Rufus King Speaks on Responsible Government Contracting

“My transitions from New Englander to nationalist, and from soldier to lawyer, and from Senator to Ambassador (to Great Britain), and from Presidential candidate to abolitionist gave me both hope for the success of our nation and concern that the government have the integrity to do the right things in the right way.  I am concerned that the polititians of today seem to spend as much time trying to hoodwink their compatriots and other citizens as they do in representing their constituents.  In many ways the structure of the system seems to have led to this situation.

“Overruns on government programs have been a way of life for many decades.  Numerous reasons for these overruns exist and have been explored extensively.  Solutions have been recommended, but the problem continues and continues to grow.  All parties involved contribute to these problems because the fundamental structure of the system incentivizes bad behavior.  Let me explore the parties involved and explain the incentives.

The Congress approves programs and appropriates the monies to complete them.  Their incentive is to get the best possible deal for the public.  Of course, they have little in-depth understanding of many of the complex systems they authorize and they insist on details that give them more control over where (which Congressional district) the monies are spent.  As a result when budget cuts occur they often cut areas that result in increased risk for the program.  They also insist on oversight of cost, schedule and performance of the program and sometimes penalize the program when all of these factors are not on track.  A well known saying in the world of program management is: ‘Cost, schedule, performance – pick two.’  Because of uncertainties in complex programs, it is usually not possible to get all three items predefined unless the program is over-funded (which is the same as cost being unconstrained) or the program has very modest performance goals (which is the same as performance being unconstrained.)  Further, there is little discipline in the budgeting process for future years so programs that might require substantial commitments 10 or more years after the initial funding are not adequately funded in those future years.

The using agency is the second party.  They have the responsibility to define the required performance and when they need it.  Unfortunately, world events that unfold during the course of the program often lead to changing requirements and timelines.  As a result, program changes are often made that result in cost and schedule increases.  Not all of these changes are essential and frequently a combination of minor tweaks lead to significant cost and schedule impacts.  The using agency is incentivized to get the most performance possible without killing the program, thus they tend to continuously grow performance requirements because the initial program was probably funded at a bare-bones level.

The third party involved is the acquisition agency.  Their incentive is to deliver an acceptable product within the given cost, schedule, and performance parameters.  They have to deal with both technological uncertainty and incompetence in the contractors actually performing the work.

The fourth party is the performing contractor who is incentivized to win the contract and make money on it.  Presently decisions about whether or not to bid and how much to bid can be influenced by the likelihood of contract changes after initial award – such changes are no longer competitive and can be viewed as an opportunity for the contractor to ‘get well’.  The likelihood of such changes must be driven to a very small probability if the contractor is to be incentivized to make a bid that captures the true cost of the procurement.

Abraham Baldwin Speaks on Taxes

“My experiences as a Chaplain during the War, as Yale’s Professor of Divinity, as a lawyer in Connecticut, and as a state legislator and as Representative and Senator from Georgia have given me a unique perspective.  I considered the Constitution the most important public service I performed during my career and I believe it is important that we got it right and acceptable.  As one of the authors of the Great Compromise, and throughout my political career, I have attempted to establish positions that benefit all parties.  I am disappointed that today’s political situation seems to be comprised of a vast series of taxes each of which benefits some particular special interest and few of which benefit the nation as a whole.

“Taxes have become so pervasive and complex that an entire profession has arisen to provide citizens tax advice.  We believe that taxation without representation is unfair, yet can an individual even understand how his taxes are being collected and used in such a complex environment?  Many features in the tax code are designed to provide incentives for desired behaviors, yet every one of these have unintended consequences (loopholes) that result.  If the government wants to incentivize certain behavior, why not do so directly rather than a convoluted approach that modifies taxes.  For example, home ownership is incentivized by making mortgage interest tax deductible.  As a result, banks benefit by increased interest payments to them, home ownership without a mortgage provides no benefit, and the richest portion of the population (which presumably has the largest mortgages) is rewarded more than the poorer home owners.  If the objective is to incentivize home ownership, why not make a fixed direct payment to home owners annually and avoid complex tax changes?

