Category Archives: Economics

Taxation, Education, Public Policy Radar, Private Property, Commentary, Public Policy Principles News, Economics

Tax and Spin- Part 4: “Schooling” the Taxpayers”

This entry is part 4 of 11 in the series Understanding Property Tax Levies

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The simplest method is timing by local officials. The various government entities collaborate to put their many different levies on the ballot at different times because taxpayers would rebel were they to be presented with them all at once. Also, officials try to get new taxes passed right after the sexennial property reappraisals and triennial updates so as to get the most dollars for the millage. Other methods are more involved and are generally aimed at eating away at the benefit of H.B. 920.

Ohio law states that school districts may not have less than 20 effective mills of tax for current operating expenses for either class of property (ORC, 319.301[E]). This requirement is often called the “20-mill floor.” A school district might have, for example, 21 mills of voted taxes for current operation along with 3 inside mills that are also used for operation. While the 3 inside mills could not decrease in effective millage because the reduction factor does not apply to inside mills, the 21 voted mills could theoretically decrease over the years to perhaps, for example, 16.6 effective mills because of the aggregate increase in property values in the district and the reduction factor. Total effective mills for operation would then be only 19.6 mills (3 inside mills + 16.6 outside mills). To keep that from happening, taxes are adjusted upward by 0.4 mill, without a vote of the people, till the 20 effective mills are met (3 + 16.6 + 0.4 = 20). A similar non-voted increase continues year after year as long as the combined value of properties in the district increases and other current expense levies that count in the 20-mill floor are not passed. (Vocational schools have a 2-mill floor.)

Not all types of levies count in the 20-mill floor. School districts that are near the floor often purposely keep the millage from their levies that count in the floor low so those taxes automatically grow. They then levy other taxes that do not count in the floor, such as the income tax.

School districts also use certain kinds of property taxes, including “emergency levies” for the same purpose. Aside from a favorable vote that might be generated by the emotional term “emergency,” school districts use these levies in preference to regular levies because they are not counted in the 20-mill floor. The district benefits from the emergency levy while also benefiting from non-voted tax increases from other operating levies that do count in the floor. Emergency levies may be proposed to provide for an emergency or to prevent an operating deficit (ORC, 5705.194). However, that is often said to be the purpose of other kinds of levies, as well. School personnel have argued that emergency levies are for a fixed sum and not for a specific rate, or millage, and therefore they should not or could not be counted in the 20-mill floor. However, emergency levies are figured in mills for the ballot and for each year they are in effect, and at one time they were counted in the 20-mill floor by law. Their use is a strategy to get more tax money.

Schools use the “permanent improvement” property tax because that tax, like the emergency levy, does not count toward the 20-mill requirement for current operating expenses. The use of the permanent improvement tax is limited to assets and improvements that have at least a five-year life expectancy, but it frees up other taxes for current operations.

When a school district’s operating millage is at the 20-mill floor, another way the district can manipulate levies that might be advantageous to it and produce more revenue is to reallocate its
inside millage (a public hearing by the board is necessary for any such change [ORC, 5705.314]). With this action, current expense millage that had been inside millage would be changed to outside millage, and permanent improvement millage would be changed from outside millage to inside millage. The purpose of the swap is to get more of the millage for operations into outside millage where the reduction factor would work on it in order to provide even more automatic non-voted tax growth. Meanwhile, the permanent improvement mills that become inside millage would grow with property values (when they were outside mills, the reduction factor applied).

Yet another means to grow property taxes for schools came about with H.B. 530 in 2006. The law (ORC, 5705.211) authorizes an additional property tax for current operating expenses to be approved by the electors at such a rate that the total taxes charged by the levy each year are sufficient to offset any reduction in basic state funding caused by increases in real estate values. The rate of the tax could be set to cause revenue generated from the levy to increase by up to 4 percent, inclusive, each year, but it could be set at a lesser rate. The tax increase would occur each year for a minimum of five years, and may be continuing – year after year after year.

The legislature has also passed laws for real property tax increases that are not just for schools. With the gradual reduction of taxes on tangible personal property of electric companies (S.B. 3 in 1999) and natural gas companies (S.B. 287 in 2000), all fixed-sum levies that were in existence in 1998 and 1999, respectively, and continued to exist in the tax year preceding the distribution year, were automatically – and quietly – increased by up to ¼ mill, inclusive, to help compensate school districts and local taxing units for their “fixed-sum levy loss.” The fixed-sum levy loss is the gradual loss of tangible personal property taxes for emergency levies and levies for paying debts (ORC, 5727.84[H]). The state makes up any difference between the tax loss and ¼ mill. The added property tax and state payments began in 2002 and they even cover emergency levies that are continually renewed after 2002 through 2016 and debt levies beyond that if they are still in effect. (Details are located in ORC, 5727.84 to 5727.87.)

With H.B. 66 in 2005 (revised with H.B. 530 and S.B. 321 in 2006), the state is phasing out tangible property taxes on other businesses, and the property tax on qualifying fixed-sum levies is automatically increased by up to ½ mill, inclusive, to compensate local government units for the phased-out taxes on those businesses. State reimbursements for tax losses above ½ mill continue for levies that are in effect through 2017. Qualifying school district emergency levies include renewals through that time. Voted debt levies are reimbursed till they expire, regardless of when that is. (Details are located in ORC, 5751.20 to 5751.23.)

Questioning the legality of these non-voted, outside-millage add-on taxes, some people both in and out of government have voiced strong disapproval of them. Voters had not agreed to the extra millage when they originally voted for the emergency and debt levies. However, some legislators said that because the tangible property taxes would have been paid, it was all right to add non-voted taxes to fixed-sum levies.

