UNSUSTAINABLE
How Big Government, Taxes and Debt are Wrecking America
James E. MacDougald
Marsden House Publishers
UNSUSTAINABLE How Big Government, Taxes and Debt are Wrecking America
James E. MacDougald
All rights reserved. No part of this book may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording or by any information storage and retrieval system, without written permission from the author, except for the inclusion of brief quotations in a review.
Copyright © 2010 by James E. MacDougald
First Edition, 2010
Although the author and publisher have made every effort to ensure that the information in this book was correct at press time, the author and publisher do not assume and hereby disclaim any liability to any party for any loss, damage, or disruption caused by errors or omissions, whether such errors or omissions result from negligence, accident, or any other cause.
Published in the United States of America
10 9 8 7 6 5 4 3 2 1
ISBN: 978-0-615-37368-3 (softcover)
ISBN 978-0-615-37644-8 (ebook)
ISBN 978-0-615-38158-9 (hardcover)
Library of Congress Control Number: 2010907944
Cover design by Bryson Hale
Acknowledgements
The press is often pilloried for being biased or unfair, and there are those who believe the day of print media has passed. Most Americans seem to rely on quick sound bites on television or on talk radio for their “news.” But where would we be without the intrepid reporters who go behind the scenes to tell us what lies hidden in the background and without the newspapers and magazines that bring those stories to light?
There would be no “UNSUSTAINABLE” book and no Free Enterprise Nation were it not for the story first told by Lucy Morgan and the St. Petersburg Times, or without the articles in Forbes magazine, or for the continuing reportage by the Wall Street Journal. We take these things for granted, and we shouldn’t. We read a story and move on, enlightened by the discovery and reporting, and sometimes even infuriated by the point of view. But we learn things that we must learn, and we are richer because of it. So…here’s to you, Lucy Morgan, and to the St. Petersburg Times! And to Forbes, and to the Wall Street Journal. And to Chris Edwards at the Cato Institute and Andrew Biggs at the American Enterprise Institute, and to the entire team of scholars at the Tax Foundation.
The book-writing experience tested my fortitude and that of my beloved wife, Suzanne. She allowed me to “head to the office” seven days a week for 8 months and supported me, without complaint, all the while. And it tested the fortitude of all those who supported the creation of this book, including Paul Watson, Bryson Hale, George Panagopoulos, Kathleen Mott, Debbi Gilmer, Jacky Tymon, Chris Erickson, Jo-Lynn Brown, Rebecca Stiteler, Jeri Risin, Noah van den Berg, Noelle Detko, Michael Symon, Gavin Scott, Bridget Smeltzer and Linda Brackett, each of whom had a role to play in the production of UNSUSTAINABLE. Thank you!
Most of all, I want to acknowledge the efforts of my editor, research manager and critic, Donna Parrey. Her unbelievable ability to deal with my occasional frustrated rantings while working under tight deadlines that she never failed to meet was a wonder to observe. Thank you, Donna!
Jim MacDougald
St. Petersburg, Florida
June, 2010
Contents
Chapter 1: Redistributive” Government vs. the U.S. Constitution
Conditions That Set the Stage for Absolute Government Control
The “Welfare Clause”
The “Commerce Clause”
Government’s Multitude and Swarms
The U.S. Department of Energy—What Does It Do?
The U.S. Department of Education—Unconstitutional
Government Is Out of Control
Chapter 2: Private Sector Dying + Government Thriving = the “Jobs Squeeze”
Labels: Private Sector / Public Sector
Fewer Jobs in the Private Sector
Less Pay Earned by Private Sector Workers
The Jobs Squeeze
Jobs: Here and Abroad
Chapter 3: Disparity of Public Sector / Private Sector Pay and Benefits
The Public Sector Tends to be Unified While the Private Sector is Not
The Recession and Economic Downturn Did Not Affect Pay of Federal Workers
A Closer Look at Government Generosity Towards Its Own
State and Local Government Pay/Benefits Disparity
Unsustainable—and Immoral
Chapter 4: Hiding Costs from Taxpayers
The Beginning of the Divergence of Accounting Disclosure
Government Made Up Its Own Rules
The Pension Liability Ponzi Scheme
Getting to the Real Numbers
Exposing Flawed Accounting Practices
Public Sector Pension Assumptions Are Not Realistic
The Time to Challenge is Long Overdue
The Hidden Costs of Free and Subsidized Health Insurance
Chapter 5: Creating a Dependency—The “Nanny State”
Free Enterprise and Socialism Don’t Mix
Public Sector Unions
The “New Socialism” and a Growing Dependency
Two Kinds of Taxpayers
Chapter 6: Social Security: A Crisis within a Crisis
The Baby Boomer Nightmare
Dashed Expectations for 80 Million Americans
“GenX” Public Sector Retirees Add to the Burden
Two Classes of Retirees—Rich Public Sector and Poor Private Sector
Chapter 7: The Health Care “Reform” Debacle
Is the Problem “Health Care” or “Health Insurance”?
Defining the “Uninsured”
The Constitutionality Issue
Congress Needs to Get Its Priorities Straight
Government Meddling Caused the Problem in the First Place
What if Homeowner’s Insurance Worked Like Health Insurance?
Who Should “Ration” Health Care?