Numerous articles have estimated that the majority of taxpayers, either intentionally or unintentionally, file inaccurate tax returns.  As a result the Internal Revenue Service has grown from 15,000 employees (for 2,000,000 taxpayers) in 1920 to 90,000 employees in 2008 (for 140,000,000 taxpayers).  Numerous solutions to the tax code’s complexity have been proposed, but so many special interests benefit from today’s code that change has become virtually impossible. 

If we were to propose an income tax code, it would be simple, require little enforcement, and be ‘fair.’  Income gets touched in two places, the employer and the employee.  Of these, there are many times fewer employers than employees (approximately 8 million employers and 125 million employees).  If all the taxes were collected from employers rather than employees, the enforcement and auditing functions could be reduced at least ten-fold.  Taxes are withheld today by many employers at various rates which may or may not be consistent with the actual tax due.  If the tax were well defined, say a fixed percentage, it would be simple for employers to pay the correct tax and individuals would have no reason to even file a tax return.  Due to the regressive nature of such taxes, a fixed amount could be paid by the government to all wage-earning citizens.  The net effect of this would be to make the first increment of income (say income up to the ‘poverty level’) untaxed and all other income taxed at a fixed rate.  This rebate to all wage-earners (or even all citizens) could then be increased for items like Social Security or homeowner incentives and reduced for things like health insurance.  In any case there would be a single payment from the government to every taxpayer or citizen.  Another resulting benefit would be that wages of illegal immigrants would be more likely to be taxed because the employer becomes responsible for the tax.

But, what about unearned income, such as that derived from investments?  Consider what it means to invest.  A person provides another person, or business, with funds to produce a product.  Typically one or more persons are involved in the production of the product.  Each of these persons are paid from the investment funds and whatever they are paid is taxed.  Thus the investments are taxed.  The earnings from the investments are derived from some entity purchasing the product at a price higher than the cost incurred in producing it.  The funds used to purchase the product are also taxed because they represent someone’s or something’s compensation from some source.  Thus there are taxing mechanisms in place to capture a share of the unearned income without actually taxing it directly.  To some extent this is a regressive form of taxation because most investors are from the upper income brackets and most workers are from the lower income brackets.  However, I believe that the tax reforms proposed here compensate for that by eliminating many of the deductions that also tend to favor the upper income brackets, and the further benefit of reducing the number of taxpayers by employers rather than individuals paying the taxes justifies this approach.

Corporate taxes are the next issue.  As discussed earlier, businesses which create wealth should pay no taxes.  Those that simply transfer monies or generate no new wealth directly should be taxed at a fixed rate based on their earnings.  The tax rate should be the same as the payroll tax rate.  This prevents transferring of earnings to employees to avoid the taxes.

Thomas Fitzsimmons Speaks on Wealth

“I have argued before you that it is necessary for the Federal Government to tax (and to raise revenue in other ways) as well as to regulate commerce appropriately.  While many of my views were rejected in our past deliberations, they have more than been adopted in the present government.  Having served for years as an elected representative on the House Ways and Means Committee, I think I understand the difficulty in obtaining adequate revenue for the operation of the government.  However we must never lose sight of the underlying principles that must govern government economics.

 “It is important that we consider not only what the functions of the central government are, but also how it should accomplish these functions.  A heavy handed approach is totally inappropriate within a voluntary union.  Rather, information and incentives should be the means of achieving the desired goals.  In general, individuals and States should be able to make their own decisions on matters of their own interest and the results of those actions and decisions should be widely available for others to learn from and take, or avoid, similar actions.”

“The current government has strayed far from these principles.  In particular, there has developed a greater focus on “fairness” than on liberty.  The resulting emphasis is on the redistribution of wealth within the country.  This is not an appropriate function of the central government except in the direst of circumstances.  Redistribution of wealth should be avoided as a rule.  Rather, the central government must focus on actions that create more wealth within the country and rely on natural processes to appropriately distribute that wealth.”

