Two Federal Courts found the health care mandate constitutional – in Michigan and in Virginia.  Two others, in preliminary rulings, indicate they will likely rule the mandate unconstitutional – in Virginia and in Florida.  For what it is worth, the former are both Democrat appointees and the latter Republican appointees.

The Michigan case is before the Sixth Circuit Court of Appeals, with briefs due soon.  The remaining Virginia and Florida cases are in Summary Judgment stage.   I believe the matter will be before the Eleventh and Fourth Circuits by next summer.  While other cases are pending, these are the primary ones to watch.

My analysis has evolved.  While I joined an amicus brief in Virginia, I plan my own for the Circuits.  My focus is primarily tax law and the Necessary and Proper clause.

Contrary to proponents’ arguments, the government must win on both the Commerce Clause and the Taxing Power.  Opponents must win on merely one.  Unlike others, I emphasize important distinctions between the Mandate and the Penalty: we must analyze the Mandate under the Commerce Clause, but the Penalty under both the Necessary and Proper Clause, as well as under the Taxing Power.

Clearly, the Mandate is unconstitutional under the CC.  Contrary to what the Michigan Court held, it attempts to regulate inactivity.  The Court, unfortunately, viewed not having health insurance as an economic decision subject to constitutional regulation.  I disagree.  Others have made that case, so I will not focus on it.  On a positive note, the Michigan Court – as have all others – ruled favorably for opponents on standing and ripeness.  The Court also ruled favorably on the Anti-injunction Act, a critical issue the Florida Court muffed.  The Florida judge correctly did not apply the Act; however, he failed to note the most important limitation: it precludes suits to enjoin taxes by any “person.”  States – the primary litigants in the Virginia and Florida cases – are not persons for purposes of the Act.

Even if the Circuits were to find the Mandate constitutional (I predict one or two will), they must then analyze the Penalty separately – something most commentators have failed to do.  To be constitutional, the Penalty must satisfy the Necessary and Proper clause of Article I, Section 8.  According to Hamilton in Federalist 33, this adds no powers; instead, it limits Congress to existing powers. Madison agreed, in part, in Federalist 44. Even the Supreme Court in McCulloch and Comstock used language effectively limiting N&P – at least in cases of over-lapping powers. Such is the case here. Congress can enforce a commerce regulation using implied police powers, seizure, Spending, prohibitory force, mandatory force, through engaging in actual commerce, or through levying and collecting monetary charges.

Most opponents view the Penalty under N&P via the CC. While I agree, I believe Courts must also reconcile it with the Taxing Power. Consistent jurisprudence, plus the writings of Hamilton and Madison support my view. In addition, the Taxing Power, as I explained in “Of Constitutional Decapitation and Healthcare” was the most important reason for the Constitution. As I further explained in “Oy Yes, the Healthcare Penalty is Unconstitutional,” the Penalty cannot survive the Taxing Power limitations.

Congress may impose duties and imposts, which the Penalty is not. It may impose excises, which the Penalty is labeled in part; however, it may not impose an excise on inactivity. This is critical: even if the Circuits find the CC power reaches “economic decisions,” as did the Michigan Court, no authority has ever found the Excise Tax Power to reach such things. Never. Thus, even if the Mandate passes the CC (which I doubt), the Penalty will fail the Excise Power.

Congress may also impose taxes on “Gross income from whatever source derived.” As I explained here and here, the Penalty fails to reach “gross income” “from” “source” and “derived.” The argument is complicated, but I remain very confident. Only two academics have challenged my arguments. I dealt with both here.

Congress may also impose a tax on individuals (a Capitation) or on land (other Direct Taxes). This is how one would properly classify the Penalty; however, such taxes must be Apportioned, which the Penalty is not.

Lastly, occasional an academic suggests a hidden taxing power heretofore undiscovered. I deal with this in my articles. I would be very surprised if the Circuits or the SC choose this analysis.

I predict the case will reach the SC in early 2012, if not late 2011. I’m not yet publicly stating my predictions on that outcome: mostly it depends on how the opponents argue the case.

Particularly interesting are the Court’s comments that the penalty is beyond the outer limits of the commerce clause so far.  At page 25, the Court states “Never before has the Commerce Clause and associated Necessary and Proper Clause been extended this far.”  The Court makes at least one very similar statement elsewhere.