How Government Created the Health Insurance/Health Care Mess
Congress Strikes Again
Insurance Carriers Adapt
Monopolies, Market Power and Restraint of Trade
Hospitals in an Untenable and Unthinkable Position
Congress Could Act, but Doesn’t
No One Knows What Health Care “Costs” Really Are
Unscientific and Random Sampling—Yet Telling Examples
Steps That We Must Take
Tough Medicine to Take, but the Alternative is Unthinkable
Chapter 8: Unions: The Allies of Big Government
Unionization of the Public Sector
Pro-Union Legislation and Presidential Executive Orders
Executive Orders Coerce Unionization
Forced Unionization of Daycare Providers
Employee Free Choice Act (H.R. 1409)
Pro-union Campaign Continues
Unions Represent All—Whether They Want It or Not
Unions Should be Local and Independent
Chapter 9: Unrestrained Spending, Debt and Taxes
State and Local Deficits are Unsustainable, Too
The Stimulus Wasn’t Stimulus—It Was “Pork”
A “Stimulus” That Could Have Worked
Government Takes Over and Keeps Spending
Taxes, Taxes, Taxes
Corporations and Businesses Get Crushed, Too
“No Tax Left Behind”
When a Tax Is Not a Tax
Who’s Got $125 Trillion?
Chapter 10: Capitalists, Profits and Demons
The Demonization of Profits
High Corporate Taxes Hurt Us All
Many Non-Profits are Big Businesses—But They Don’t Pay Taxes to Support Our Economy
Elected Officials Demonizing Capitalism
The Audacity of Hype
Who Gets Demonized? And Who Doesn’t?
Chapter 11: Back to a Sustainable America: Unleash the Private Sector
We Must Eliminate “Fear of Government”
89,000 Taxing Authorities Is Too Many!
Rein in Government and Unleash Free Enterprise
About the Author
Appendices
I.Text of The Declaration of Independence
II. Text of The Constitution of the United States
III. Text of The Bill of Rights
References
Our nation is on an unsustainable financial path…and America is rising in protest. Millions of citizens are questioning and challenging the right of the federal government to interfere more and more with the rights of states and individual citizens. America is rising against the unsustainable levels of spending, deficits and debt at every level of our public sector: from school districts to cities, counties to states, and to the federal government itself. America is rising to assert that its Constitution means what it says. And America is rising to reassert itself as the world’s most prominent bastion of absolute individual liberty and personal freedom, and as a land of unfettered free enterprise where the people control their own government.
It will take the bravery of many to preserve and protect what our Forefathers fought and died to leave us—a permanent legacy of enduring personal freedom. We are facing a transformative time in our history. A citizenry motivated to protect its own birthright is facing the forces that wish to change and employ strained interpretations of our Constitution, allowing government to assume unprecedented power over us all. It is a contest that will be fought at the polls and in the courts, not in the streets, because our democracy still allows each of us to be heard, and still peacefully responds to the will of the people. The battle will nonetheless be a fierce one because so much is at stake.
Like the Minutemen of 1775, citizens across the nation are rising to say that there’s a limit to the authority that we will allow our elected governments to assert over us, and I’m proud to be one of them. How and why did a retired entrepreneur and business executive step forward to lead a fight to preserve free enterprise in America? It certainly wasn’t planned to work out that way. It all began in early 2009. In the closing days of 2008, an article by Lucy Morgan appeared in my hometown paper, the St. Petersburg Times. The article disclosed that huge pensions were being provided to public sector employees in Florida and double dipping was permitted. In other words, retirees were taking pensions and lump sum payments, but then they were immediately returning to work in a salaried job, collecting money that taxpayers never agreed to provide.
I previously had no idea that public servants could collect lump sums as large as $800,000, and monthly pensions of $12,000 or more, and that they didn’t even have to reach age 65 to collect them. Shortly thereafter, an article appeared in Forbes magazine, citing more examples of public sector pensions, including a police officer retiring at $65,000 a year, guaranteed for life, at the age of 42. I began to notice shocking revelations in other publications, too, such as the story of the New York city workers earning $100,000 in overtime in their final year of employment, triggering pensions greater than their salaries. Having spent my working career in the employee benefits area of the private sector, I knew that these practices did not exist for nongovernment workers. I also knew that such huge and early retirement benefits were so costly that they had rarely, if ever, been implemented in the private sector. Could this be why the federal and local public sector bureaucracies were all going broke and seeking more and more taxes for support? Just how widespread, nationally, were these practices, and what do they cost the taxpayers?
As a retired businessman, I was spending my time serving on numerous non-profit boards, working out of a small office with an assistant. Time was a commodity I had plenty of, and I was fortunate to have become financially independent as the result of starting a company, taking it public and then retiring soon after it was acquired by a larger public company. It seemed worthwhile to find out what was going on nationally with public sector pay and pensions. Were the stories I had read aberrations? Or was there a systemic problem? Was anyone even looking?
Within a few weeks I found and hired two recently-minted recipients of Master’s degrees to do some research on a part-time basis. One was given “federal” and the other was given “state and local” categories to research. They were to develop information on the size and scope of public sector pay and pensions, including how they are reported to taxpayers and how they were funded.
Each week, I would meet with my researchers as they brought in stacks of printed research documents. Usually they would begin with, “You’re not going to believe this, but…” And they were always right–I couldn’t believe what they were showing me. In case after case, they identified public sector pay and benefits practices that defied the imagination. There were massive liabilities to the taxpayer that had been created by promising health care and pension benefits to retirees without adequately funding for them. There were tricky and questionable accounting and reporting practices. There were benefits entitlements that went beyond any benefits I had ever seen before in the private sector. And I had been in the employee benefits business for 40 years!
It quickly became apparent that the information we were compiling had not been compiled before in any significant and meaningful way. We were learning that there is a systemic problem throughout the entire United States that has been generally unrecognized because no one had segmented the taxpaying population into “private sector” taxpayers and “public sector” taxpayers. What we had learned, and were constantly expanding our data to support, was that virtually no one had looked at the overall differences in compensation, benefits, reporting and disclosure by performing large scale studies of private sector versus public sector data. The problem was complicated by our discovery of the fact that many people in the private sector don’t really know what the private sector is, and they don’t even realize they are a part of it.