The last tax to be addressed is the “replacement levy.” Because it is the most deceptive and confusing of all taxes, it is given separate treatment via Part 3.

Next: Part 5–The “place” where you raise your own taxes

Economics, Taxation, Education, Public Policy Radar, Private Property, Commentary, Public Policy Principles News

Tax and Spin- Part 3: The REAL Growth of Government

This entry is part 3 of 11 in the series Understanding Property Tax Levies

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PART 2: WHY PROPERTY TAXES CONTINUE TO GROW:
KINDS OF LEVIES AND GOVERNMENT MANIPULATION

Note:The following is part 2 in the original document.

The reader might be wondering why his property tax bill continues to rise despite the reduction factor provided by H.B. 920 and the rollbacks. The most obvious reason for the ever-increasing taxes is that citizens continually vote for new taxes. Some less obvious reasons are addressed below.

Taxes grow because the reduction factor of H.B. 920 does not apply to all levies. For example, according to the Ohio Revised Code (ORC), 319.301, the reduction factor does not apply to taxes “levied within the one per cent limitation imposed by Section 2 of Article XII, Ohio Constitution.” The one percent in the Ohio Constitution refers to the limit at which taxes can be levied on the true value of any property for all state and local purposes unless additional taxes are voted by the electors or are provided by the charter of a municipal corporation. This restriction is called the “one per cent limitation” or “one per cent limit.”

At this point, an inconsistency in definitions needs to be addressed. Contrary to the Constitution, ORC, 5705.02, defines the “ten-mill limitation” as a limit of ten mills of tax on each dollar of tax valuation, or assessed value (unless more is specifically authorized). That is one per cent. It then states that wherever the term “ten-mill limitation” is used in the Revised Code, it refers to and includes the “one per cent limitation.” However, in Section 5705.51, the terms are defined as being different and more in line with how they are generally used in the Revised Code: the “one per cent limit” pertains to true value of property, and the “ten-mill limit” pertains to tax valuation.

Using the last definition, within the ten-mill limitation, ten mills of tax are levied on each dollar of assessed value of property without a vote of the electorate. These are called “inside” mills. Taxes with inside mills grow as property values grow; that is, the reduction factor does not apply. These ten mills are divided among several of the government subdivisions as specified by ORC, 5705.31(D). Each of those taxing authorities is authorized to divide its share of inside mills into separate levies for current expenses (operation), debt charges, and special levies (ORC, 5705.04).

Levies that are permitted beyond the 10-mill limitation are said to have “outside,” or “voted,” mills (even though some are not voted by the electorate). While most levies with outside mills benefit from the reduction factor of H.B. 920, some grow with property values. For example, according to ORC, 319.301, the reduction does not apply to taxes authorized by the charter of a municipal corporation or taxes levied to produce a specified amount of money (called “fixed-sum levies”), such as school “emergency levies” (explained later), or taxes required to pay debt charges.4

As pertaining to debts of a subdivision, when certain other funds are insufficient for paying the “exempt obligations” and “any other outstanding non-voted general obligations,” a non-voted tax is to be levied “in excess of the ten-mill limit, but within the one per cent limit as to any property” (ORC, 5705.51). (Here the two “limits” are clearly different, and the reader can see – despite fuzzy definitions in the Code – that not all of the one percent of true value loses the reduction all the time, whereas the one percent [ten mills] of assessed value never receives the reduction.)

Government debt can make the rollbacks on real property disappear, too. The 10-percent non-business rollback and the 2.5-percent and elderly, disability, and surviving spousal rollbacks on homesteads are reduced or eliminated altogether when there would be insufficient funds for payment of debt charges (ORC, 319.302[B]; 323.152[D]).

In addition to those ways that make property taxes grow, local government officials and the legislature (prodded by local officials) have devised more methods to increase revenue from real property taxes. Some of these are discussed here.

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4 As used in ORC, 5727.84 to 5727.86 and 5751.20 to 5751.22, the definition for “fixed-sum levies” includes levies to pay debt charges.

Next: Part 4: “Schooling” the taxpayers

Commentary, Public Policy Principles News, Economics, Taxation, Education, Public Policy Radar, Private Property

Tax and Spin- Part 2: Exemptions, exemptions

This entry is part 2 of 11 in the series Understanding Property Tax Levies

taxThe various levies that a property owner pays generally apply to districts that are of different sizes and that have different types and values of property. The taxing district for a levy could be an entire county, a township, a school district, or so on. The reduction factor that is applied to each levy depends on the makeup of the properties in the taxing district and is therefore different for each taxing district.

After the reduction factor is applied to a levy, a 10-percent rollback (subtraction) is applied to each non-business real property owner’s tax (ORC, 319.302).1

The “homestead” portion of one’s property is adjusted with an additional rollback of 2.5 percent (ORC, 323.152[B]). The homestead is defined as an owner-occupied dwelling (house) or a unit occupied as a home in a housing cooperative, with the land surrounding it that does not exceed one acre, and with no more than one attached or unattached garage (or comparable outbuilding).

The 2.5-percent rollback is not applied to the tax on any portion of one’s property that exceeds that. A homeowner whose property exceeds an acre or has extra buildings on it can ask the county auditor for the value of the homestead portion of his property so that he can compute his 2.5-percent rollback. The homestead of most city or town homeowners includes their entire property.2

Persons who have a certificate of reduction and are 65 years of age or older, or permanently and totally disabled, or surviving at age 59-64 when their elderly or disabled qualified spouse dies can receive a tax deduction on $25,000 of the true value of their homestead (ORC, 323.152[A]).3 (A note to dampen the gladness over all these rollbacks is that local taxing units are reimbursed for the rollbacks with state money. That means that people who pay state taxes are footing the bill for what would be part of their own property tax and that of some other property owners, as well.) Lastly, county commissioners may grant a partial real property tax exemption to each homestead in counties with major league teams (ORC, 323.158).

