The core argument is that lower income Americans (the 47% who pay no income tax today) would end up paying more in taxes, and the taxes on goods and services would unfairly be placed on them.  The logic being that lower income Americans have less disposable income, and therefore have less choice in whether and what to buy.  A tax on goods would therefore be borne by these currently untaxed Americans.

Although Cain hinted at it, he fails to make the most compelling counter argument to the regressive tax charge: All Americans are already paying indirect taxes through the taxes embedded in the price of goods and services they buy.  To be fair, Cain mentioned embedded taxes On Meet the Press, but only to argue that prices will drop under his plan (a fair point, as well).  He has not yet argued that the tax is not regressive because the high corporate tax rate is already embedded in the cost of goods and services.

For example, if a grocery store sells a loaf of bread for $3, embedded in that price, is the following costs:

1. farming and transporting the wheat, eggs and milk used to make the bread;
2. milling and re-transporting the wheat to make flour;
3. baking and packaging the bread;
4. warehousing and transporting the bread to the store; and
5. stocking the shelves, paying the cashier and the cart guy, and the night janitor, etc., who all work at the store.

At every level, from farmer to mill to baker to wholesaler to store, the relevant business has to pay a 7.65% payroll tax on all employee wages, plus a 35% tax on the business’s profits.  As many conservatives have pointed out, those taxes are only paid by the companies in a technical sense.  In a real sense, they are passed on to the consumer in the form of higher prices.

If it costs $1.00 to produce the bread, the baker will sell it to the wholesaler for about $1.30, making a 30% margin.  That margin covers the profit the baker needs to make, net of taxes.  At a 35% tax rate, the baker would pay 10.5 cents on each loaf of bread, meaning the baker nets a profit of $.195 per loaf.  (If the taxes are reduced from 35% to 9%, the baker could sell the same loaf for $1.21 and make the same profit after taxes–this does not count the cost of employer paid employment taxes.)

That tax effect is multiplied at each level of exchange.  The baker already takes on the farmer’s and mill’s taxes and grosses up his price to include those costs in his own profit margin.  So each merchant’s margin includes some multiplier of the taxes already paid at each prior level.  If we assume a profit margin of about 20% for the store, 10% for the wholesaler, 30% for the baker, and 10% for the mill and the farmer, the embedded taxes will add up to over $1.00. (Even if you assume an across the board 10% margin, $.62 of the $3 is due to taxing of profits at each level.)  Put another way, if the corporate tax rate were 0%, bread would cost about $1 less.

While it may be true that some Americans will pay more taxes directly to the U.S. Treasury, the critics who make this argument are not considering the indirect taxes those Americans are already paying.  The proper counter argument for Mr. Cain is that Americans already pay consumption tax, they just don’t realize it.  Under 9-9-9, Americans would have a more transparent view into their real tax burden.

Of course, as the Wall Street Journal points out, the real problem with 9-9-9 is that it will soon become 15-15-15.

Two other facts you might find interest: (1) the company is in an industry that struggles to break even and (2) the company’s auditors cannot honestly say the company will be in business next year.  Investors have put in $1 billion, and the company is now desperate for cash.  Would you be willing to loan the company $535 million–more than half of its equity investment?

To put that in perspective, assume someone you know put up $100,000 for a Subway franchise.  He has lost money for four years straight, sells sandwiches for $5 when they cost him $15 to make, his bank and his accountant say he has no chance of staying in business.  Would you loan him $53,500 to open another store across town?

If you think this is a “good bet,” please contact me for a great deal on a slightly used, but historic bridge in lower Manhattan. This company (in case you’re wondering, it is the infamous Solyndra, circa 2010) is a stinker. But even with the benefit of hindsight, President Obama has no regrets over Solyndra. Obama, even now, defends the $535 million loan guaranty as a “good bet.”

This is why central planning will always fail.  Not only are politicians not equipped to pick winners and losers, their hindsight is 20/2000–qualifying for legal blindness.