The online Business Dictionary defines private sector as:
“Part of a national economy made up of, and resources owned by, private enterprises. It includes the personal sector (households) and corporate sector (firms), and is responsible for allocating most of the resources within an economy.”
The definition above sounds good at first blush, but America is now an economy where corporations and resources are increasingly controlled by the government, so we looked elsewhere for further definitions. Other definitions include:
“In economics, the private sector is that part of the economy which is both run for private profit and is not controlled by the state.”
“All organizations in an economy or jurisdiction that are not controlled by government, including privately owned businesses and not-for-profit organizations.”
None of the definitions we found fit the U.S. economy today. The government actually does control huge portions of what is usually called the private sector economy, and is actually preparing legislation to control it even more.
Perhaps if we looked for a definition of “public sector,” we could define the private sector by process of elimination? We looked at public sector definitions and found several. These included:
“The public sector is that portion of society controlled by national, state or provincial, and local governments. In the United States, the public sector encompasses universal, critical services such as national defense, homeland security, police protection, fire fighting, urban planning, corrections, taxation, and various social programs.”
A private sector organization, therefore, is one that belongs to the private sector, i.e. is not government owned.
The discovery that the U.S. free enterprise economy may no longer meet the actual definition of a private sector economy gave me a “WOW!” moment. Even standard definitions of the term private sector assume that government does not own or control it. What should we call it when government DOES control it, or major portions of it? We decided to pursue our efforts by using the definition that our government apparently employs in compiling statistical data: Institutions that are formed to serve the citizenry, at the expense of the citizenry, to serve the fundamental needs of the citizenry are the “public sector.” That includes all governments at every level, and public education. Everything else, to our federal government, is considered the private sector.
What we learned in our research is that the public sector is using the taxing authority that we gave it in ways that are extremely detrimental to those of us who formed the public sector entities in the first place. It became apparent that information this important needed to be shared with the generally uninformed businesses and taxpayers in the private sector. These private sector taxpayers are unknowingly providing huge disparate pay and benefits to public sector employees, and supporting programs initiated by the public sector to engender support for themselves–many of whom paid no taxes or were paid with tax dollars in the first place.
I knew it would be a difficult job to try to continue to amass and summarize the needed information and then to get it to the national media and directly to businesses and their employees in the private sector. It would take dedicated, full-time researchers to search for, evaluate and summarize examples and relevant data. It would take significant resources to get the message out. More importantly, it would take an organization that could unify businesses and individuals in the private sector to exercise their rights and effect changes necessary to level the playing field between private sector and public sector workers. Such an organization did not exist, so we started one. The Free Enterprise Nation (FEN) was established in April of 2009. Its mission would be to educate, unify and advocate on behalf of the broad economic interests of the private sector…the “free enterprise” portion of our economy.
While looking for more suitable offices for the new Free Enterprise Nation, I hired the first of 10 full-time researchers (growing to our present staff of 18) and information technology (IT) people to begin building our database of information. Gathered around a table in the small conference room adjoining my office were four researchers and our database developer, with computers and work papers all crammed at the same table. As our researchers began delving more deeply into pay and pension practices of public sector entities in various cities, states and school districts and those at the federal level, I would frequently hear the loud exclamation of “OH…MY…GOD!” or sometimes a softer “oh my God” as a researcher uncovered yet another piece of shocking information.
We were learning that pay and benefits disparity was not an occasional aberration, but that these disparities were virtually everywhere we looked. It might have been the drivers training teacher in Illinois earning a salary of $171,000 a year, eligible to retire at over $100,000 a year at age 59, with guaranteed 3% annual increases and free health insurance. Or it might have been the discovery that the largest public sector pensioner in California had a pension of $500,000 a year. It might have been the social workers in New York who were routinely earning overtime payments that tripled their total base pay, providing them with incomes of $200,000 a year and huge pensions. We began referring to these discoveries as “OH, MYs,” labeling them as “OM” in our growing database. They went on…and on…and on.
The developing story was getting more and more complex. One discovery led to another and still another. As more and more pay and benefits disparity was uncovered, so were the accounting practices used to account for these benefits plans. And so were the misleading reporting practices occurring at every level of government including school districts, towns, cities, counties and states. Our discoveries included not only the pay and benefits entitlement provided to public sector workers, but also led to the discovery that the federal government misleads Americans about how they pay for and fund Social Security and Medicare. We saw the huge impact of public sector unions, and how they have created a “money pump” of taxpayer dollars paid to the public sector employee, then deducted as union dues and then provided by the unions as political contributions to those who support even more pay and benefits to public sector workers.
Constant references to the U.S. Constitution required us to reread the Declaration of Independence, the Constitution and the Bill of Rights, and to seek out and read books and articles written by constitutional experts. We began finding numerous research reports that had been prepared by think tanks dealing with the rights of governments and with looming and unsustainable government deficits and debt. We found that the creators of these reports had serious concerns that they agreed needed to be immediately acted on by elected officials. However, most are not permitted to engage in advocacy since they are 501(c)3 organizations the IRS says may educate but not advocate—so these reports have not been widely disseminated. These think tank reports are occasionally referred to in the Wall Street Journal or other business and economic publications, but they seldom reach the typical man and woman in the street.
Numerous books have appeared on the subject of the American economy. The problem is most are not relevant to average Americans who don’t often chat about GDP (gross domestic product) and the significance of unfunded liabilities over dinner. They must rely on quick “sound bites” in the electronic media, headline articles in local papers and on their elected officials to do the right thing for them. What they rarely hear about is the concept of government as a “redistributor,” that is, a government that takes from them and gives to someone else.