In calculating the most typical homeowner’s tax on the assessed value of his primary dwelling (when his “homestead” is his entire property), after the tax is computed with the effective mills, the figure is multiplied by 87.5 percent (100 % – 10 % – 2.5 % = 87.5 %), or .875, to find the total property tax he pays after rollbacks are applied. The tax on a homeowner’s total tax bill and on each individual levy is figured the same way.

Following is the computation for the property tax for a levy with 2.406458 effective mills on a $100,000 home on a typical city lot (assessed at 35 %) that receives the 10-percent and 2.5-percent rollbacks: .35 X $100,000 X $.002406458 X .875 = $73.70.

The above example could very well represent the tax on a renewal levy that might have been voted at 3 mills 15 years ago, for example. The ballot, however, would not show the effective 2.406458 mills. Rather, the ballot would say that the issue is for the renewal of 3 mills, which is the originally voted millage of the existing levy. That is, the levy continues to have its old “name” despite the fact that 3 mills is not the effective rate of the tax to be renewed. After the levy is renewed at 2.406458 mills, it would still be referred to as a 3-mill tax.

The tax on each new or renewal levy can commence (that is, be applied) the same calendar year that it is voted or the following year, depending on the resolution, but the tax is always collected the year after it is applied. Therefore, it is either one or two calendar years after a vote that a person begins paying the tax on a new levy. A property owner’s total tax bill is divided in half and is paid semi-yearly.

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1 With H.B. 66 in 2005, businesses lost their 10-percent real property rollback, but they received gradual reductions on tangible personal property taxes.

2 To keep the explanation of property taxes simple, this treatise does not address taxes on manufactured or mobile homes.

3 H.B. 119 in 2007 removed an income requirement.

Next: Part 3: The REAL growth of government

Taxation, Education, Public Policy Radar, Commentary, Public Policy Principles News, Economics

Tax and Spin–Part 1–The Basics

This entry is part 1 of 11 in the series Understanding Property Tax Levies

taxThe Institute for Principled Policy is pleased to be able to share with you a significant and important discussion on the realities of local tax levies.  This series, written by Ohio researcher Carolyn J.  Blow, is from a document entitled “Ohio’s Property Taxes”.  We will keep our editorial comments to a minimum, but I do encourage you to read each entry in this series very closely and carefully, and prepare to share this information with those in your family, community and spheres of influence.

Ohio’s property tax system is beyond the comprehension of most citizens only because most citizens would rather just pay their taxes than try to understand it. With time and study, the tax system is understandable. If the reader is new to this subject,  he should not be discouraged if he doesn’t “get it” after having read the paper only once.

With a grasp of taxation, individuals are more able to influence government officials and to vote in a knowledgeable manner. In general, whoever controls the money controls the programs.

PART 1:THE BASICS OF PROPERTY TAXATION

This treatise deals predominantly with the taxation of “real” property, that is, real estate. In Ohio, for tax purposes, real property is divided into two categories, or classes, one being residential and agricultural and the other being commercial and industrial (also referred to as “other real property” or “nonresidential/agricultural”). Properties in both classes are “assessed” at 35 percent of the appraised market value, which is determined by the county auditor; for example, a $100,000 property is assessed at, and taxed on, $35,000. (For some types of properties, such as farms, current use is considered in determining their value for taxation purposes.)

The monetary unit of taxation is the mill, which is one-tenth of one cent ($.001). A levy, or tax, is for a certain number of mills for each dollar of assessed valuation. (One mill of tax is equal to $1.00 for each $1,000 of assessed valuation.) Each levy is for the duration of a certain number of years or for an indefinite number of years; in the latter case it is said to be “continuing.”

The tax on a property for any particular levy is not computed with the originally voted millage.  Rather, it is computed with what is known as the “taxable” millage, or “effective” millage, which is generally less than the voted millage. This can best be made understandable with an explanation of the very important House Bill 920.

To replace an earlier law, in 1976 the Ohio General Assembly passed H.B. 920, which is found in the Ohio Revised Code, Section 319.301. Unlike most laws, it is still generally known by its bill name, House Bill 920, because it is so important.  The purpose of the law is to keep a lid on what would otherwise be run-away property taxes on homes and businesses. The law also has the effect of keeping government programs and spending from running amuck.  (School and other government officials dislike H.B. 920 because they would like to have an ever-increasing stream of revenue without voter approval.)

Here’s how H.B. 920 works:  Property values generally increase at a faster rate than do the funds needed to operate any school or other government agency in an appropriate manner.  Therefore, to control taxes, as the total value of all properties combined in a school district, county, or other taxing entity’s district goes up because of updated property values and new construction added to the mix, the millage on which property taxes are figured is reduced so that the total revenue generated by a particular levy remains fairly constant. This revenue-stabilizing millage that decreases every year as aggregate property values rise is the effective millage. It is what is in effect, so  it determines the tax that property owners pay.  The voted millage is not “in effect,” so it is not used to figure the tax.

To accomplish this stabilization of revenue, the state tax commissioner determines a tax reduction factor from property value information that the county auditor gives him. This factor is derived by comparing the total value of “carryover property” in each class in a taxing district from one year to the next. Carryover property is property that is on the current year’s tax list and that was also on the previous year’s tax list in the same class. Obviously, then, new construction is not immediately included in the total valuation of any district, but it is taxed nevertheless. Consequently, each new construction provides extra tax revenue for a taxing district till it is included in the carryover property.