That is rather strong.  Many commentators, including Constitutional Law Professors, have argued the case is a simple one . . . that the penalty easily fits within traditional Commerce Clause jurisprudence.  Clearly this Court disagrees with that notion – that the analysis is simple or that the penalty is consistent with existing cases.  I do not want to read too much into this.   By itself, it tells me nothing about whether the Judge might decide to extend the reaches of the Commerce Clause; however, I believe District Courts are generally hesitant to extend important Constitutional provisions, particularly in cases likely to be appealed.  Traditionally, Courts take a more restrained approach, leaving extensions, if any, to the Supreme Court.  Thus, this part of the case is predictive, albeit modestly so.

I continue to applaud the Anti-injunction analysis – particularly the ruling to the effect a State is not a “person.”  That is very important for the Florida case, in my opinion.  Similarly, the ripeness issue is substantial.  The Court clearly recognized the case is purely a matter of law and involves no substantial disputed facts; hence, it will not get any riper.  That, too, strikes me as very important.  I expect the other District Courts will pay close attention to that.

I was disappointed in the Taxing Power portion of the decision; however, I do not criticize the Court for that.  I suspect the issues were not fully briefed.  I have not seen the briefs in this case, so I am speculating.  As I have said elsewhere, the heart of the tax issue involves whether the penalty – if a tax – is an excise tax (subject to uniformity), an income tax (subject to the 16th Amendment realization requirement), or a Direct Tax (subject to apportionment).  I view the “General Welfare” issue in relation to the taxing power as unimportant.  Uniformity and Apportionment are the real issues.  At Part V. on page 25, the Court described the Taxing Power issue as “even closer” than the Commerce Clause issue.  To the extent the Court focuses on the “general welfare” limitation and on the authority of Congress to “regulate” through a tax, I agree.  However, I do not see the uniformity, realization, or apportionment issues to be close at all.  If this is a tax, it fails.  I suspect, the heart of the Taxing Power issues were not argued; hence, the Court did not discuss them except in passing.   I suspect future opinions will address the Taxing Power in more depth, as the litigants begin to argue the point more.

My more extensive study now appears in Of Constitutional Decapitation and Health Care. The article appears in the July 12, 2010 issue of Tax Notes, the premier publication on Tax Law matters. As I understand the copyright issues, I may post this link and you may download a copy for yourself. You may distribute the link – or a link directly to Tax Analysts; however, no one may, without written permission (from my co-author and from me), re-distribute the article.  Please read it and post responses here at Redstate.  Other blogs will likely feature the article; however, comments in them often include personal attacks.  I’d very much appreciate a source of more friendly – including critical – feedback.  The debate will continue – and you can help.

To summarize, a tax is constitutional in five ways:

1. It is a uniform Duty.
2. It is a uniform Impost.
3. It is a uniform Excise.
4. It is imposed on “derived income” consistent with the 16th Amendment.
5. It is a properly apportioned Direct Tax (which includes a Capitation Tax).

The Health Care Penalty satisfies none of these. No one claims it meets the first two.

As to number three, Congress styled it as an Excise Tax; however, it fails all traditional excise tests. It cannot be “passed on.” It is not imposed on a “transaction, use of property, or exercise of a privilege.” Indeed, it is imposed on the “failure to act.” Granted, current law includes at least eleven “Failure to Act” excises, at least in terms of how the Internal Revenue Code denominates them. But, each applies to an entity – rather than to an individual – and all actually apply to actions. For example, Section 4943 imposes an excise on Private Foundations which fail to distribute sufficient income. While styled as a tax on a “Failure to Act,” this is actually a tax on the affirmative decision to accumulate income in an entity – a far cry from the Health Care Penalty on the failure of an individual to obtain proper health insurance.