America currently has “redistributive” governments at federal, state and local levels that employ their taxing powers to benefit themselves and their own public sector employees. They have redistributed so much to themselves and their own employees that tax revenues can no longer support the pay and pensions that they’ve promised themselves.
Key elements of the current financial crisis encompass:
Redistributive public policies that violate the Constitution.
Unfunded federal entitlement programs like Social Security, Medicare and the recently—passed health care reform legislation.
Pay disparity and unfunded retirement plans for military and civilian employees.
Pay disparity and unfunded retirement and health care programs for nonfederal public sector employees.
Unrestrained and irresponsible spending and debt at every public sector level.
The reliance on unionization of the public sector and coerced unionization of the private sector providing financial support to elected officials who will advance the redistribution cause.
The relentless demonization of corporations and individuals in the private sector and of any person(s) who oppose redistributive or unconstitutional public policy.
The combination of these factors has built a huge dependency, funded by the unknowing private sector employers and employees. Combined, they represent a clear and present danger to the survival of free enterprise and the personal liberty that comes with it. One cannot have true individual freedom and self-determination in a redistributive state. If individual achievement and risk-taking cannot be rewarded, they will not be employed.
Our research has convinced us that there is an ongoing struggle for political and economic control of the nation. It is a “cold war,” with the eventual outcome determining whether the United States remains a free enterprise economy or becomes a social welfare state. The two are incompatible. On one side are the redistributors, consisting primarily of an increasingly unionized public sector and other beneficiaries of government support. On the other side are those who make up an “America Rising”: those who insist on personal freedom, accept individual responsibility and demand the right of self-determination.
The Free Enterprise Nation launched its story in September 2009 with a full-page ad in the Wall Street Journal saying “We Are The Private Sector. And We Have Had Enough.” We started sending tens of millions of emails, providing data to the print media and appearing on radio and television to tell the story about pay and benefits disparity, and of the huge liabilities that have been hidden from taxpayers. Stories began appearing almost everywhere. FEN’s huge database, freely available to the press and public, was providing fodder and direction for the press, the media and for activist organizations.
Remarkably, and in spite of the dearth of information that is provided by governments to taxpayers, people across the nation have started to rise up in protest of uncontrollable government spending and debt at every level. From the Tea Party, to groups protesting at city halls and state capitols, to armies of talk show host followers, millions of Americans know that something has gone badly wrong. They don’t have all the details, but they know that their future and the futures of their children and grandchildren are at stake. They are clearly motivated, but to be truly effective they need all the details to know exactly what it is they must seek to change. Most of all, they need to be unified.
We’ve seen an increase in activism by the Tea Party and other grass roots organizations. But what, exactly, do they stand for, and what are they trying to accomplish? They are obviously concerned about national deficits and debt, and fear the inevitable increases in taxes. But what, specifically, does that mean to each of them? It is heartening to see so many Americans expressing their rights of free speech, gathering to protest the dominance of big government. But where is the specific platform? What, specifically, do they all agree on? Is this “movement” a unified and coherent group, or is it a gathering of people who are embracing a generic message that is all-too-similar to the “Hope” and “Change” messages of 2008? Ambitious politicians naturally use the opportunity to speak before crowds of right-leaning activists in hopes of garnering their votes, but are their messages to these crowds so generic that no one REALLY knows what they stand for. Are public sector employees protesting side-by-side with private sector employees (or those who are unemployed) at Tea Party events, who are likely to part ways sharply when they read this book?
Many people will support a campaign or issue if it defines itself so broadly that everyone thinks that it embraces their own personal views. But when specific definitions on issues are presented, splintering inevitably follows. What, then, must be done to create a movement that consists of supporters who know EXACTLY what it stands for and wants to accomplish? Obviously issues need to be defined very clearly, and the campaign must have very specific goals and aspirations.
We discovered, in the months after launching FEN, that in spite of our efforts only small portions of the total story were being told. The press tends to focus on the “hot topic” of the day. They cover it for a few minutes then move on to what is happening with the latest Hollywood divorce scandal. It seemed that more coverage was given to the Tiger Woods apologies than to the fact that national debt and unemployment are at unprecedented levels, with no end in sight. Two or three minute interviews on the national media don’t permit the disclosure of the varied and complex issues related to the problems that private sector taxpayers are facing. The impact of a myriad of public policies, at every level of government, was being overlooked. Pay and benefits disparity, and the unfunded and hidden liabilities associated with them, are only one part of a much larger national problem that is still generally unrecognized. As a result, attempts to define and “fix” the problem are not focused on the essential steps we need to rein in our out-of-control governments at every level.
UNSUSTAINABLE is intended for the average American. It is not written by or for economists. It is a ground-level overview of the many ways that employees in government and public education have been enriched at the expense of private sector business and individual taxpayers. Government and public education sectors use their right to tax in order to feather their own nests.
The result has been the creation of a growing privileged class with an insatiable appetite for more pay and more benefits that can only be satisfied by more taxes from the private sector. If left unchecked, like a parasite that devours its host, the public sector will destroy the private sector, resulting in government control and ownership of the entire economy. The United States of America will become a social welfare state, and the world’s last bastion for free enterprise will fall.
The free enterprise nation needs information. They have to know why government spending and debt is out of control, and what they can do about it. The average person can easily understand, “If I’m paying taxes to give someone else more than I can ever have myself, something has to change, and it’s in my best interest to make that change.” They can also easily understand that if their own governments are hiding vital information from them, and that they are being impoverished because of it, they had best do something about it right now. WHY it is the way it is, and HOW voters can effect the right changes in public policy to fix it requires a deeper understanding of the complex series of issues.
The nation needs to know how we have allowed ourselves to be placed in a financial position that virtually every analyst and economist says is “unsustainable.” Americans need to know how our government went wrong, and what to do to make it right. That is the purpose of this book.
