Mr. Obama Speaks Truth to Power - In Africa

No business wants to invest in a place where the government skims 20 percent off the top, or the head of the port authority is corrupt. No person wants to live in a society where the rule of law gives way to the rule of brutality and bribery. That is not democracy, that is tyranny, and now is the time for it to end.

- President Barack Hussein Obama, on the need for reform in Africa, New York Times quote of the day, July 12, 2009

Truth doesn't get any more vivid than that.  Read Mr. Obama's first sentence again - "No business wants to invest in a place where the government skims 20 percent off the top..."

Obama to Power - Skim Destroys Jobs

Mr. Obama's observation applies to the United States as well as to corrupt African regimes - businessmen won't invest if they think government will skim away their profits.

Scragged wrote of an investor who walked away from a promising start-up right after the election because Mr. Obama wanted to raise the capital gains tax in the interest of "fairness."  America's capital gains tax was reduced to 15% in 2003 with a provision that it will go back to 20% in 2010 unless a new law is passed.

What's a capital gains tax?  If you invest in a new business and it fails, you lose your investment.  If it succeeds, you can sell the business for more than you put in.  The difference between what you get and what you invested is called a "capital gain."  Our government imposes a 15% capital gains tax; this tax is skimmed "off the top."

Mr. Obama told everyone that investors don't appreciate being skimmed.  Most nations have no capital gains tax at all.  Why?  Why would any government give up revenue?  It's because most investments lose money.

If someone invests, which always creates jobs, government gets income tax from everybody who works in the new business whether the business succeeds or fails.  The government makes money from day one either way, so a wise government wants to encourage people to found businesses, regardless of whether or not they eventually make a go of it.

Sensible governments know investors won't bother to invest if they know the government will skim too much.  Having pointed out that 20% skim is too much for African investors, will Mr. Obama realize that raising the American capital gains tax to 20% in 2010 would be too much skim for American investors?

Some American politicians may be hearing Mr. Obama's message.  The Wall Street Journal published "Democrats for a flat tax" which said:

By the end of the month, a commission she [Karen Bass, Democratic speaker of the California State Assembly] pushed to create is expected to recommend that the state adopt a flat (or at least flatter) personal income tax and cut or repeal corporate and sales taxes. [emphasis added]

Ms. Bass told the Journal that she worried about the state's heavy reliance on 144,000 wealthy people to pay half of all income taxes for a state with a population of 38 million.  Some Democrats realize that taxing wealthy, job-creating people who can easily move to no-tax states such as nearby Nevada or distant New Hampshire is a bad idea.

144,000 people pay half of all incomes taxes in a state of 38 million!  Where's the justice in that?

Could it be that those people are tired of government skimming so much off the top?  Might that be why so many well-off Californians are leaving for lower-tax states?  Ms. Bass may realize that the Massachusetts government killed the Massachusetts Miracle and that the taxes she's favored are killing the California miracle.

We hope she takes Mr. Obama's anti-skimming speech to heart.  We also hope that she'll share her new-found wisdom about tax rates with the Democrats in the US House of Representatives who're planning to raise tax rates on the "wealthy" to 35% to pay for Mr. Obama's health care illusions.  Mr. Obama said businesses won't invest when government skims 20%, how will businesses react if our government skims 35%?

Obama to Power - Corrupt Courts Hurt the Economy

Mr. Obama also spoke truth about the justice system; he said that nobody wants to live "where the rule of law gives way to the rule of brutality and bribery."

We don't get all that much brutality in the American court system, for which we can all be grateful, but we sure do get bribery.  When Chrysler and GM passed through bankruptcy court like greased lightning, the United Auto Workers and the US government, who were junior creditors, were treated far better than the senior creditors who should have gotten all their money back before the junior creditors got any.

What's the most important consideration when someone lends money?

Americans should be more concerned about the return of their money, than the return on their money.

- Mark Twain

People who bought GM and Chrysler bonds bought mortgages on physical assets; they were senior creditors.  For the past century or so, bankruptcy law said that senior creditors like bond holders were paid before junior creditors like the UAW and the government.  The biggest bankruptcy in history went down contrary to law - the junior creditors were treated far better than the senior creditors.  The courts were manipulated to corrupt the rule of law.

Why did the US government lean so powerfully in favor of the UAW's interests against the centuries-old rules of bankruptcy precedence?  Only a fool would think that the millions of dollars the UAW invested in electing Obama and a Democratic majority had nothing to do with it.

The union bosses' political contributions may have been legal, but they were bribes nonetheless; bribes with a handsome payback, it now appears.  We've written that investing in politicians gives the highest and least risky returns of any investment - you don't always have to put your money up until after you've received the return!

The UAW invested millions of dollars getting Mr. Obama elected.  It's natural for the UAW to expect a return on their investment, that's why they supported him.

If Mr. Obama really knows that nobody wants to live in a country whose courts can be manipulated by people like the UAW who're connected to the top dog, why did his administration manipulate the courts?  Actions speak far louder than even his magnificent words, what message is he sending to investors?

Now that everybody knows that American bankruptcy laws are subject to manipulation, corrupt regimes will be encouraged to steal even more.  Will investors who want to get their money back be willing to lend money to companies with strong unions?  They'll lend, sure, but they'll want extra-high interest to compensate for the risk that the government will steal their money to protect the union.

In saying that 20% tax rates and manipulable courts are "...not democracy, that is tyranny, and now is the time for it to end," Mr. Obama spoke truth to the powerful in Africa and in America as well.  Did he listen to his own speech?  Or did it slide smoothly through his teleprompter without making any impression on his mind?