The Road to Ruin

Right From the Start

“The American Republic will endure until the day Congress discovers that it can bribe the public with the public’s money. “

Alexis de Tocqueville


This quote has been written into so many articles that it has probably lost its impact. That is until you understand that it is not a prediction of things to come but rather a logical progression of governmental action. It recognizes the point at which government exists, not to serve the public, but to serve itself.The American Republic was founded on the principles of a free market economy (capitalism) and individual liberty. While a democratic government can only exist at the sufferance of the people, government can create a sufficient dependency in a majority of the people that they must support that government in order to continue to receive its largesse. And while democracy can continue in such fashion, it means the evolution from a capitalist based, free market democracy to a government controlled social welfare democracy – much like most of Western Europe. In all such instances individual liberty is subsumed in the name of the “greater good.”

Eventually, as evidenced by the decline and approaching bankruptcy of Western Europe, the cost of funding governmental dependency exceeds the ability to generate the revenue to pay for it. In the first stage you find the continuing growth of government and the increasing dependency on government welfare – government welfare in all its forms including direct welfare payments, bloated governmental employment, corporate welfare and burgeoning governmental grants. In the second stage you find the flight of capitalism to friendlier environs. In the case of Western Europe you can note that capital expansion has been near zero while friendlier environs such as Southeast Asia, India and South American have been the beneficiaries of capital flight. On a more local level you can note the number of wealthy individuals who left New York after its recent income tax increases and landed in places such as Florida, Texas and Arizona.

But all of this is simply a prelude to a hard look at Oregon.

I have noted previously that the Bush/Obama recession resulted in the loss of 152,000 private sector jobs. In the twenty-four months since the nadir of private sector employment, Oregon has recovered 31,900 private sector jobs. That is an anemic 1,330 jobs per month – in actuality Oregon has lost 3,400 private sector jobs over the last five months. Even if the downward trend reverses itself and Oregon moves back to 1,330 jobs per month, it will take another ninety months – seven and one-half years – to recover the jobs lost during the recession. And that does not account for the people who will have entered workforce availability in the interim.

There are approximately 2.95 million adults living in Oregon. The Department of Employment’s Oregon Labor Management Information System (OLMIS) notes that in February of 2012, there were 1,616,800 working in private employment. That means that less than fifty-five percent of adult Oregonians work in the private sector to provide revenue to the various levels of government.

In contrast, according to the United States Bureau of Labor Statistics, 179,114 Oregonians were receiving unemployment compensation at the end of 2011. That does not reflect the number of Oregonians that were actually unemployed but rather just those receiving welfare payments in the form of unemployment compensation. (Best estimates are that the actual number of unemployed in Oregon is closer to 350,000.)

That OLMIS database also indicated that there are 291,900 Oregonians working for state, federal or local governments – and that does not include all of the teachers. A recent story in the Oregonian noted that the number of Oregonians on food stamps increased to 800,000 with the expectations that it will top 840,000 by June.

While undoubtedly there is some degree of overlap between those receiving unemployment compensation and food stamps it is not an even match and probably less than fifty percent. At that level it would suggest that there are over 1,182,000 Oregonians directly dependent on government for their existence. Add to that figure the number of people who are employed in government subsidized industries (wind, solar and biofuels) and those receiving substantial government grants and a startling figure becomes even more disturbing. And those figures become even more disturbing if you can measure the number of households in Oregon (1.5 million) in which one or more members works for the government or receives food stamps. Those statistics are unavailable in a cursory survey of the internet but suffice it to say that it increases significantly the number of people directly dependent in whole or in part on government for existence.

“A democratic government is the only one in which those who vote for a tax can escape the obligation to pay it.”

Alexis de Tocqueville 

Oregon government has not only learned this lesson but practiced it as well. The Democrats, at the urging of their principle financial arm in the form of the public employee unions, crafted Measures 66 and 67 – significant tax increases on a minority of people. The vast majority of people voting on Measures 66 and 67 were immunized from the actual payment of the tax. What is now becoming increasingly clear is that many of those who voted for the tax increase are now feeling the ancillary impacts in the form of businesses closing and/or moving elsewhere and taking the jobs with them.

The Oregon Legislative financial arm has acknowledged that anticipated revenue collections from the tax increases on business have fallen substantially short. The Wall Street Journal reported:

“Instead of $180 million collected last year from the new tax, the state received $130 million. The Eugene Register-Guard newspaper reports that after the tax was raised ‘income tax and other revenue collections began plunging so steeply that any gains from the two measures seemed trivial.’

One reason revenues are so low is that about one-quarter of the rich tax filers seem to have gone missing. The state expected 38,000 Oregonians to pay the higher tax, but only 28,000 did. Funny how that always happens. These numbers are in line with a Cascade Policy Institute study, based on interstate migration patterns, predicting that the tax surcharge would lead to 80,000 fewer wealthy tax filers in Oregon over the next decade.

The tax wasn’t enacted into law until June 2009 but was retroactively applied to January 1, 2009. So for the first half of the year wealthy Oregon residents weren’t able to take steps to avoid the tax ambush because they didn’t see it coming. This suggests that a bigger revenue loss from tax mitigation strategies will show up on tax return data in 2010 and 2011. The Revenue Office has already downwardly revised tax collection projections for the first three years by one-third.”

In these examples you can see on a microcosm level the three stages of evolution from the American Republic known to de Tocqueville to a government controlled social welfare democracy. Government expands and creates dependency by employment and payments, government resources are insufficient to meet payments to those dependent, government increases the tax burden by increasing taxes on a minority group, and a portion of the minority responds by leaving and depriving government and the population of its resources.

The real tragedy here is that little is learned in the early days of this progression. In the middle stages dependency becomes so great that even the obvious is ignored in favor of maintaining and/or increasing the status quo and in the end the remedy is so harsh that it creates hardships on an extreme level. For those of you who not believe in the end game, I invite you to look at Greece and following shortly behind them, Italy, Spain, Ireland and France.

De Tocqueville was right – not because he was a prophet, but because he understood logical progressions.