If you think this is an isolated incident, think again.  Dick Durbin was warned repeatedly that his amendment to the Dodd-Frank bill would lead to increased costs for consumers.  When those predictions become reality, he impotently tells consumers to bank elsewhere.  As if the country’s smaller banks are less susceptible to his cost shifting than Bank of America.

Ignorance may be bliss, but it’s also the Democratic Party’s economic platform.

You’ll no doubt recall that Senator Durbin’s misplaced arrogance led to price fixing on debit card transaction, a move that costs banks and consumers dearly, but will benefit the bottom line of his big box retail donors. Dick believes it is inappropriate for the GOP to pressure the Fed on monetary policy.  Of course, he should know, this is the exact same thing he did seven months ago.  Dick, who’s never had a real job outside of politics, also believes he knows how to allocate risk in an insanely complex system that safely processes over $1.3 trillion a year better than people who have done it for decades.  So maybe we should take the crazy things he believes with a grain of salt.

Liberals love to throw money at things, especially when it’s someone else’s money.

There is no reason why the GOP, or anyone, cannot send a letter, an email, a video, a dead fish or a horses head (subject to local law, some exclusions apply), to the Fed.  The Fed is an independent central bank, and is designed to shrug off political criticism.  If Ben Bernanke cannot handle a few angry politicians, he is not the right man for the job.

To the substantive point of the criticism, though, discouraging the Fed from printing more money is not sabotage, or even evidence of some Vast, Right Wing Conspiracy™ to bring down President Obama.  Governing is choosing, and there is a clear choice here:

1. Do we print more money (a THIRD try at quantitative easing) and hope against experience that this time, the banks begin to lend to companies and investors that don’t want to borrow and people begin to spend on things they don’t need; or
2. Do we reform our tax and regulatory process and encourage people to invest and spend the money they already have.

Liberals love to throw money at things, especially when it’s someone else’s money.  But there are real consequences to quantitative easing (a fancy phrase for printing more money to throw at stuff).  When you print more money, each dollar becomes less valuable.  This is great if you’re a debtor, because it’s cheaper to pay off $14 trillion when the dollar is not worth as much as when you borrowed it.

They see capitalism as an incomprehensible dark art involving incantations read from the Wall Street Journal over mahogany altars.

But if you already have money, inflation is a silent thief.  Warren Buffett, Obama’s best buddy, has said for years that inflation is more confiscatory than any tax increase.  And if we show a willingness to pay off our enormous debt by devaluing the dollar, we may find that the dollar is no longer the world’s reserve currency (see artists renderings).

More importantly, the purpose of printing money is to make it cheaper for people to borrow.  Interest rates are already ridiculously low.  No matter how low they go, no one can force unwilling capital to invest.  Obama has made it clear that he is no friend of capitalism, and his regulatory promiscuity and demagoguery is impairing expansion and investment.  The CEO of Euro Pacific Capital testified today that he was fined for hiring too many people, and had to spend half a million dollars to fight off regulators.  Regulators have run amok, and the uncertainty is undermining expansion.

They beat on the fuselage of the gleaming, silver jet of capitalism and grunt “make fly now!”

It’s not just hiring and expansion, either.  Investor confidence is almost as low today as it was right after the Lehman collapse.  Ask yourself, if you came into money tomorrow, would you buy a second home, or would you hold on to the money until the housing market hits bottom?  Would you invest in the stock market, or wait until the ups start outnumbering the downs on a more regular basis?  Would you invest in a business, hire new workers and expand, or would uncertainty–not just in your product–but in the regulatory and economic landscape make you guard your nest egg?

Unless an investor believes prices are more likely to go up than down, investing is a fool’s errand.  And a fool and his money are soon invested in Solyndra.   People are spooked, and until the world starts to make sense again, they will keep their money under their mattress–no matter how cheap Bernanke makes it to borrow more.

Liberals may understand this, or they may not.  It is tempting to believe that our liberal friends see capitalism as black magic voodoo; an incomprehensible dark art involving incantations read from the Wall Street Journal over mahogany altars..  Like an anachronistic caveman, they beat on the fuselage of the gleaming, silver jet of capitalism and grunt “make fly now!”  All the while, damaging the sensitive avionics with their thorny, regulatory clubs.  Occasionally, Warren Buffett shouts “beat harder!”