The tax reduction factor is used to determine the taxable, or effective, millage that would keep the revenue fairly constant year to year for each particular levy. The effective millage is carried to six decimal places, for example, 2.406458 mills. If the numeral in the sixth decimal place is a zero, such as with 5.341980 mills, the millage might be stated with only five decimal places, 5.34198 mills, because the zero at the end has zero value.

A levy that has a taxable millage of 5.341980 could conceivably have been voted at 6.5 mills twenty years ago. The effective millage is closest in value to the voted millage when a tax is new. The gap between the voted and effective millage widens each year the levy is in effect as the value of all the properties, combined, in a taxing district continues to increase. The gap widens most dramatically with the six-year property reappraisals and the midterm updates because the auditor-appraised value of the totality of properties in a taxing district generally increases the most at those times. (Factors such as location, building additions, and damage affect the value of – and tax increase or decrease on – individual properties.)

The voted millage on both classes of property is the same. However, for the purpose of figuring the effective millage during the years a levy is operative, the two classes of property are considered separately because there is usually a difference between the rate of growth of the residential-agriculture properties and that of the commercial-industrial properties. The effective millage, then, is usually different for the two classes. (A tax for businesses on tangible personal property [machinery, equipment, fixtures, furniture, and inventory] is figured with a different assessed rate and does not receive a reduction factor.).

Next:  part 2:  Exemptions, exemptions…

Taxation, Commentary, Public Policy Principles News, Economics

Is Alan Keyes Really a Constitutionalist?

In a word-NO!

In the video posted below you can see Alan Keyes being questioned on several core constitutionalist issues. He gives a mixed-bag of answers. He likes the mis-named “Fair Tax” which supposedly replaces the hated income tax with a GIGANTIC federal sales tax. We say supposedly because there’s no guarantee that the income tax will disappear, leaving us with both an income AND what amounts to a value-added tax or VAT. There are many objections to the “Fair Tax” but that is not the subject of the article.

What the article is about is a practical application of what we have learned from our (incomplete) study of the character of Alexander Hamilton and the tactics he used to achieve his strategic goal of twisting a federal constitution into a mercantilist national government. As the study continues we hope to provide more tools to enable you to understand that Hamilton’s vision is the dominant one in American government and has been since the War Between The States. We also hope to help you develop the skills to recognize what that means to you and how it effects the way your government works.

Chances are if your representative, it really doesn’t matter at what level- city, township, county, state, federal, gets elected by running as a “conservative” but consistently votes for bills which ignore constitutional limits on his particular branch of government while citing the “greater public good” as justification then he is a political descendant of Alexander Hamilton. Especially if the bill in question ultimately creates new powers for government and/or concentrates that power in very few hands, especially un-elected ones especially while granting special exemptions, rights and privileges to common interest blocs, either business or social.

Watch this clip then we’ll discuss specifics.

[youtube]http://www.youtube.com/watch?v=BNkkXT84PoI[/youtube]

Alan Keyes is an excellent example of a Hamiltonian in the guise of a constitutionalist. A true Hamiltonian is an extremely intelligent and charismatic political chameleon who has no qualms against assuming the political disguise of having a philosophy that he disdains in order to win the support of those who are adherents to that philosophy. Like all Hamiltonians, Keyes is a master at equivocation. He is able to speak in terms that can be interpreted by both constitutionalists and nationalists as friendly to their positions, depending upon his audience.  Only by examining in detail his statements can we get anything like a clear view of his constitutional interpretation.

Take, for instance, Keyes’ view of the “Fair Tax.” This author has heard Alan Keyes make impassioned pleas for the end of the 16th amendment, the amendment that allows direct taxation of individuals by the federal government. We ran a review of a conference where just such a plea was made by Keyes available here. We noted that within 4 hours Dr. Keyes employed two diametrically opposite hermeneutics of constitutional interpretation for different reasons to different audiences, thus bolstering our case.

In the video Keyes’ position on the “Fair Tax” does not comport with his claim at the conference reviewed that the 16th amendment should be repealed. If the 16th amendment is repealed then an authorization for ANY direct taxation of individuals evaporates and the “Fair Tax” necessarily dies since there’s no longer any direct taxation authority. An intelligent man like Dr. Keyes must know this. Why not be truthful about it then? The facts in detail do not fit the needs of the proponents, therefore the facts in detail may be equivocated because it’s for “the common good.” Hamiltonian to the core.

Dr. Keyes also makes a rather absurd claim that Rep. Ron Paul (R-Texas) appropriated his views on the Federal Reserve (Fed) from him. This is nothing more or less than an attempt to “earn his chops” among skeptical constitutionalists who know who Paul is and where he stands on issues like taxation, the Fed, presidential authority, war powers and US sovereignty issues. Many do not know where Keyes stands on some of these key issues so he’s attempting to skim off some of Paul’s supporters to his own camp.

As we showed in our review of our personal conversations with Keyes and what he spoke about at the conference, He and Rep. Paul are on completely different wavelengths regarding presidential power, war powers, US sovereignty, especially as regards the surrender of that sovereignty to the UN via the treaty power. Keyes “stand” against the Fed on the basis of  our economy being controlled by “international bankers” flies in the face of his support of the idea that the US has legally surrendered at least some of its sovereignty to the UN via treaty obligation, which he unsuccessfully argues is allowed under article VI of the US Constitution. In short, Keyes is trying to equivocate his way into the constitutionalist camp while remaining firmly in the nationalist camp with feelers out to the globalist camp.

