Constitutional Convention on Tax Reform

April/26/2009 8:37AM
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On 4-23-09 Randy E. Barnett wrote an article for the Wall Street Journal titled The Case for a Federalism Amendment. He writes that states can resist federal power short of secession which Texas seems ready to do. Article V provides that, “on the application of the legislatures of two thirds of the several state,: Congress ” shall call a convention for proposing amendments” To become law, it takes ratification of three-fourths of the states. 

Normally, it would work like this. States can petition Congress for a convention to propose a specific amendment. Congress can stop the convention by proposing the amendment to the states before the convention happens. Barnett goes on to say one proposal would be to repeal the 16th Amendment enacted in 1913 that authorized a federal income tax. The treat of this could move Congress to make radical changes in the tax code, like a flat tax, a simplified tax, a sales tax to replace income tax, etc. 

Is it a radical idea to think two thirds of the states would vote for a Constitutional Convention? Look at the Red and Blue states in the last presidential election. The two thirds are there if someone pushes to get  them to agree. It is the only leverage the rest of the country has against the East and West coasts. They have the population and the power to elect the president. They have the electoral votes, but the opposition has a  majority of states, more than enough to force a constitutional convention. 

The media and the Democrats think the Tea Parties were a bunch of fools. The next step for the Tea Parties should be to get the movement going for a constitutional convention to force a change in income tax laws at the Federal level.

Google the red states in the last presidential election and see who many you think might vote for a constitutional convention. Two thirds could be done.

Commercial Mortgage Storm

When Peter Lynch was the guru of investments one of his tenets was to just  look around. He said he made many of his stock picks based on what he saw on the street, products he bought, and buzz from friends. 

If you want to know what’s coming in the commercial mortgage market, follow Lynch’s theory. The home mortgage problem didn’t happen overnight. It started slowly and blossomed fast.

Near my home in Arizona is a strip shopping center that opened 7 years ago. It was built on the come. Growth was exploding in the area and as the area grew, the demand for this shopping center would come. Get in early while property values were lower and ride the wave. This shopping center has never been more than 50% occupied. Some growth came but it stopped. To compound the problem, two more strip shopping centers were built within 2 miles of this one. Neither of them has even been more than 25% occupied. 

Some banks are holding the mortgages on these three properties. Rents aren’t coming in and interest is due. Someone is going to default soon on all three of these properties since the growth can’t possibly come soon enough now to save any of them. Plus, the first one is now entering the maintenance phase. No money set aside from the depreciation to do the maintenance, means maintenance won’t get done. 

And, the few tenants they have are all trying to renegotiate rents, since there is limited traffic in the centers and their business is suffering. 

In established shopping centers, vacant stores are cropping up every day. There is some hope for these centers if an economic turnaround comes. But, it need to come fast. A closed store is like a foreclosed house in a subdivision. It hurts the value of all the stores. Five closed stores and you have a very sick shopping center.

Banks aren’t saying much about this ticking time bomb, but they have to be sweating bullets. Payments have to be falling behind and bankruptcies are going to happen. What strain will this place on banks that are already” tarped” because of the sub prime mortgages?

This is going to blow and blow soon. Like Peter Lynch said, just look around you. 

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Comment (1)

  1. Hi, nice post. I have been wondering about this topic,so thanks for writing. I will definitely be coming back to your site.

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