“Clearly, we are on an unsustainable path.”
—John C. Goodman, president and CEO of the National Center for Policy Analysis, Daily Policy Digest. May 21, 2009
“Redistributive” Government vs. the U.S. Constitution
A “redistributive” government is one that extracts tax dollars from one citizen to give to another. We see it when tax refunds are given to taxpayers who paid no taxes, and when taxes are taken from some to provide rewards to others who support the government in power. We see it when the federal government determines that taxes should be taken from citizens in one state and given to the government of the citizens in another state, and we see it in national programs like Social Security and Medicare.
Once a redistributive government acquires power, it can maintain power by using its taxing authority to take from those who do not support it and give the money to those who do. A redistributive state is not necessarily a socialist state. Government does not need to own all property and business to be a redistributor. It can be a capitalist democracy, relying on the votes of the recipients of redistribution to retain control via officials elected by those receiving the benefits of redistribution. It can be a capitalist democracy with tax policies that allow it to extract money from opponents to provide to supporters.
The United States of America is becoming a redistributive nation. The only possible long-term result of a continuation of redistributive policies is a diminishing number of individuals and businesses from whom taxes can be taken, and an increase in those who depend on government for support. Ultimately, the entire nation will be forced to depend on government and a transition to a true socialist state will have occurred.
Most Americans are aware of the staggering deficits and debt faced by the federal government and by their own state. “Lost in translation” is recognition that these enormous deficits and debts have been caused largely by a relatively new phenomenon—the redistribution of tax dollars from taxpayers to those employed by government and public education.
There are 89,000 public sector entities employing 22 million Americans who are supported by taxes, fees and tolls. While issues related to federal spending and debt tend to get at least some national coverage, problems at the state and local level are treated as local news, and are rarely reported by the national press and news media. The result is that most Americans do not know there is a nationwide problem in almost every element of the public sector, brought about by providing unaffordable levels of pensions and benefits to government and public education employees. Most don’t know that these problems directly affect them even if the financial crisis exists in another city, county or state. The reason is that the federal government and state governments tend to provide financial support to public sector entities with financial problems. This means that income taxes paid by Jeff in Alabama can end up supporting a ridiculously large pension for John in California. Or that property taxes paid by Amy in St. Petersburg can end up supporting a huge pension for Carol in Clearwater.
For the redistributors to win the war for control of the economy requires a degree of governmental control that is unprecedented in American history. Control can be taken by force as it was in Russia in 1917, or it can be elected into power as the savior of the economy, as was the case during the 1930s depression in the United States and in Germany.
History shows that voters often will enable a one-party strong central government and a significant abridgment of individual rights when an economy is under severe economic duress. Such an enabled government can choose to move quickly to alter the laws, the economy and even the society in a permanent way. For government to achieve such control without significant opposition, several conditions must first be met.
Conditions That Set the Stage for Absolute Government Control
First, a serious and seemingly hopeless economic crisis must exist or be created. This is the key requirement. Happy people in a democracy with a thriving economy don’t voluntarily allow government to interfere with their individual rights. When the economic conditions are the bleakest, the opportunity for convincing citizens to support unusually strong and active government intervention is at its greatest. Government as a “solution” facilitates the voluntary transfer of individual rights to the central government in hopes the government will improve the economic circumstances of its citizens.
Second, for a strong single party central government to gain power, a large portion of the population needs to be either employed by government, dependent on government or in need of government support. These dependents will willingly grant more power to the government because it is likely to improve their personal circumstances. The larger this group can be made, the easier it is for government to use the “democratic process” to increase its own power.
Third, to gain popular support for the government to engage in unprecedented interference with individual rights, “demons” must be identified as the cause of the problem, creating a basis for unification of a majority of voters. The premise is simple: If something is badly wrong, someone is to blame for it, and government will find them and deal with them. In the Russian revolution the demons were the bourgeoisie and the aristocracy. During the U.S. depression it was Wall Street, wealthy industrialists and big business. In Germany of the 1930s, it was the allies of World War I who imposed huge war reparations charges on Germany, and it was the Jews.
Fourth, government must move quickly to change existing laws that could impair its strength or its growth. It must use the “crisis” and a unified opposition to the defined demons in order to gain popular support for abridging individual rights in favor of “the good of the people.” Once total power has been achieved by the central government, the democratic process is no longer required.
In the United States, the preconditions for the potential establishment of absolute control by the central government over its citizens have been met:
The first precondition is met. An economic crisis exists, and is expected to continue. The U.S. has dealt with crisis upon crisis for the past decade. In 2001, it was the September 11th attacks and it was the “tech bubble” burst, followed by a decade of a generally flat stock market and an enduring fight against global terrorism. In 2008, it was the collapse of the financial and real estate markets. In 2010, it’s hopeless government debt at virtually every level and continuing high levels of unemployment. One-fourth of American homeowners have mortgages greater than the value of their home. Social Security and Medicare are broke. The U.S. Postal Service is failing financially. Fannie Mae and Freddie Mac have trillions in unsecured risks the government has created and must support. If additional justification is needed by the federal government to capitalize on a continued “crisis,” additional problems include the “need” for the federal government to help the states with their unsustainable debt, the need to control the “demons” in the private sector, the need to deal with uncontrolled borders and the illegal immigration crisis, the need for domestic security and overseas military operations and the need for government to intervene strongly to prevent global warming (or climate change).
The second precondition has been met because government is enlarging the “dependency” population. More than 22 million Americans work for government or public education in the public sector. Approximately 47% of working American tax-filers pay no income taxes. Millions more exist on government-provided welfare. Millions are receiving government-provided unemployment benefits. Millions of individuals and companies rely on contracts with the government for their living. Millions of government and private sector workers are paying dues to unions, who provide 95% of their financial support to the political party that favors redistribution. And every political candidate and elected official is dependent on raising funds for political campaigns, money that unions provide to pro-redistribution candidates by the bucket-load.