Frankly, no one except some policy wonks ever heard of Dr. Alan Keyes before he was appointed to the UN Economic and Social Council ambassadorship in 1985. His explanation of his opposition to the Fed in the video is, at best, nebulous and appears that it is being developed extemporaneously as he is asked questions. Some of it seems to be  a kind of modified Independent Treasury System and some of it is just platitudinous nonsense; ear candy for the uninformed who know that something’s wrong with the economy and the Fed’s the most likely culprit.

Keyes is the perfect example of a politician who is truly pro-life (and we are definitely not questioning his stand on the life issue) and believes that his pro-life credentials is a get-out-of-jail-free card with Christian constitutionalists on other issues as long as he says what seem to be the right things. This attitude is all too prevalent among Christian Republicans who are ALWAYS surprised when their favorite pro-life “conservative” betrays them on taxes, gun control, education, business regulation,campaign finance, free speech, police powers and you name it.

Dr Paul, on the other hand, has been in Congress, with hiatus, since 1976. He has a well-developed stance on economics, being from the hard currency, local control of banking Austrian economic school. He has a well-defined body of work on the constitutional issues that Dr. Keyes is the most ambiguous on. He has never been afraid to tackle difficult constitutional subjects and has always been open and honest about where he stands on issues. He is a strict constitutional constructionist. He isn’t perfect by any means, but he is open and honest. In short, he is a true constitutionalist. There isn’t any question of what Dr. Paul means when he is done speaking or has written a paper. He does not engage in ambiguities or equivocation.

We bring Ron Paul into the picture because Keyes does. It is obvious he is at least trying to compare himself to Paul because Paul has such a loyal base and he wants in on the action. In order to do that he is willing to make ridiculous claims regarding Paul’s position on economics, war powers, presidential authority, state sovereignty, etc and to gloss over his own globalist/interventionist leanings to make it appear that he and Dr. Paul are not that far from one anothers viewpoints. The fact that some have bought into this in spite of the evidence to the contrary that surfaces only when  Keyes’ statements are examined in detail bolsters our point about his being a Hamiltonian heir.

Book Review, Commentary, Economics, Biblical Worldview

Hamilton’s Curse- Hamilton’s Disciple: How John Marshall Subverted The Constitution

This entry is part 5 of 9 in the series Hamilton's Curse

HamiltonsCurseIs the Constitution a grant of powers, nigh unlimited, or a restraint on the reach of governments run by self-serving (sinful) men?  What answer have we been given in our modern era?  Most of us would be honest and say that operationally, the former is the answer; some might go so far as to be totally honest and say that the latter is technically and legally the correct response, but our country has been taken down a path away from adherence to the letter of the law, in exchange for being “led by the Spirit”, divorced from the context of the words.

Hamiltonian “will-worship” is to blame for the current state of affairs.  Specifically, according to DiLorenzo, it was the adoption of Hamilton’s view of the ever-growing power of the central state carried out through the machinations of court decisions that have carried us to the murky waters of the swamp of socialistic impulses that our government wallows in today.

Who is the chief priest of the nationalist idolatry?  It was none other than John Marshall, chief justice of the United States Supreme Court, the man who, according to Ron Chernow in his sycophantic biography on Hamilton, stated that beside Hamilton, Marshall felt as a “candle beside the sun at noonday”.   DiLorenzo points out that Marshall relied more strongly on the Hamilton-influenced Federalist Papers than on the Constitution itself as his basis for interpretation of the document.  Hmmm, that seems somewhat akin to relying on the salesman’s word that there are no hidden costs rather than reading the fine print of the contract yourself before signing.

I was definitely struck by one specific point in this chapter:  the vital difference between courts using the Constitution and using constitutional law.   It’s the difference between Jeffersonian federalism and Hamiltonian nationalism; between seeing the governing compact as decentralized or seeing it as consolidated.  This is a significant difference indeed.

Through a series of decisions of the Marshall court, constitutional law has taken the place of the Constitution in deciding our nation’s direction.  Beginning with the infamous (though not for the right reasons) Marbury v. Madison, which, in DiLorenzo’s telling, created a virtual “judicial dictatorship” in the Hamiltonian model (though Hamilton, a master of gamesmanship, would try to belie that in Federalist No. 78), to Gibbons v. Ogden which so broadly defined commerce for federal regulatory purposes as to put all business under the shadow of central control, the courts have made our Constitutional republic “Hamilton’s America”.

Let’s sketch a brief list of the Marshall Court’s “hit parade” on our republican form of government:

Marbury v. Madison–The court gains power to review legislative or executive decisions and declare them void–putting the courts as the final arbiter of the power of supposedly co-equal branches;

Fletcher v. Peck–The court uses the Contract clause to invalidate state law–neutering state courts;

Martin v. Hunter’s Lessee–The court uses the supremacy clause to extend national governmental power beyond Article 1 Section 8 limitations;

McCulloch v. Maryland–The court finds a novel definition for the word “necessary” in the Necessary and Proper clause; now it means “useful” or “convenient” when it allows the national government to assert for itself powers “implied” (not “enumerated”) as it sees “useful”;

Gibbons v. Ogden–The court’s lexionary prowess expands the definition of commerce to an absurdity–giving the national government de facto control (negative sanction) over all business.

Given this list (and there are more examples), it is now very clear that what some of us today would classify as “judicial tyranny” by an oligopoly of nine black robed demigods is really only judicial midgets walking in the footsteps of giants of the imperial judiciary.  The analysis that DiLorenzo gives as to where this truth leaves us now is something that will help you to understand why Hamilton may have been this republic’s own worst enemy.

