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Since I criticized Paul Ryan’s Roadmap budget plan yesterday as part of my column against the value-added tax, I now feel obliged to defend the proposal in one important respect.

But first, some background.

In a recent piece for the American Enterprise Institute, James Pethokoukis applauded former Florida Governor Jeb Bush for being willing to accept a tax increase deal.

…whatever the real-time political impact of what Bush said, the fiscal analysis supporting it is sound. …Would a GOP president really not accept an entitlement reform deal somehow that kept spending at 20% but only raised revenue to 18.4% of GDP from its postwar average of 17.4%?

I actually would accept such a deal as well, at least in theory. After all, the burden of federal government spending – if left on autopilot – is expected to grow to about 40 percent of economic output by 2050.

Heck, if I knew I could restrain federal spending so it only consumed 20 percent of GDP in 2050, I’d even accept tax revenues of 20 percent of GDP.

So does this mean I’m a Jeb Bush-style squish on taxes?

Not at all. Simply stated, the deal that Pethokoukis proposes doesn’t exist. Anywhere.

So saying I’d accept such a deal is about as relevant as me saying I’m willing to play quarterback next year for the Georgia Bulldogs.

And even if such a deal did exist, I strongly suspect the other side wouldn’t fulfill its side of the bargain. That’s certainly been the track record of previous tax-hiking budget deals. The tax hike gets imposed, but promised spending “cuts” quickly evaporate.

So Pethokoukis (and Jeb Bush) are simply being impractical when they put tax hikes on the table.

You’re probably wondering at this point how this connects to Congressman Paul Ryan’s Roadmap proposal.

Time to reward your patience. Pethokoukis tries to defend Jeb Bush by asserting that Ryan’s Roadmap plan assumes higher levels of taxes and spending.

Look at Paul Ryan’s much-celebrated — at least in conservative circles — Roadmap for America. According to its budget plan, government spending in 2039 would be 23.7% of GDP with revenue of 19.0%. Now according to CBO’s alternate budget forecast, 2039 spending is currently on path to be 25.9%. So the Ryan plan would increase historical tax revenue by just less than two percentage points while reducing projected spending by just more than two percentage points. That is nowhere close to 10-to-1. It’s not even 2-to-1.

So does this mean Jeb Bush is more philosophically sound than Paul Ryan?

Hardly. Pethokoukis is mixing apples and oranges. Or, to be more accurate, he’s mixing apples and rocks.

The Ryan Roadmap, like all budget proposals on Capitol Hill, is measured against a “baseline” estimate of what happens if government is left on autopilot.

And that baseline assumes huge increases in the burden of government spending (because of entitlements and demographic changes) and a big increase in the overall tax burden (since even modest growth over time pushes households into higher tax brackets).

Compared to that baseline, Ryan’s Roadmap would significantly reduce the upward trajectory of spending, and also mitigate the increased tax burden.

Here are a pair of charts from the House Budget Committee, showing the long-run impact of the plan on taxes and spending.

So while I don’t like the fact that the plan includes a VAT, I very much applaud what Congressman Ryan is trying to achieve.

Jeb Bush’s theoretical budget deal, by contrast, would involve adding even more tax revenue on top of all the additional tax revenue that CBO projects. And Bush’s supposed spending cuts would be based on Washington’s funny budget math and measured against the CBO baseline as well, so I feel very safe in asserting that government would be much bigger under a risky tax-hike deal than it would be with Ryan’s Roadmap.

This is why the no-tax hike pledge is a valuable way of weeding out politicians who aren’t serious about dealing with the problem of big government.

P.S. It’s worth noting that the New York Times accidentally admitted that the only successful budget deal was the one that cut taxes.

P.P.S. The first President Bush was a disaster for advocates of limited government, as was the second President Bush, and there’s a very big reason at this point to be skeptical about version 3.0.

Libertarians are sometimes accused of being unrealistic and impractical because we occasionally talk about unconventional ideas such as competitive currencies and privatized roads.

But having a vision of a free society doesn’t mean we’re incapable of common-sense political calculations.

For example, my long-run goal is to dramatically shrink the size and scope of the federal government, both because that’s how the Founding Fathers wanted our system to operate and because our economy will grow much faster if labor and capital are allocated by economic forces rather than political calculations. But in the short run, I’m advocating for incremental progress in the form of modest spending restraint.

Why? Because that’s the best that we can hope for at the moment.

Another example of common-sense libertarianism is my approach to tax reform. One of the reasons I prefer the flat tax over the national sales tax is that I don’t trust that politicians will get rid of the income tax if they decide to adopt the Fair Tax. And if the politicians suddenly have two big sources of tax revenue, you better believe they’ll want to increase the burden of government spending.

Which is what happened (and is still happening) in Europe when value-added taxes were adopted.

And that’s a good segue to today’s topic, which deals with a common-sense analysis of the value-added tax.