The third precondition has also been met. “Demons” have been identified and are routinely attacked by federal government officials and the president of the United States himself. The demons are “profits,” capitalists, Wall Street, insurance companies, investment banks, greedy doctors, “fat cats” and “the rich.” The demonization message has broad appeal to union members and union organizers, to those who don’t pay taxes (most students, welfare recipients, low-income earners), to most public sector employees and to everyone who feels that they should get their “fair share” via a government reallocation from others to themselves.
The fourth condition has also been met. Government has moved quickly to strengthen its power by capitalizing on current economic difficulties. The political advisor to President Obama, Rahm Emanuel, has been quoted as publicly stating, “You never want a serious crisis to go to waste.” Economic turmoil and the accompanying social unrest have justified the central government in taking over the automobile industry and much of the financial sector. Through government-sponsored enterprises (GSE’s) Fannie Mae and Freddie Mac, it has taken control of the mortgage financing market, gaining support from more and more voters as it guarantees unsustainable low down payment, low-interest loans provided by the central government. It has enabled the president to appoint 26 “czars”, unelected officials not confirmed by Congress and reporting directly to the president, to oversee almost every aspect of American life. It has allowed the president to sign Executive Orders requiring unionization of the private sector with no opposition from his majority Congress.
The citizens who formed our country never ceded power to the government, allowing it to control our entire economy. The government’s power to levy taxes is based on the limited authority given to it by the people. The government was never given the authority to regulate personal behavior, other than to create and enforce laws designed to uniformly protect all citizens. The federal government has used its taxing authority to regulate personal behavior, and to force compliance by citizens in ways that were never intended when the Constitution and Bill of Rights were ratified.
We cannot address the issues that affect the survival and prosperity of the American free enterprise economy, and the preservation of “the American dream,” without first looking at the authority that was given to our federal government by the people in our Constitution, Bill of Rights and amendments. (The text of these important documents—the Declaration of Independence, The Constitution of the United States and the Bill of Rights/Amendments—are included as Appendices.) We hear little about the private sector vs. the public sector because they are not terms commonly employed by elected officials or the press.
We do hear about big government vs. small government, and we do hear about federal and state deficits and debt. The nation is currently engaged in a fight between those who want big government and those who want small government.
The debate evolves around a central question:
What power did “We The People…” grant to government when we formed it in the first place?
The role of central government, or any government, has been debated throughout history. In the U.S. the debate ended in a crescendo when the 13 original colonies decided to declare themselves one nation and independent of British rule. The result was the formation of a republic unique in world history. It was a new nation, so it could start from scratch. It was based on a government that would be in place, and remain in place, only if the citizenry willed it to be so. The government itself was specifically limited in its powers by the states and the people who formed it. It was to be a “government of laws, not of men.” Every aspect of federal government power was clearly enumerated and clearly limited, and the separation of powers between legislative, executive and judicial branches of government were intended as a series of checks and balances that could prevent a recurrence of the oppressive conditions the colonies had experienced under British rule.
It’s impossible to address the debate concerning big vs. small government without taking a brief look at the Declaration of Independence and the U.S. Constitution. The Declaration of Independence was an angry document, signed by very brave people. The original signers were fully expecting that they might hang for having signed it. How many elected officials have such courage today?
The Declaration presented a justification for the overthrow of British rule centering on individual rights, on oppressive taxes and on the rights of the citizens to choose their government. A few excerpts from the document, explaining why the colonies decided to go to war, set the stage for the explicit language used in our Constitution, signed 11 years later.
Contained in the Declaration of Independence are the reasons for the action:
“… All men are created equal, that they are endowed by their creator with certain inalienable rights, that among those are life, liberty, and the pursuit of happiness. That to secure these rights, Governments are instituted among men, deriving their just powers from the consent of the governed…Governments long established should not be changed for light and transient causes…But when a long train of abuses and usurpations…evinces a design to reduce them under absolute despotism, it is their right, it is their duty, to throw off such government, and to provide new guards for their future security.”
The Declaration of Independence continues:
“The history of the current King of Great Britain is a history of repeated injuries and usurpations, all having in direct object the establishment of an absolute tyranny over these states.”
The writers gave numerous examples of the “repeated injuries and usurpations.” Here are a few:
“He has erected a multitude of new offices, and sent hither swarms of officers to harass our people and to eat out their substance.”
“He has combined with others to subject us to a jurisdiction foreign to our constitution, and unacknowledged by our laws, giving assent to their acts of pretended legislation.”
“For cutting off our trade with all parts of the world.”
“For taking away our charters, abolishing our most valuable laws, and altering fundamentally the forms of our government.”
“For suspending our own legislature, and declaring themselves invested with power to legislate for us in all cases whatsoever.”
It is crucial to recognize that the 13 colonies each had their own governments. They were attempting to establish a central government that would only be permitted to do those things the newly-formed states could not do for themselves. There was great fear that a newly-formed central government would take power away from the states and their citizens, and establish a ruling government similar to that they were escaping from.
When the Constitution was approved by Congress in 1787, it subsequently had to be ratified by each state. There were many who still feared the new central government would be a replay of royal rule, allowing a diminution of individual and states rights. James Madison, with the strong support of Thomas Jefferson, introduced 10 amendments that were designed to explicitly limit the role of the federal government, and explicitly protect the rights of the individual and of the states. These amendments were essential to obtaining ratification of the Constitution by three quarters of the states. Known as the Bill of Rights, they became effective in 1791.