Commentary, Economics, Biblical Worldview, Book Review

Hamilton’s Curse- Hamilton’s Bank Job

This entry is part 4 of 9 in the series Hamilton's Curse

HamiltonsCurse

Alexander Hamilton is widely credited with being the father of the modern American economic system. In fact it can be said that Hamilton is the Victor Frankenstein to the monstrosity that Henry Clay, a master propagandist, dubbed the American System. The American System consisted of a central bank, permanent debt, corporate welfare, centralized authority, heavy taxation, “protective tariffs,” fractional reserve banking, etc. Prof. DiLorenzo describes this system as Hamilton’s attempt to adapt the British system of Mercantilism, one of the primary causes of the War For Independence, to the new republic.

DiLorenzo delves into the opposition to a central bank that Hamilton faced from divided sovereignty advocates like Jefferson, a recently converted James Madison, Edmund Randolph and others. At the request of Washington reports were prepared on the constitutionality of the bank. The strict constructionists all declared it illegal, based on the explicit rejection of the power to create  a national bank by the Constitutional Convention while Hamilton prepared a masterpiece of equivocation in which he revealed his strategy for getting the Constitution he really wanted but couldn’t get at the convention.

Hamilton introduced the idea of “implied powers” based on an expansionist interpretation of the “necessary and proper” and “general welfare” clauses of Article I.  Further, Hamilton introduced the doctrine that the Federal government may exercise ANY power not expressly prohibited to it by the Constitution, flying in the face of the 9th and 10th Amendments and ignoring the state ratification debates.

Foreshadowing much worse abuses to come, a national bank bill was passed and signed by Washington as the result of a compromise involving the expansion of the District of Columbia to make it adjacent to Washington’s property on the Potomac river. Senators threatened Washington that they would withhold their votes on the DC bill until he agreed to sign the bank bill.

DiLorenzo shows that the creation of the Bank of the United States (BUS) resulted in what fractional reserve banking on a national scale must do- inflated the currency, prices rose 72% from 1791-96,  and created cheap credit for northern industrialists, but increased costs for southern planters via import tariffs to pay the service on increased government debt. Thus the regional cracks became sectional divides.

One of the most interesting aspects of the BUS is that the corruption and growth of centralization it spawned at the national level created resentment and opposition at the state level. Several states imposed exorbitant taxes on state branches of the BUS. One of these was Ohio which actually imposed a $50,000 per year tax  in spite of a ruling by John Marshall’s Supreme Court claiming that it was unconstitutional, which it collected (two-years worth) from the BUS branch by force of arms.

The BUS sued Ohio deputies on the basis of Marshall’s decision which earned it the equivalent of a legislative “raspberry,” the Ohio legislature declaring the Supreme Court’s decision meaningless under Ohio’s 10th amendment sovereignty. One wonders if the current Ohio legislature will pass a resolution (HCR 11) in the current session which simply declares that Ohio retains its sovereignty under the 10th Amendment, no forcible collection of taxes necessary?

DiLorenzo explains the common view that while Marshall’s court had usurped the authority of “judicial review” many of its decisions were simply ignored as mere opinion until after the War Between The States and why.

The book chronicles  Hamilton’s BUS legacy in terms of its impact on state banks after it usurped regulatory authority over these banks.  It did so by buying their bank notes, which necessarily kept them afloat, then redeeming their notes demanding payment in specie (gold,  silver and precious metal coins). In so doing it forced many state banks to overextend well beyond their specie reserves causing bank runs.

Favored state banks were not subjected to such treatment but state banks opposed to the BUS were savaged by it.  DiLorenzo explains how policy set by the BUS continued to wreak havoc even after the BUS was de-chartered in 1811 and went out of business. The US Treasury continued many of the BUS policies and even expanded some, due largely to the War of 1812, wreaking inflationary havoc and leading to a re-chartering of the BUS.

The re-institution allowed an inflationary, cheap credit (based on the fact that the BUS had paper out at about 10 times the specie available) real estate boom and an inflation of real estate values followed by a huge bust, the country’s first depression, the Panic of 1819, where real estate values plummeted causing a huge increase in bankruptcies and a lack of available credit causing a decrease in production. Sound familiar? DiLorenzo uses the details of what has been related here to quickly explain, in simple terms, the Austrian theory of boom-bust cycles caused by centralized credit interventionism.

Andrew Jackson, a Jeffersonian, was so appalled by the blatant abuses of power and economic corruption engaged in by the BUS, especially its president, Nicholas Biddle, that he determined to destroy it before its charter expired. Jackson also offered his opinion that John Marshall’s Supreme Court opinion that the BUS was constitutional, was just that, an opinion. And he declared that he believed it to be unconstitutional.

Jackson’s actions toward the BUS were based on a number of factors which DiLorenzo explains well. Jackson stood for free-market economics, reduced tariffs, hard money (money backed by gold) and paying off the national debt. Thus Jackson’s Democrats were the sworn ideological enemies of Hamilton’s Federalists later Whigs and even later Republicans.

The book explains the brilliant methodology by which Jackson managed to drive a stake through the heart of the BUS vampire, though Biddle did not give it up without a fight. Before its death knell, Biddle attempted to manipulate credit so as to create a depression and he was successful in creating a short-lived recession. DiLorenzo chronicles how Jackson and Van Buren worked to establish the Independent Treasury System, considered by many to be the most stable monetary system of the 19th century. It was a hard money system.