As to number four, the penalty fails to satisfy the 16th Amendment for many reasons. Above all, it does not cross the threshold requirement of applying to “derived” income. Historically, the Court has applied a “realization” requirement for income in terms of tax law. The decisions are many, and the evolution of the jurisprudential test has been significant; however, the ultimate test is clear. To be derived, the income must be an “undeniable accession to wealth, clearly realized, over which the taxpayer has complete dominion.” The penalty ostensibly taxes an individual’s income in general; however, any fair reading recognizes the “tax trigger” involves the “shifting of costs” and the “use of the health care system” without insurance. Indeed, the government has so argued in pending litigation in Michigan. If the income producing event is the use of the system or the shifting of costs, the penalty is premature. It cannot constitutionally apply – under the 16th Amendment – until an appropriate event, e.g., purchasing health care products or services without insurance. That would be an appropriate event for an Excise and arguably for an income tax; however, that is not what Congress chose to tax. It chose to tax the mere potential that someone might shift costs. The Court recognized in the Indianapolis Power decision that the mere potential for income does not satisfy the Section 61 realization requirement, which is identical to the language of the 16th Amendment. Hence, the penalty is not Constitutional under the 16th Amendment.

Which leaves number five. To be constitutional, the tax must be properly apportioned as a Direct Tax or a Capitation. It is not. No one claims it is apportioned properly. Hence, it must fail.

Many others argue violations of the Commerce Clause and the Tenth Amendment. I am sympathetic with those arguments. The recent Federal District Court opinion in Massachusetts regarding same-sex marriage and the partial unconstitutionality of the Defense of Marriage Act supports the Tenth Amendment claims. However, the Commerce Clause and Tenth Amendment objections are insufficient.

Any fair reading of Congress’ power to regulate Commerce would not extend to the Health Care Mandate. Note: I refer to the Mandate here, as opposed to the Health Care Penalty above: the two are different. However, even if the mandate fails, the penalty would likely survive unless the Court either rejects the notion it is a tax (which I believe it to be) or the Court finds the penalty unconstitutional under the Taxing Powers – which I argue. The same analysis applies to the Tenth Amendment arguments: even if the Act fails under the Tenth Amendment, it can survive as a Tax. Thus attacking it on tax grounds is essential. Thank goodness, it is not difficult.

If we forgo recognition, we lose the use of regular email for announcements, my role as advisor, some funding, the ability to reserve a room and to rely on the reservation (particularly food rooms, which are hard to come by).

If we keep recognition, we risk being taken over by an organized flood of non-believers.  In my life experience, this is a real risk.   I’ve seen it happen more than once.  I would never use such an amoral tactic against the ACS or the College Democrats, or the Muslim students or whatever . . . by I have little faith others will be so honest.

And what of the Boy Scouts and public schools?

A depressing day, indeed.

By the way, the Second Amendment applies to the States.  We may need it.

Of the many arguments regarding the unconstitutionality of the Health Care Act, its containing an un-apportioned Capitation tax is the strongest.

Article 1, section 9 of the U.S. Constitution provides:

No capitation, or other direct, Tax shall be laid, unless in Proportion to the Census or Enumeration herein before directed to be taken.

As the Supreme Court correctly explained in Knowlton v. Moore, 178 U.S. 41 (1900), Congress may levy either direct or indirect taxes.  Direct taxes must be apportioned among the states by population.  Indirect taxes must be uniform.  The Constitution specifically authorizes indirect levies such as duties, imposts, and excise taxes.   In 1913, the 16th Amendment authorized an income tax without apportionment, essentially treating it as an indirect tax, which merely requires uniformity.

In the 1900 case, the Court approved as constitutional an inheritance tax, which it referred to, interestingly, as a “death tax.”  Such a tax was an excise tax because Congress levied it on the activity of transferring wealth at death.  It was not, as the Court explained, a tax on property or a person or income, each of which would not be an “excise tax,” but instead would be a direct tax necessitating apportionment.

The Patient Protection and Affordable Care ACT of 2010 requires all individuals – whom it inconveniently refers to as “taxpayers” – to pay a “penalty” on their failure to act, i.e., on their failure to purchase proper health insurance or to enroll in a proper plan.  I know of no case describing inactivity as the type of transaction or action which can be the subject of an excise tax; indeed, I doubt such a case exists.

Certainly, the “penalty” is not a “duty” or an “impost” and is not constitutional under either of those terms.  Hence, in my opinion, the only thing the “penalty” can be is a direct tax and, more particularly, a Capitation or per person tax.  Such a tax is constitutional, but only if apportioned among the states consistent with the census.This Lack of Health Care Tax is not properly apportioned.Hence it is unconstitutional.