The “Welfare Clause”
The Constitution, in Section 8, gave Congress the right 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.”
The sentence above has become known as the “welfare clause.” It has been interpreted by some (including Supreme Court Justices!) to imply that it gives Congress virtually unlimited power. Its entire meaning can be changed by selectively choosing certain words and rearranging the sentence to say: “provide for the…general welfare,” rather than reading it strictly as it was written. This was about STATES as well as citizens having rights, and the sentence deals with common defense and general welfare of the United STATES.
You don’t have to be a Constitutional scholar to know that “provide for the common defense and general welfare of the United States” does NOT mean that Congress can do anything it wants to, to individual citizens, thus taking away all the individual rights that are clearly spelled-out throughout the Constitution and Bill of Rights. It certainly does NOT give Congress the right to take from certain citizens and give to others.
The “Commerce Clause”
Section 8 also gave Congress the power to “regulate commerce with foreign nations, and among the several states, and with the Indian tribes.”
Remember this phrase, too. It is known as the “commerce clause” and is used by many to justify Congressional authority to do absolutely anything it wants to. It was originally intended to prevent states from establishing trade barriers to protect their own in-state interests. It says Congress has the authority to “regulate commerce…among the several states.” But Congress has often used that clause to assume power to regulate PEOPLE. The Congress can and often does claim that virtually everything we as INDIVIDUALS see or touch or use is somehow connected with something in another state. That means, to some, the things we see or touch or use are “interstate commerce” and that gives them the right to regulate any individual who sees, touches or uses them. Many in Congress think that this empowers them to tax, require or mandate ANYTHING they want to in order to “regulate commerce among the several states.”
The welfare clause and the commerce clause have been used by various presidents and Congresses to take the power to legislate anything they want. When one party is in power, it has the capability to pass any law it wishes, regardless of what the Constitution says. Everything in the Constitution and Bill of Rights is specifically intended to limit the power of our central government to those specific things that we gave them the right to do. When government overreaches by imposing taxes and regulations that affect our individual rights, we can only rely on the Supreme Court to save us. And, as we shall see, that is a scary thought!
If one reads the Constitution without its amendments, it can appear to grant authority to Congress that can abridge individual and states rights. To make it absolutely certain that Congress’s authority was limited to the things the Constitution specifically authorizes, the Bill of Rights added strong statements as to what Congress could NOT do:
Amendment V. “… nor shall private property be taken for public use, without just compensation.”
This amendment was later impacted significantly by Amendment XVI in 1913, which gave Congress “the power to lay and collect taxes on incomes, from whatever source derived…” Unfortunately, the amendment doesn’t state a limit on the amount of taxes they can impose, but it didn’t repeal or replace the amendment that says that private property cannot be taken for public use “without just compensation.” Presumably that would mean that the income taxes imposed by Congress would provide “just compensation” for all citizens because it provides services equally to all of us. But when they take income taxes from one citizen expressly for the purposes of giving to another, what is the “just compensation” to the person whose personal property (their income) is taken?
It is certainly arguable that when the federal government takes income taxes from a citizen, it is still obligated to provide “just compensation” to the person from whom it was taken. And redistribution to others doesn’t comply with the 5th Amendment. The Constitution and Bill of Rights strictly delineate what Congress can and cannot do. When the 16th Amendment was ratified, it didn’t mean that when we gave Congress the right to collect income taxes, we simultaneously gave Congress the power to take from some and give to others. Neither did it mean that Congress could use their taxing authority as a “penalty” to be applied selectively against those individuals and businesses that they wish to control.
Amendment IX. “The enumeration in the Constitution, of certain rights, shall not be construed to deny or disparage others retained by the people.”
Amendment X. “The powers not delegated to the United States by the Constitution, nor prohibited by it to the states, are reserved for the states, or to the people.”
The last two amendments say essentially the same thing. They were obviously trying to make that point well understood and clear. The point was to restrain Congress from engaging in tyrannical and despotic practices like those that were enumerated in the Declaration of Independence. This presumably includes preventing Congress from erecting a “multitude of new offices”, or sending “swarms of officers to harass our people and eat out their substance,” or to “cut off our trade with all parts of the world,” or “abolishing our most valuable laws and altering fundamentally the forms of our government” or investing itself “with power to legislate for us in all cases whatsoever.”
The key here is to recognize that each state also has laws, taxing authority and its own constitution. The framers of the Constitution and the Bill of Rights wanted a central government that could do only those things that were specifically enumerated, leaving all else to the states and to the people.
Nowhere in the Constitution or Bill of Rights does it say a person has a “right” to food, clothing or shelter, although those are basic human needs. These documents do NOT say that it is the obligation of government to provide any individual with their basic human needs. Rather, our Constitution says that individuals have a “right” to “life, liberty, and the pursuit of happiness.”
In the big vs. small government debate, it is important to distinguish wants and needs from rights. If Congress has the right to tax virtually without limitation, and if it determines that all citizens have the right to food, clothing and shelter (and even the right of getting someone else to pay their doctor’s bills), the natural consequence is a redistributive state…one in which Congress takes from one citizen and gives to another to “regulate commerce” or to “provide for the general welfare.”
The question concerning the right of a government to determine that its citizens, or its own government employees, have rights that require a redistribution from one citizen in favor of another, is not restricted to a question of Congressional authority. Each city, school district, county and state has chosen to distribute services by taxing all citizens to provide a benefit to all citizens. The person who pays $20,000 in income taxes gets the same services as one paying none. The person paying $20,000 in property taxes gets the same services as one paying far less. The key, though, is the basic premise that the services are provided equally to all citizens and are paid for by all citizens. A major step in the redistributive process is made when government takes from only certain citizens and gives to only certain others. In this case, government decides that “for the public good” I will take money from Mary and give it to Ralph. Or even worse, “I will take money from the taxpayer and give it to myself.”