We have to decide if we’re going to make life easier for ourselves now and harder for our children later, or vice versa.  It’s a choice, and it has consequences.  So the next time someone you are part of the “let him die” party, or want to subsidize corporate jets at the expense of children’s safety, or that you’re trying to balance the budget on the backs of seniors, children and the middle class, ask them if they’d rather deficit spend and print money on the backs of their unborn grandchildren.

*Fair disclosure: I work in the credit card industry, though not for a bank.  I know these issues well, but I also have a (very indirect and slight) financial stake in the outcome.

Total investment in just renewable energy (a subsector of the green industry) was $211 billion in 2010 (see also, here at page 35). To give you a sense of size, the entire US pharmaceutical industry R&D budget for new medicines and vaccines in the same period was $67.4 billion.  For every $1 a US company spends trying to cure cancer, Parkinsons, Alzheimer’s, heart disease, and diabetes, the world spends $3.10 inventing, manufacturing and selling panda-shit burners, solar panels, corn-based gasoline and wind farms.

Not enough money is not the problem in the green industry.  For one thing, you cannot sell something for $3 when it costs $6 to make and expect to continue for long.  Talk about unsustainable.  Natural economic failure, the lack of a real threat, bad science and politicians trying to pick winners is the problem in the green industry.  Moreover, less than half of Americans believe that Global Warming™ is caused by man, if at all.

But this reflex response is not limited to the green industry.  Liberals have the same reaction when it comes to spending money on education. But there is no evidence that simply increasing the budget will improve results.  Even the uber liberal Center for American Progress, in their exhaustive, district by district review of educational spending, had to admit that “without clear controls on how additional school dollars are spent, more education spending will not automatically improve student outcomes.”  Not a ringing endorsement for more spending.

Indeed, increasing investment in a company, an industry or even a school can have unintended consequences.  When a budget is tightened, management has to make harder choices.  If you run a business and have an unlimited budget, you will never need to decide whether it’s better to send your account manager, Mark to Denver or your business development lead, Kim to San Diego.  You can send them both.

But when spending is limited, choices have to be made.  An effective manager (with accurate information) is one who can make the right choice and put every dollar spent to the most productive use.  If you think this is all theoretical, it’s not.  No well run company will invest in a start up until it is big enough to know what to do with the money.  In addition, a company with a tightened belt will comb its expenses reports, accounts payable and accounts receivable and ferret out fraud, waste and abuse.  All of these factors will increase the productivity of every dollar invested.  In other words, more money doesn’t buy better results.  Just ask the Philadelphia Eagles.

Last Friday, FoxNews’s Special Report with Brett Baier asked viewers which scandal is more damaging to the Obama administration, Solyndra, LightSquared or Fast & Furious.  You no doubt recall that Solyndra involves the reckless waste of taxpayer money; LightSquared involves the coercing of Congressional witnesses for financial gain; and Fast & Furious is the Obama’s misguided attempt to argue for more gun control track gun runners by selling them guns and giving them get out of jail free cards.

So the question is, (to FoxNews viewers) which is more believable about Obama: wasteful spending; corruption or lax and incompetent criminal justice policies.  The results were:  71% said Solyndra; 23% said Fast & Furious and only 6% said LightSquared.  The take home point here, is that Fox viewers believe Obama can be wasteful and even incompetent, but corrupt doesn’t ring as true.

To me, this is surprising, given the Chicago political swamp in which Obama rose.  To be fair (to the Fox viewers), LightSquared only broke on Friday, and may not have resonated with them yet.  With the recent allegations of a misogynistic atmosphere in the White House, it would be fascinating to see which of these scandals resonate most with voters.  In any event, Allan Lichtman may need to revisit his Key to the White House prediction.

Obama’s “jobs plan” will certainly be another ridiculously partisan and utterly unspecific demonstration of how to use a teleprompter.  But within the cliched rhetoric, Obama will, one would hope, ask for something.  Whatever it is, give it to him.