Consider this: Massachusetts arguably provides proper insurance to all residents (or citizens, domiciliaries or whatever the requisite connection); hence, no individual in Massachusetts would be liable for the Lack of Health Care Tax on inactivity.  Florida, however, does not provide or require proper insurance; hence, some Floridians will be liable for the flat $750 failure-to-act Lack of Health Care Tax.  That is unconstitutional because it is not apportioned among the states.  If 5% of the Florida population must pay the tax, then the same portion of all states’ populations must also pay the tax – the burden must fall equally upon the states, at least per capita; otherwise, it is not apportioned among the states.Such a direct tax cannot favor either the wealthy or the poor states, as explained by the Supreme Court in Knowlton.The Lack of Health Care Tax, however, will unduly affect – disproportionately affect – less wealthy states.

Proponents have three possible defenses to the Capitation attack:

1.The Health Care Tax is not a tax and thus not subject to apportionment or uniformity under Article I.

Congress placed the “penalty” in the Internal Revenue Code.While called a “penalty,” the provision appears in new section 5000A of Subtitle D, which deals with excise taxes.As such, it is more a tax than a “penalty.”Indeed, the Act uses the term “taxpayer” 119 times.Also, the new provision clarifies that it is not a criminal penalty per section 5000A(g)(2)(A).That eliminates any claim it is a criminal statute rather than a civil tax.

Further, per section 5000A(g)(1), the penalty//tax is to be assessed and collected as an “assessable penalty” under Chapter 68 of the Code.Per I.R.C. section 6671, assessable penalties “shall be assessed and collected in the same manner as taxes.” (Emphasis added). While having differing names, “Additions to Tax,” “Additional Amounts,” and “Assessable Penalties” are all “taxes” under the Code. Also, with inapplicable exceptions, section 6671 provides “any reference in this title [Title 26 of the United States Code, a.k.a, the Internal Revenue Code] to “tax” imposed by this title shall be deemed also to refer to the penalties and liabilities provided by this subchapter.” (Emphasis added). Hence the face of the new law – as well as the current Code – deems this to be a “tax.”The Act refers to the Lack of Health Care Tax as a tax and provides that it is assessed and collected as a tax on “taxpayers.”Hence the potential “this is not a tax” argument is laughable.Of course the Lack of Health Care Tax is a tax.Perhaps some people could argue otherwise with a straight face, but they’d better be good actors.No ethical attorney can make such a frivolous argument.Apologists for the Act must eat the words of Congress . . . namely “tax” and “taxpayer,” as well as the placement in the Internal Revenue Code.

2.The Health Care Tax is a tax, but it is an excise tax and thus must only be uniform, which it is.

While the face of the statute deems the Lack of Health Care Tax to be an excise tax, it is not an excise tax as provided by Article I Section 9 of the Constitution.It is not a tax on the use of property or on an activity or transaction; rather, it is a tax on inactivity – a tax on nothing.If this is an excise tax, then it essentially taxes breathing.It thereby guts the “capitation” provision of the Constitution. Thus, of course, the argument is ridiculous.

Hence, the defense “this is a uniform excise tax” is also not credible; indeed, it is worse than disingenuous: it is at best a cynical attempt to gut the plain language of Article I.Other than the self-serving label placed upon the tax by Congress, this is nothing like any existing excise tax. Current excise taxes apply, inter alia, to alcohol, tobacco, gasoline, tires, telephone usage, and political activity by charities, self-dealing by disqualified persons and Private Foundations, and Excess Benefit Transactions of Public Charities.Common to all such excise taxes is the presence of some thing or some activity.Arguably, section 4942 applies to the failure of a Private Foundation to distribute sufficient income; however, such an argument lacks merit as an example of a tax on inactivity.Instead, section 4942 imposes a tax on the retention or accumulation of income or wealth – an action and a far cry from a tax on breathing.

The potential claim that the Lack of Health Care Tax is indeed a new kind of “excise tax” would perhaps be a bit more than frivolous – because breathing is at least minimally an activity – but not by much.I’m not quite ready to state an attorney should be subject to sanctions for making this argument, but were I the judge, I’d consider it.

