other taxes) and households making $366,400 paid about 73 percent of income taxes. Small business owners already pay a huge portion of the tax burden.

Why does unemployment remain stubbornly high? Why does the economy remain stagnant? Because the only certainty is that taxes are bound to increase in 2011. Although this fact may spur a bit of economic activity in the rest of this year, the scheduled tax increases have caused one notable economist, Arthur Laffer, to predict in the Wall Street Journal that a double dip recession next year is all but inevitable. Why? Because people respond rationally to the economic environment in which they find themselves. Laffer explains it better than I can.

In any event, here are some of the recent revelations regarding the healthcare bill or the “financial stimulus” bill that I bet you (and many legislators) did not know about when they voted the measures into law:

First, a 3.8 percent tax on some personal real estate transactions. This was apparently slipped in one of the last versions of the bill. Predictably, it targets the “rich” (individuals making $200,000 per year or married couples making $250,000). It is true that there are substantial exemptions for the sale of a primary residence, but this tax would hit investment property or vacation homes.

This tax has been the subject of substantial publicity from Republican and right leaning news sources in the past few weeks. Some appear to have exaggerated its application.

Democrat politicians and apologists have responded by pointing out that it applies to relatively few real estate transactions.

Nevertheless, the two key points to me are as follows:

a. Why would anyone support any tax increase on real estate transaction in midst of the worst housing-induced recession in history? This tax increase will only serve to further depress the economy in mountain and seaside communities where vacation homes are popular, and where seasonal residents support the local economy and where people are already hurting, particularly on the Gulf coast.

b. Why was this rather blatant tax increase hidden in the minutiae of the Obamacare bill? If it was such a good idea, why was it not out in the open and subject to public scrutiny before it was enacted into law?

Second, tax reporting on all Purchases of “Goods” Over $600. As reported in the Wall Street Journal, beginning in 2013, businesses will have to report any purchase of goods over $600 from any single vendor, including for such mundane items as office supplies.According to the article, National Taxpayer Advocate Nina Olson, who operates inside the IRS, estimates this provision will “will hit some 30 million sole proprietorships and subchapter S corporations, two million farms and one million charities and other tax-exempt organizations.”

This provision is also reported to apply to the purchase of
gold and silver in either coins or bullion. This has caused concerns among coin collectors, in addition to concerns about why the government would be collecting this information.

Again, why was this provision hidden in the bill? Why is it just now coming to light?

Third, an indoor tanning tax. Persons who use indoor tanning salons will be subject to a ten percent tax for each session. This was a legislative hash that was a substitute for the “Botax” (a tax on plastic surgery) that was successfully defeated by lobbying by the medical industry.
This tax has been opposed for the obvious reason that it will probably cost jobs in the tanning business (probably true, see prior link) to implausible claims of racism.

This tax was less under the radar than other hidden tax issues (apparently “tanners” are passionate). Frankly, if someone wants to make themselves look like a tangerine, I find it silly. Nevertheless, one has to wonder which business will be singled out in the next piece of massive social legislation.

Fourth, a mandated obesity calculation for every American. HHS recently issued regulations under the economic stimulus bill that require each American’s BMI (body mass index) to be included on a citizen’s mandated electronic medical record. The electronic records are required to be available on a national exchange – supposedly with adequate security measures – by 2014.

To be accurate, this measure was not hidden in a bill, but was adopted in a regulation. This regulation, however, shows the incredible power that Congress regularly delegates to unelected bureaucrats to adopt regulations that affect all individuals and businesses.

Is the government possessing this information troublesome? To me, it is. First, one has to wonder why the government needs this information. I certainly do not need the government to tell me I need to keep exercising and to lose weight any more than the President needs to be told to stop smoking.

Second, the President just appointed a his former private chef as a “Senior Policy Adviser” (dubbed by one publication as the “
Food Czar”). Is the next initiative telling everyone what to eat? It kind of makes one wonder when the President also recently made a recess appointment of Donald Berwick as Administrator of Medicare and Medicaid Services. Berwick is known as an admirer of the British health care system and for his statements that health care rationing is inevitable. Another effort to avoid scrutiny and to fly under the radar.

If all of this bothers you, the next question is what can you do about it? The first step is to vote out of office the politicians responsible for these legislative power grabs. Politicians of both parties are in the ranks, although the Democrats have more than their fair share.

The second step would be to adopt a “single subject” rule. What is a single subject rule? Many state constitutions, including Georgia’s, have a rule that any legislative bill may only have one subject that must be reflected in the title of the bill. Why do so many states have this rule? The short answer is to avoid the excesses we have witnessed at the federal level in hidden taxes, hidden provisions, and earmarks. Single subject rules also help inform the public of what is being considered and, most importantly, force politicians to vote in the open on what they are imposing on the public.

Single subject rules have been criticized as inhibiting the ability to legislate and compromise. This criticism can be easily answered. What a single subject rule prevents is slipping sleazy back room deals, wholly unrelated to the subject at hand, into the fine print of legislation. Further, many would dispute that less legislation is a bad thing. Few would debate, however, that clearly defined legislation, made in the open and subject to input from the public, is good thing.

Single subject rules have also been criticized as often having been observed in the breach by state courts. There may well be truth to this observation, but that is a flaw more in the application of the rule, not in the substance of it.

Of course, a rule would not be necessary if our politicians acted responsibly. That, I fear, is not likely to happen. It is almost comical how, when a party comes into legislative leadership, the speaker or majority leader announces an intention to run the most open and ethical Congress ever. Unfortunately, the words politics, open and ethical often do not go together.

Admittedly, I am looking at these issues from my own political views, which can be summarized as liberal on social issues that do not involve spending, fiscally conservative, and internationally oriented. Nevertheless, anyone should be concerned. Political winds change. During my lifetime, we have had both parties in the White House multiple times, and control of the Senate and the House has also changed both ways.

If you are happy about how things are going now, you should reflect on how you will feel when and if the opposing party rams through a hidden agenda. Regardless of which change you believe in, it ought to be out in the open when our representatives vote on it.

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