If Republicans truly believe that Obama’s plans are wrong headed (they are), let Obama have what he asks for: extending employment benefits (again); lowering social security withholding (again–this way most workers won’t even pay that pittance in taxes); more infrastructure spending (maybe this time, shovel-ready won’t be a hack punchline?); increase taxes on the fictional “trillionaires;” drop the “private jet” deduction (in other words, make private jet’s not deductible).

None of these will do a damn thing.  If Obama wants to claim that shooting spit balls at a runaway train will help, give him all the paper he wants.  The Republicans in the House can allow some of their less conservative (or alternatively, safer) members to go along with whatever Nancy and Harry and Obama can dream up.  Don’t fight, don’t cluck and strut, just let Obama have what he asks for and let him own the result.

Obama dallied while he had a pliable Congress and the economy stalled again, burdened by new regulations and uncertainty.  Now that he has had a year and a half of an unfriendly House, let him have his due, and ask the voters to judge him and the rest of Congress on the result.  At a minimum, Obama will cement his legacy as a one term president.  On the up side, there is potential for a Galtian, be-careful-what-you-ask-for moment, where we can finally put to bed the notion that you can create jobs by lynching businessman with the tax code.

John: “Hi Barry, how’s it going.”
Barry: “This farm is a mess.”
John: “Um hm. So, if you don’t mind me asking, what happened?”
Barry: “Well, I inherited this farm and it was a mess.”
John: “I remember there was a brushfire in the northeast corner.”
Barry: “Yes, years of neglect from the prior owner.”
John: “So what did you do about it?”
Barry: “I took a common sense approach, and covered the fire with twigs, sticks and paper.”
John: “I see.”
Barry: “Then, I took water from the healthiest crops and irrigated the least healthiest crops.”
John: “How did that work out?”
Barry: “Well, the healthier crops got weaker, and the weak crops just soaked up the water and wanted more.”
John: “So what about the farmhouse.”
Barry: “I inherited that, too.”
John: “Did you fix the roof?”
Barry: “No.”
John: “Did you right the foundation?”
Barry: “No”
John: “Why not?”
Barry: “Well, two years after I inherited the farm, the lenders made me take on a limited partner, Gopper. And Gopper refused to let me take on more debt so I could build the mansion I wanted.”
John: “But couldn’t you fix the existing structure?”
Barry: “They refused to cooperate. They didn’t want to put in solar panels, or heated floors or even a swimming pool. The dilapidated house is their fault.”
John: “Why didn’t you do all that when you had control of the farm yourself?”
Barry: “I didn’t want to take the blame if something went wrong or people didn’t like it. Why should I be responsible for building such a big mansion?”
John: “I saw that the credit rating agencies downgraded your farm and the lenders have dried up.”
Barry: “Yeah that’s because Gopper and I argued a lot. It has nothing to do with my financial health or track record. Don’t worry, this will always be a AAA-rated farm, even though it’s not.”
John: “I see. So what happened to flood the farm?”
Barry: “Well, remember when I gave a big speech in town about how no one should tell you how to store your grain or plow your field? One of my neighbors’ decided to re-grade his land, and then another guy did, and all of a sudden, my property is flooding!”
John: “Well, didn’t you help them regrade? Didn’t you give them the benefit of your farming experience?”
Barry: “Who am I to interfere with their farm? I’m not an exceptional farmer, My farm is just as bad as everyone else.”
John: “It is now.”
Barry: “Sorry?”
John: “Nothing. So what about your fence?” [Points at broken, crooked fence].
Barry: “Oh, the wolves got to it.”
John: “What did you do about that?”
Barry: “Well, the last farmer killed or trapped every wolf that tried to attack the farm. He caught them in traps, he shot them at night. He spent tons of money on wolf defenses. It was terrible. I decided that my farm was better than that. I left some food out for the poor creatures and started a wolf education society.”
John: “Really?”
Barry: “It didn’t work so well, but it was the right thing to do. But then one of the wolves got outta hand and I had to chase him back. I still haven’t caught him, but the other wolves have gotten unruly. They say its like they don’t know whether they’re welcome here or not.”
John: “So that’s how your field flooded, your house is crumbling and your farm is ruined?”
Barry: “Yeah, I just inherited this mess.”
John: “Brother, at some point, you own the farm.”