To sum it up: a tax on breathing is not an “excise” in any credible construction of Article I; instead, it is a head tax – a capitation tax – which must be apportioned among the states, which this one is not.

3.The Lack of Health Care Tax is an Income Tax and thus Constitutional under the 16^th Amendment.

While the $750 tax is partially a function of a taxpayer’s or household’s income, that is only for purposes of providing a reduction in the amount for those who cannot afford the tax.Otherwise, it is a flat $750, which is a textbook example of a head tax or capitation tax.Imposing the partial income function element on the tax appears to be a direct attempt to hide this under the guise of an income tax.But, the face of the statute refers to it as other than an income tax – as an excise tax in Subtitle D rather than in Subtitle A, which deals with Income Taxes.Plus, the income effect merely permits a reduction in the otherwise flat head tax.

This is not a tax on income; instead, it is a flat tax which allows a credit for people with low income.Thus the income consequence is negative rather than positive: a benefit as a function of income rather than a detriment.Perhaps one could call it a negative income tax for some persons; however, for those subject to the $750, it is a head tax unrelated to income.A flat poll tax could have exemptions and still be properly apportioned; this one, however, is not.

Thus the “this is an income tax” defense is not credible.The argument may pass the “laugh” test and be a tad more than frivolous, but it should not convince anyone who is not congenitally gullible.

I agree with the state sovereignty and commerce clause attacks; however, I have concerns about them being winnable.  In contrast, I’ve not yet see a colorable flaw in the capitation attack. It should succeed.

]]> http://www.redstate.com/steven_willis/2010/03/24/of-constitutional-de-capitation/ “I set the rules.”

–Rep. Baron Hill (D-Ind), soon to be former Representative if there is justice in Indiana.

Watch this incredible video in which the Representative denies a Journalism student permission to video-tape “His” Town Hall meeting. He does so because he fears it might end up on You-tube, which, of course, it did . . . because, little did he know, someone else was filming.

Does he not realize how small video cameras are these days? That alone should disqualify him from national office.

I’ve been wondering about the early predictions of Democrat House losses next year. Chalk this one up to a possible switch.

The official policy of the Democrat Judiciary Committee Chair is NOT to read legislation before voting on it.  Worse, he says even his staff lawyers lack the time to read the proposed legislation – so they can tell him what it says – before he votes on it.

Watch this incredible video clip.

While Conyers (D-Mich) may not be directly involved in the health care debate, surely he has an obligation  to know what is in a bill before he votes.  Has he read any of the supporting material regarding Judge Sotomayor?  Did he read the stimulus legislation?  How about Cap and Trade?  Rather than spending time speaking at the National Press Club, should he not be reading the things on which he is voting?

Granted, I’ve never given much credence to Legislative History – I’ve always doubted whether most members read most bills.  But openly admitting that even the staff lawyers neglect to read the bills . . . well, that is just amazing . . . and I’m rarely amazed at anything anymore.

I agree with Rep. Conyers that it may take at least two days to plow through 1000 pages.  But that would seem to be his job and the job of his staff members.  So start reading already.

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As I end two weeks teaching in Poland, let me share some depressing thoughts.

• Poland is a beautiful country with good people; but the economy is hurting.  Compared to past years, few people are in shops, few in restaurants – both in Warsaw and Krakow.
• Lawyers and academics are eager for advice: should we lower taxes, reduce spending . . . or should we follow America and do the opposite and by that probably obtain full EU privileges?  My answer is always to follow their instincts: the best government is the one which governs least.  Older people listen while the young do not believe.  Capitalism built this county so fast, the young have too little memory of how bad a government can be.
• Sarah Palin has a terrible reputation in Europe.  That truly saddens me, but the press here hurt her more than in the U.S., which is hard to imagine.

My lectures on tax have been technical.  But my lectures on economics and finance have been pessimistic.  Perhaps too much.  In general, I believe the time for recovery is now past for a generation.  Spending trillions we do not have will be inflationary in a few years.  In the short run, things will worsen, but then spending will kick in and people will feel better.  Democrats will expand in 2010 – in Congress and in Legislatures.  They will control the census and re-districting.  By 2012, inflation will be a major problem.  The best we can hope for is to take back the House and Presidency, which will be insufficient.