The book goes into deeper detail regarding the continued legacy of Hamilton’s economic system; inflation, currency debasement and constant boom-bust, also called bubble-burst, cycles. Inflation can be a boon to unscrupulous politicians (a redundancy?) who use the newly created money to pander for votes, as long as they can slough off blame for the problem onto non-participants (the ubiquitous “middle-man,” private sector, “unregulated” businesses, etc.) or rival political parties.

The book chronicles how inflation is actually a hidden tax and how government interventionism essentially causes businesses to mis-allocate assets due to a lack of knowledge about future values. Hence, depreciation schedules are often meaningless and replacement of old equipment is discouraged. Consumers are also effected because they are not sure of the cost of an item in the future. Thus, they adopt a “buy now” philosophy which discourages savings  meaning less assets are available for investment. Once their credit is used up they retrench. The resulting boom-bust cycles are then blamed on a “lack of regulation” and new centralized restrictive policies are introduced to “fix” the problem, making things, in reality, worse.

In the concluding section of the chapter DiLorenzo asks the question- “how can someone as obviously brilliant, if not a  genius, have been so politically naive as to not know the destruction his system would bring?” He also begins to go about answering it. You’ll have to read it to find out that answer.

Next chapter- Chapter 4- Hamilton’s Disciple: How John Marshall Subverted The Constitution

Commentary, Economics, Biblical Worldview, Book Review

Hamilton’s Curse-Public Blessing or National Curse?

This entry is part 3 of 9 in the series Hamilton's Curse

HamiltonsCurseIs public debt a blessing or a curse?

Recent developments in our country, including a pending multi-trillion dollar spending package being pushed by the administration, would lead one to believe that if we just spend more, and thus embrace more debt, then the economy will take off: a blessing.

But is it, really? How did our founding fathers view public debt? In Hamilton’s Curse, Tom DiLorenzo addresses the roots of the issue, and the current crisis. In fact, he lets a cat out of the bag in the opening paragraphs of chapter two, when he states: “Goverment debt is every politician’s dream: it gives him the ability to buy votes by spending on government programs (with funds raised through borrowing) that will make him popular now, while putting the lion’s share of the cost on future taxpayers, who must pay off the debt through taxes.” Is this really the system our founding generation sought to bequeath to the American public when they instituted a government to secure the God-given, unalienable rights of life, liberty and the pursuit of happiness?

Take for example the current burden of the federal debt on each and every American, whether their votes have been bought or not, whether aged or just born this very minute: $184,000 per person in 2008 dollars, according to the national debt calculations performed by the Peter G. Peterson Foundation (www.pgpf.org), with a total national debt in the vicinity of $56.4 trillion. What, you say? Just recently you were told that the debt load was a measley $44,000 per person.

Not surprising, really, considering that the “national debt” that most commentators talk about does not include Medicare and Social Security obligations, but instead focuses on just the publicly-held debt (bonds) and money that the government borrows from itself, which is now in the neighborhood of $13 trillion alone. However, our government treats debt like a junkie treats his next fix: absolutely necessary, and the bigger, the better.

Jefferson considered debt to be a curse which “has decimated the earth with blood.” He wanted government debt obligations limited to at most a 19-year term, in order for the accrued debt to be paid off in the same generation in which it was entered. Jefferson had the right idea.

Hamilton saw debt as a blessing, holding the notion that debt gave “energy” to government (hmm, my junkie analogy seems fitting here), and that it was essential for growing the state. As the first Treasury secretary, Hamilton had an opportunity to see his program be adopted and exerted great energy in creating reports to the Congress to persuade them to adopt extensive government debt and taxation.

DiLorenzo explains how in at least two instances Hamilton used his position and policies to benefit himself and political cronies: not unlike what we see today in the politico-financial complex. One scheme saw the Hamilton faction being able to speculate on war bonds at a significant profit (and at significant loss to the veterans who held these obligations which the federal government, unbeknownst to them but fully known to the Treasury secretary and his New York associates, had fully funded to be repaid); another Hamilton scheme was to have the federal government assume each state’s war debts, thus nationalizing that debt and chipping away at state sovereignty.

However, Hamilton’s plans for a permanent debt cycle were generally thwarted, with exceptions of the periods of the War between the States and the Spanish-American war, until the eclipsing of Jeffersonian fiscal restraint by the policies (adopted by the politicians) advanced by John Maynard Keynes and his followers in the first half of the twentieth century.

DiLorenzo explains this legacy, and how this “debt culture” is a curse, not only on the nation, but upon individual enterprise and prosperity. We truly now have “Hamilton’s Voodoo Economics”: read the book and see why.

Executive Usurpation, Commentary, Economics, Biblical Worldview, Book Review

Hamilton’s Curse- The Rousseau Of The Right

This entry is part 2 of 9 in the series Hamilton's Curse

HamiltonsCurseRecently my two oldest daughters and I were talking about a “test” they’d taken on Facebook- Which President Are You? My youngest and oldest daughters were both Millard Fillmore. My middle daughter and I were both Calvin Coolidge. This goofy little “test” sparked a deeper discussion of a series on the presidents on the History Channel. I was given a copy of this series for Christmas and had already taken note of an interesting phenomena that is quite prominent in this series.

How do you judge whether a US President is good, bad or mediocre? What are the exact criteria that you use to make your determination? Careful. How you answer that question says a lot about your philosophy of American government. It is a direct indicator pointing to whether you are a Jeffersonian or a Hamiltonian, as described in the first post of the series.