I’ve said in these pages before that gay marriage is not a threat to our country, our freedoms or anything else.  Opposing gay marriage is as inconsistent with conservative values as opposing desegregation or favoring limits on fat and salt in foods.  In the words of that flaming liberal, Dick Cheney, “freedom means freedom for everybody.”

If limited government is the cornerstone of the GOP, why is it so hard for a GOP politician to stand up and say, “Look, I realize this is a controversial issue, and many people feel passionate about it because of their faith.  But we have a tradition in this country of separating church and state.  Limited government includes preserving the rights of people to choose how they live–whether we agree or not.  If you think homosexuality is a sin, don’t engage in it, don’t attend a gay wedding and don’t go to a church that conducts the service.  But we cannot, with our integrity intact, demand that the government lay off our children, their education, what we eat, how we spend our money, what we do with our land and how much we leave to our heirs, and still demand that it invade the bedrooms of those with whom we disagree.  If you disagree with me so vehemently that this one issue means you cannot vote for me and the other limited government policies I stand for, I wish you and the candidate of your choice all the best.”

Getting elected is not the most important thing in the world.  And having integrity will often win more votes than saying what you think people want to hear.  Have some balls for Pete’s sake.

Of course, no one seems to be talking about how this is all one man’s fault: Harry Reid.  In December, he could have had his lame duck Congress increase the debt ceiling, but he chose not to, wanting to hang the problem around the neck of the Republicans. Wish granted, tough guy.

So, after much posturing and hyperbole, the President and Senate Democrats continue to summon demons and threaten little old ladies with their stories of government default. The GOP-controlled House has come up with an imperfect plan, but one that will cut spending and allow the government to function for 6 more months–a month longer than the average debt ceiling increase.

In response, the President has threatened to veto the Boehner bill,  and Harry Reid had all 53 Senate Dems sign letter to Boehner promising to kill his short-term solution.

So here’s the analogy:  You’re lost at sea.  The sharks are circling, and there is blood in the water.  You’re holding a family heirloom and refuse to let go.  Five minutes ago, your best friend sailed past in his 80 foot yacht and said “I see you’re having problems, but I don’t want you messing up the carpet.  Someone else will be along soon.”  You are literally about to go under the waves for good and your mortal enemy then goes by in his leaking dingy and throws you his only life preserver and says, “this should hold you for a while, drop the heirloom and I’ll be back in a few minutes, once I fix this leak.”

Do you throw the life preserver back at him and drown out of spite?  If Yes, you may be qualified for what counts as leadership in the Democratic party.

Imagine Obama owns a petroleum refinery.  The gas station is on fire, but the fire has not yet reached the fuel storage–it’s just the side building at the moment.  Speaker Boehner and the GOP are a fire brigade, and they control the supply of fire suppressant.

The fire suppressant works, but if you use too much of it, it will destroy the refinery and the town.

Obama has, for the past year, been screaming a flailing his arms about how the fire will destroy his refinery and this little town.  Boehner is willing to give him enough suppressant to put out the fire, but that’s all.  He offers the refinery a deal: we’ll give you enough suppressant to put out the fire, but you have to get rid of some of your gasoline.  It’s endangering the town, and the next fire might not be stoppable.  Boehner says, “we’ll suppress the fire long enough for you to get rid of some of the gasoline.”

Obama, however, wants enough suppressant to put out not just the current fire and the next one and the next one.  He wants coverage until his refinery permit is approved next year (i.e., becomes a lame duck).  He also wants enough suppressant to cover his petting zoo, where he keeps his donkey.  Obama also refuses to get rid of any gasoline, as that’s the source of his power (i.e., profits; i.e. government largesse is what keeps Democrats employed).  “Look,” Obama says, “if you don’t give me enough suppressant, I’m going to have a hard time getting my refinery permit.  People might think I’m a danger to the town.”

So I ask you, who is more unreasonable?  The man who suggests a short-term solution that solves the problem for now, or the flaming idiot who wants to cover his ass at the expense of others?