People, especially students, ask me: what should we do.  My best answer, last night, was two-fold:

1. Your government should lower taxes, lower regulation, and forget about the Euro.
2. You should do what you do best.  Only you know.  I do not know and your government does not know.  You know.  So do it.  If you have a system in which you will reap most of the rewards, but also suffer most of the risk, you will, collectively, make the correct decisions.  If instead, you must share most of the reward and you risk little, most of you will do nothing or you will take the safe way out. In that case, everyone will lose.

They asked, which country will lead the future . . . the U.S., China, India? My thoughts:

1. China has too many systemic problems with far too many people and poor infrasturcture in much of the country.  The U.S. bonds it holds are just paper and are thus worthless.  I wish the Fed would print an extra trillion dollars, send Sec. Clinton to China and pay them off.  I do not worry about China.
2. India is in worse shape.  Watch the movie.  Those problems cannot be solved in ten years or fifty years.  Much of their problems involve entrenched religious issues, which can take hundreds or thousands of years to overcome. Do not look to India for leadership.
3. The U.S. is, at least for four years, on a downward spiral.  Russia being poor is the best thing, but it is also scary: a hungry bear may be weak, but it can also be viscious.  If Russia seeks Georgia, Obama will not help.  If Russia moves on Ukraine, Obama will not help.  If Russia moves on Poland, America will demand Obama help.  But, if America weakens, do not look to the Germans or French or the EU to save you. You are then on your own.
4. Humans will survive and the strongest and most ingenuitive will prosper.  That requires small government and flat, fair taxes.  The percentage of tax to GDP is important, but the broadness is most important.  When a majority of the people pay no tax and thus can vote to make the minority give them things, all is lost.  The majority (with many individual exceptions) will impose its will and the minority (with some exceptions) will quit trying hard.  Thus I cannot predict which country will come out on top until I see how much freedom it has, whether its tax system is fair, whether its regulatory system is reasonable and small, and whether it has guns.  Unfortunately Poles have no guns.  That is their biggest mistake.  For now, America will keep you safe . . . but if you are on your own and your economy becomes strong because of a good system, someone will try to take it from you.  If they have guns, and you do not, you will lose.

They ask what caused this crisis. My thoughts:

1. Democrats created Fannie Mae and Freddie Mac, with stupid Republican cooperation.
2. Democrats passed laws and forced or encouraged lenders to lend to people who could not afford what they borrowed.  Stupid Republicans went along, believing in home ownership without remembering what “ownership” means.  Title to a house, with debt that need not be re-paid, is not ownership in real terms. It is a fiction.
3. Republicans saw what was happening.  Look back at Wall Street Journal editorials in 2002-2004.  By 2005, some Republicans were yelling about it.  They should have been screaming. Democrats blocked the chance to stop the wreckage.
4. Mark-to-market accounting rules, adopted under Clinton, but also pushed under the Bush SEC made solvent banks appear insolvent.  That became re-enforcing and the snowball effect became real.  Banks and hedge funds which saw this early, passed on much of the problem to other countries. That was not nice, but capitalism has no morals.
5. TARP stabilized the banks with half the appropriated money.  The government should have then stopped.  It did not and it will not.  It will make things worse. It is too late to stop it.

What should I do?  My answers:

1. Stay in law school, or economics school. Obtain your degree.
2. Instead of drinking and going to the bars at night, learn some useful skills.  Learn to sew so you can repair your socks and sweaters.  Learn to plumb and to wire and to hammer, so you can repair your home or flat.  Learn to fix your car.  Learn to grow food.  Know how to do something basic that people need to know.  Your parents have allowed you – just as we American parents have allowed our children – to grow lazy and overly reliant on an economic system that does not have to work and on an American military that does not have to remain strong.  I hope the economy works and America can protect you forever; but, in case my hopes do not come to pass, learn to help yourselves – especially in the basics of life.
3. Money and greed are essential for capitalism to work.  That is the macro view.  But in a micro sense, money will buy you nothing of value other than subsistence living.  Beyond that, it is just money.  Trust in your religion and your family and be a good person.  Religion is largely dead in Old Europe and in much of America.  Do not let that happen to you on a personal level.  If you do not like your parents’ denomination, find another.  God is God, be he worshipped as God or Jehovah or Allah or under many other names.  Fundamentally, the human sole needs God.  Without Him, the rest means nothing.
4. Optimism is what we need. But, be prepared, nevertheless.