There have been many circumstances when Congress has determined that to provide for the general welfare or to regulate interstate commerce, it can pass laws and/or impose taxes that are essentially redistributions from one citizen to another. And they have used their right to levy income taxes to accumulate huge amounts of money that they can offer to individual states on the condition that the states adhere to federal direction. That is, in essence, bribing a state to behave a certain way, using money taken from citizens in another state. We saw this method employed in Congress when key votes were needed from senators in Louisiana and Arkansas, among others. It was done under the guise of providing “for the general welfare.”
Despite thousands of words intended to protect the rights of individual citizens and individual states, the welfare and commerce clauses have been treated as loopholes that can allow the party in power in Congress, and the president, to interpret what they mean and enact laws accordingly. In the event of a challenge, the Supreme Court (five of nine judges) can decide whether the Congress and the president had the Constitutional authority to do so. Does that mean the federal government can redistribute wealth? The answer, so far, is YES.
Tax rebates to people who paid no taxes, and Social Security and Medicare programs are just a few examples of legislation that does just that. Can Congress and the president create a socialist state if they choose to? The answer, so far, is YES. They have taken over direct control of numerous companies in the past two years. Can they go farther? Of course they can if they can establish one party rule to pass laws and get them signed by the president, and get people appointed to the Supreme Court who support their objectives. It all depends on what the Supreme Court determines the Constitution means when it says, “provide for the common defense and general welfare of the United States” or to “regulate commerce among the several states.”
Thomas Jefferson commented on the general welfare clause in 1791. Here’s what he said:
“They are not to do anything they please to provide for the general welfare, but only to lay taxes for that purpose. To consider the latter phrase not as describing the purpose of the first, but as giving a distinct and independent power to do any act they please which might be for the good of the Union, would render all the preceding and subsequent enumerations of power completely useless. It would reduce the whole instrument to a single phrase, that of instituting a Congress with power to do whatever would be for the good of the United States; and, as they would be the sole judges of the good or evil, it would be also a power to do whatever evil they please…Certainly no such universal power was meant to be given them. It was intended to lace them up straitly within the enumerated powers and those without which, as means, these powers could not be carried into effect.”
—Thomas Jefferson: Opinion on National Bank, 1791. ME 3:148
And James Madison commented on the commerce clause:
“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 the case of the recently passed health care reform legislation, the commerce clause is being used to justify the right of the government to require individuals to purchase individual health insurance. How does the government get interstate commerce into this picture? It says it has the right to regulate anything that crosses state lines. That means the government can claim that all hospitals and doctors use things that cross state lines, and we individual citizens use things that cross state lines (medical equipment, prescription drugs), they can now regulate anything that these things touch, including you. Sound far-fetched? It is, as is the fact that the federal government is also claiming it can tell states what to do.
Currently, 20 State Attorneys General are challenging this claim. Think about that. State Attorneys General suing the federal government for violating the Constitution. That is not an every day event! But it didn’t stop Congress from passing the legislation or the president from signing it into law. Time will tell if the Supreme Court upholds the constitutionality of the new legislation. If they do, it will mean the Supreme Court actually supports the president and Congress in abrogating free choice, self-determination and individual responsibility, and there is no limit to where government can go from there.
Lest you think these are scare tactics, recognize that many of these constitutional questions were raised during the “New Deal” of Roosevelt when he led the enactment of Social Security and other government programs. Social Security was a redistribution of income from those who worked to those who no longer did. Under the “Great Society” of President Lyndon Johnson, Congress enacted Medicare, a redistribution from workers to those who no longer worked. What was clearly unconstitutional was enacted “for the public good,” even though it became immediately clear that those businesses and workers who would have to pay taxes during the ensuing decades were unlikely to get a direct benefit from their contributions. The same questions have been raised again in connection with health care reform, and could lead to the ultimate abridgment of individual rights if the Supreme Court does not rule the legislation unconstitutional.
Roosevelt “ruled” for 13 years, dying in the first year of his fourth elected term as president. In his second term, during the Great Depression, he had overwhelming majorities in the House and Senate. But the pesky Supreme Court sometimes ruled against some of his new programs, one of which included allowing select industries to agree to establish uniform and higher prices, eliminating competition. His solution was to attempt to add five additional Supreme Court justices hand-picked by him and approved by his Congress, so that the Supreme Court would allow ever-increasing federal government authority. In the “Constitutional Crisis of 1937,” he eventually lost because even his political majorities could see their voters getting terribly concerned. He did succeed in getting Congress to agree to provide lifetime salaries to Supreme Court justices even if they resigned, encouraging older justices to leave. By 1941, eight of the nine Supreme Court Justices had been appointed by Roosevelt, giving him four more years of power with a friendly Supreme Court standing by. He succeeded in enacting the national minimum wage law, Social Security and the establishment of numerous new government agencies and programs that exist to this day.
In Lyndon Johnson’s one and only term in elected office as president, with the support of overwhelming majorities in Congress, he enacted Medicare and Medicaid as part of his “Great Society” programs, in spite of constitutionality questions that were raised at the time. And during Kennedy’s “New Frontier” in 1962, he signed Executive Order 10988, giving federal employees the right to unionize. Executive Orders, as we shall see in later chapters of this book, have the force of law yet are never brought before or approved by Congress. It is one-person law-making power, exercised by the president of the United States that most Americans don’t even know exists. By using large majorities in Congress and a sympathetic Supreme Court, a president from the same party can use (misuse?) his assumed right to enact laws with an Executive Order, achieving PERMANENT change. Once established, these programs are almost impossible to undo.
Government’s Multitude and Swarms