“This brings us to the issue of ‘What is wealth?’  This nation has taken a turn toward an economic environment that spends most all its effort in manipulating rather than creating wealth.  The only true wealth creation occurs when a product that has continuing tangible value is made.  The best test of this is whether the product can be legitimately sold and resold multiple times.  Examples are automobiles, music, books, software applications, etc.  Products that are not wealth creating are generally classed as services.  While services are valuable and necessary, they are not, in themselves, wealth creating.  Examples are banking, haircuts, oil changes for the automobile, medical care, etc.  The economic policy of the nation must focus on incentivizing wealth creation, even at the expense of services if necessary.  It is disturbing, and threatening to the national security, that businesses are incentivized to move many wealth creating activities to other countries.  I fear that these policies are driving the country into poverty because the demand for these items is mostly discretionary and, in hard times, can be curtailed with drastic impact on the economy.  Tangible products, unless they become obsolete, will always be in demand somewhere. ”

“The government has evolved into a huge entity that has the unshakable belief that it knows best what is good for all, rather than simply a manifestation of the will of the people.  We never intended that the central government evolve into this God-like entity.  We also intended that the States are the primary governmental entities and decision making bodies.  Little real authority rests in the States today and the result is a stifling of the natural diversity and differences that leads to creativity.  I maintain that a variety of approaches taken by member states of the union will provide better decisions for one of the two following reasons.  First, there are legitimate differences among the states in terms of geography, natural resources, moral beliefs, education, and others.  These differences lead to legitimately different solutions to the same issues.  Second, a variety of approaches lead to data which can be used to refine or consolidate the approaches based on facts rather than opinions.  This implies the need for a trusted keeper of the factual data rather than a central decision maker.”

“Vast amounts of time and energy are spent by today’s politicians arguing ideas and concepts for which there is no way to determine the correct answer.  (Not that we ourselves were immune to this particular vice, but we generally tabled such matters.)  In particular, moral issues, such as abortion and homosexuality, consume so much of the politicians’ time that one cannot help but think that they are simply ways to avoid addressing issues for which there might be a solution.  Just as we did not dictate that everyone who does not attend church on Sunday is breaking the law, so too should these issues, however repugnant to some, should be left to individual choice.  The Federal Government has no place in getting involved with such issues which are fundamentally religious in nature.  The politicians of today appear to use these sorts of issues as a means of making slanderous attacks on their political adversaries to divide every issue.  This is completely counter to the approach we took, which was to recognize that a large percentage of our objectives were common across all parties and we worked to implement these first.”

There is also the case of the marriage benefit or penalty.  Marriage is a social and religious issue and the government has no business in advocating, rewarding or penalizing marriage in any way.  There should be no tax, legal, or other benefits or penalties to any union of individuals be it marriage or civil union or partnership.  No government entity should even be allowed to ask whether or not a citizen is married for any reason other than national security issues.

“Lastly we looked at the individuals.  Personal responsibility and willingness to follow through on commitments has eroded alarmingly.  Pockets of these virtues are alive but large portions of the population feel entitled to being taken care of by the government.  We purposely left social support as an option in the Constitution, but it was our intent that any such choices were made by the States, neither directed nor funded by the central government.  It’s alarming how individual responsibility has eroded to the point where people are unwilling to fulfill commitments freely made.  For example, many people made bad decisions about mortgaging their homes in the early 21^st Century and a rash of foreclosures resulted.  The government has no responsibility to protect people from making such bad decisions or in ameliorating the results.  Similarly, during the same time, financial and other corporate entities were salvaged by the government.  Bad decisions by these business leaders were their responsibilities rather than the government’s and the leaders and their corporations should have suffered from them.  I know that the argument was made that the nation would suffer because of the adverse impact on the economy, but the solution should not have been to salvage the businesses or individuals but rather to provide incentives and information to assure that it did not happen again.  In the most drastic of circumstances the government could replace the function of critical businesses on a temporary basis but must not protect the livelihood, or even existence, of the offending individuals or businesses beyond what it does for every other individual or business.