In this chapter of the book, Dr. Thomas DiLorenzo, a professor of Economics at Loyola College in Maryland, lays the foundations necessary to explain which of these two basic philosophies we either consciously or unconsciously employ when evaluating the actions of government. Dr. DiLorenzo, a self described library rat, accomplishes this with research into the writing and correspondence of both Jefferson and Hamilton as well as other important thinkers in the Hamiltonian Federalist and Jeffersonian Anti-Federalist traditions. What his research uncovers is the vast differences between these two camps regarding constitutional interpretation, the relationship between state and federal governments, presidential power and the extent of judicial authority.

DiLorenzo chronicles the tireless efforts of Alexander Hamilton from 1780 onward to create a centralized national government. As the philosophical leader of what would later, during the two-year battle to ratify the new Constitution become the Federalist faction and then the Federalist party, Hamilton proved to be a shameless propagandist. He was critical of Jefferson’s supposed adoration of French radicals but he himself adopted the ideas and language of Jean Jacques Rousseau, the  philosopher whose ideas led to the terror of the French Revolution,  regarding the existence of the “general will” which is not necessarily expressed by the public but is “sensed by the ruling elite.” Hence, the “Rousseau of the right” moniker. Terms like “the public interest,” “the general interest,” and “the welfare of the community” pepper his work which was designed to gain democratic favor for his attempts to concentrate and centralize authority. The brilliant Hamilton wrote in a fashion designed to manipulate “the general will” into demanding “more vigorous government.”

It was this talent for constructing nebulous but compelling phraseology that made him one of the chief apologists for ratification of the Constitution. DiLorenzo points out that Hamilton took great pains to reassure the opponents of centralized national authority that the states would maintain their sovereignty. He also points out that this was pure deception on Hamilton’s part. Having worked for years to get a Constitutional Convention convened, he bolted the convention in June of 1787 after it became clear that both his own nationalist plan to eliminate the state governments and appoint an executive who would serve during “periods of good behavior” and James Madison’s plan that also eliminated the state governments were completely stymied by a strong TRUE federalist faction which wanted strong state governments and wanted them to be powerful enough to resist a vigorous central governments attempts to consolidate power.

Hamilton only returned to the Constitutional Convention in September after his true federalist New York colleague delegates, Yates and Lansing, had left and he had worked out a plan by which the new Constitution could be gradually “reinterpreted” to achieve his vision for the government. DiLorenzo does a masterful job of uncovering and explaining the strategy that Hamilton used in his day and which continues even today to weaken the state governments and grow the power of the presidency and the judiciary. In short, Hamilton is the father of the “living document” philosophy of constitutional interpretation.

DiLorenzo finishes the chapter with by recounting Hamilton’s role in the suppression of the Whiskey rebellion of Washington’s second term. Hamilton’s despotic actions in dealing with western farmers, many of them Revolutionary War veterans is one of the most revealing parts of the chapter. Hamilton eschewed negotiations in favor of conscripting an army to invade and conquer the rebellious areas, marching old, sick men through the snow in chains and then attempting to force confessions including implications of others, presaging the actions of one of his philosophical direct descendents, Abraham Lincoln’s actions in the southern states 67 years later.

Next- Chapter 2; Public Blessing or National Curse?

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Public Policy Radar, Commentary, Public Policy Principles News, Economics, Biblical Worldview

Constitutional Government 101

This entry is part 6 of 5 in the series Federalism, Democracy And Presidential Elections

constitutionOne can get so used to watching career party politicians stretch, bend, fold, spindle, mutilate or openly flout the Constitution that it comes as a shock when one of them actually makes a correct reference to it.

And that correct reference when wielded by a courageous legislator can be a “shock and awe” spectacle striking fear in appointed bureaucrats who have never seen the Constitution used as it was designed.

Just such a case has happened recently as Rep. Michelle Bachmann (R) Minn. as a member of the House Financial Services Committee asks a question that is rarely uttered and obviously a subject of dread among both the unelected nomenklatura and the elected representatives in attendance. The question that wreaked such havoc? “What provision in the Constitution can you point to to give authority for the actions that have been taken by the Treasury since March of  ’08?”

Posted below is a video of the hearing on from Youtube. Things to watch for:

  1. Chairman Barney Frank’s seeming (but not shocking) gender confusion. He seems to calls Rep. Bachmann “The gentleman from Minnesota.” Having met and conversed with Rep. Bachmann, this author can testify that there could be no mistaking her for a gentleman.
  2. The complete inability of Secretary Geithner to cite a single constitutional delegation of power, explicit or “implied,” for what he, the Treasury Dept. or the Fed are doing to the economy.
  3. Fed Chair Ben Bernanke’s a) suicidal tendency to rush in where angels fear to tread b) a complete inability to point to any actual constitutional authority other than an undefined congressional authority to appropriate funds and c) the American public should be kept in the dark because we are too stupid to discern how central banking works.


[youtube]http://www.youtube.com/watch?v=E9DgMG-_6Ls[/youtube]

What Rep. Bachmann gives here is a quick lesson in Constitutional Government 101, a class that should be required for all freshman Representatives and Senators an all members sitting for 2 terms or more. Note too, that Rep. Frank gives a lesson in old-style partisan political hackery. When Bachmann asks a question that will,  frankly, cause Geithner and Bernanke to only make the inescapable hole that they have dug even deeper, he quickly steps in so that they will not have to answer the question, since there is no good answer to it.

This is the kind of representation that Christian constitutionalists want. What we need in the United States Congress is 435  Michelle Bachmann’s and Ron Paul’s and 100 more like them in the Senate. Then we might, if we are as a nation sufficiently repentant and reliant on Christ as our guide, begin to dig out from the unconstitutional nightmare that is the federal leviathan.