Most American Professors who visit here and other European countries paint a picture of Obama as the savior and strong government as the solution.

My friends, we have lost Academia, we have lost the press, we have lost the Congress and the Presidency and the census.  We are giving money to Hamas and we are debasing our currency.  We are raising taxes nationally at the worst possible time.  We are forcing states – through mandates – to raise taxes locally.

Our last hope, I believe, is the 10th Amendment.  Governors should just say no.  Bobby and Sarah should lead the way.  Let California go bankrupt.  As a Floridian, I do not want to pay for their mistakes.  At some point, I will not.

Invest, if you can, in skills, religion, guns and gold.  Some scotch would probably help.

I hope, I pray I am wrong.  My gut tells me I am not.  It is over and we are on our own.  Ultimately, however, that is the nature of the human condition.  May God protect us all.

_______

“Let it be said, I fought the good fight, I finished the race, I kept the faith.”
Paul, Second Timothy 4:7, The New Covenant.

Steve Willis
Professor of Law
University of Florida College of Law

Visiting Professor of Law, University of Warsaw

WASHINGTON (Reuters) – The U.S. Senate failed on Thursday night to reach a last-ditch compromise to bail out automakers, effectively killing any chance of congressional action this year.said in remarks on the floor.

Republican-brokered talks faltered, leaving the chamber at a dead end on an approach for extending $14 billion in loans to avert a threatened collapse of one or more automakers, Senate Majority Leader Harry Reid said in remarks on the floor.

“It’s over with,” Reid said.

Futures markets are down, as are Asian markets.  That may seem bad – and it may be in the short run – but in the long run it will be just fine.

Today, however, if you bought $1,000,000.00 in 1-month T-bills, you would receive $1,000,000.00 back in 4 weeks.

And, if you paid $1,000,0025.56 for 3-month T-bills, you would receive $1,000,000 back in three months.

Long bonds traded late today at an all-time low.  Six month bills, 2-year notes, 5-year notes, and 10-year notes are either at or very close to their all-time lows (in term of yield – all-time high in terms of price), as well (yesterday was a low interest day, too).

For those who follow the bond market, this is stunning.  Until two weeks ago, the 30-year bond had never closed with a yield under 4%; it now is very close to closing below 3 %.  It is at 3.04%.  Essentially, Treasury inflation-indexed securities have been negative for a couple weeks.

Negative interest rates make my Financial Calculations For Lawyers and Tax Timing classes bizarre.  Before today, I argued that negative interest rates were theoretically impossible.  But large investors prefer to pay the Treasury to store money than to risk it in banks or corporations or commodities or land.

I fear the market is telling us to invest in guns and gold.  I guess if one had the latter, he’d need the former.  Too bad I hate guns and cannot afford much gold.  Perhaps Scotch will be a good substitute.

SJW

As Ronald Reagan said when he saw a pile of crap: there must be a pony in there somewhere. Well, I know the fundamentals of our economy are strong. As Sarah said, we just need government out of the way. There is a pony somewhere in this load of crap the Senate created. There is still a good bill. BUT, the House must strip it of all the Pelosi Pork.

If the Pelose Pork remains, I encourage my Republican colleagues to kill it. We will survive. The market will work. A McCain/Palin Administration will provide sensible regulations to fix this. Plus, we’ll rid our system of senseless regulations.

Three years ago I sponsored a bill to fix Fannie and Freddie. Barrack Obama opposed it. Lay this mess at his feet – where it belongs.

PALIN: As presiding officer of the Senate, I will see to it that everyone has a fair chance to be heard. When Democrats such as Harry Reid try to shut people up – like they tried to quite John McCain, I will see to it that Harry Reid sits down. It is time for grown-ups to run the Senate.

I agree with John, lets get rid of the Pelosi Pork.