Here’s the issue: I’m getting increasingly antsy because some very sound people are expressing support for the VAT.

I don’t object to their theoretical analysis. They say they don’t want the VAT in order to finance bigger government. Instead, they argue the VAT should be used only to replace the corporate income tax, which is a far more destructive way of generating revenue.

And if that was the final – and permanent – outcome of the legislative process, I would accept that deal in a heartbeat. But notice I added the requirement about a “permanent” outcome. That’s because I have two requirements for such a deal.

1. The corporate income tax could never be re-instated.

2. The VAT could never be increased.

And this shows why theoretical analysis can be dangerous without real-world considerations. Simply stated, there is no way to guarantee those two requirements without amending the Constitution, and that obviously isn’t part of the discussion.

So my fear is that some good people will help implement a VAT, based on the theory that it will replace a worse form of taxation. But in the near future, when the dust settles, the bad people will somehow control the outcome and the VAT will be used to finance bigger government.

Here are examples to show why I am concerned.

Here’s some of what Tom Donlan wrote for Barron’s.

…the U.S. imposes the highest corporate tax rate in the developed world. Make no mistake, corporations pay no tax. That is a tax on American consumers, American workers, and American shareholders.  Don’t think that the corporate income tax eases your personal tax burden. Add your share of the corporate income tax to the other taxes you pay.  Better yet, create a business tax we can all understand. A value-added tax is a tax on consumption. We would pay it according to the amount of the economic resources we choose to enjoy, and we would not pay it when we choose to save and invest in making the economy bigger and more productive. We would pay it on imported goods as much as on those domestically produced. The makers of goods for export would receive a rebate on their value-added tax.  Trading the corporate income tax for the value-added tax is one of the best fiscal deals the U.S. could make.

I agree in theory.

America’s corporate tax system is a nightmare.

But I think giving Washington a new source of tax revenue is an even bigger nightmare.

Professor Greg Mankiw at Harvard, writing for the New York Times, also thinks a VAT is better than the corporate income tax.

…here’s a proposal: Let’s repeal the corporate income tax entirely, and scale back the personal income tax as well. We can replace them with a broad-based tax on consumption. The consumption tax could take the form of a value-added tax, which in other countries has proved to be a remarkably efficient way to raise government revenue.

Once again, I can’t argue with the theory.

But in reality, I simply don’t trust that politicians won’t reinstate the corporate tax. And I don’t trust that they’ll keep the VAT rate reasonable.

At this point, some of you may be thinking I’m needlessly worried. After all, journalists and academic economists aren’t the ones who enact laws.

I think that’s a mistaken attitude. You don’t have to be on Capitol Hill to have an impact on the debate.

Besides, there are elected officials who already are pushing for a value-added tax! Congressman Paul Ryan, the Chairman of the House Budget Committee, actually has a “Roadmap” plan that would replace the corporate income tax with a VAT, which is exactly what Donlan and Mankiw are proposing.

this plan does away with the corporate income tax, which discourages investment and job creation, distorts business activity, and puts American businesses at a competitive disadvantage against foreign competitors. In its place, the proposal establishes a simple and efficient business consumption tax [BCT].

At the risk of being repetitive, Paul Ryan’s plan to replace the corporate income tax with a VAT is theoretically very good. Moreover, the Roadmap not only has good tax reform, but it also includes genuine entitlement reform.

But I’m nonetheless very uneasy about the overall plan because of very practical concerns about the actions of future politicians.

In the absence of (impossible to achieve) changes to the Constitution, how do you ensure that the corporate income tax doesn’t get re-imposed and that the VAT doesn’t become a revenue machine for big government?

By the way, this susceptibility to the VAT is not limited to Tom Dolan, Greg Mankiw, and Paul Ryan. I’ve previously expressed discomfort about the pro-VAT sympathies of Kevin Williamson, Josh Barro, and Andrew Stuttaford.

And I’ve written that Mitch Daniels, Herman Cain, and Mitt Romney were not overly attractive presidential candidates because they’ve expressed openness to the VAT.

This video sums up why a value-added tax is wrong for America.

Last but not least, let me preemptively address those who will say that corporate tax reform is so important that we have to roll the dice and take a chance with the VAT.

I fully agree that the corporate income tax is a self-inflicted wound to American prosperity, but allow me to point out that incremental reform is a far simpler – and far safer – way of dealing with the biggest warts plaguing the current system.

Lower the corporate tax rate.

Replace depreciation with expensing.

Replace worldwide taxation with territorial taxation.

So here’s the bottom line. If there’s enough support in Congress to get rid of the corporate income tax and impose a VAT, that means there’s also enough support to implement these incremental reforms.

There’s a risk, to be sure, that future politicians will undo these reforms. But the adverse consequences of that outcome are far lower than the catastrophic consequences of future politicians using a VAT to turn America into France.

P.S. You can enjoy some good VAT cartoons by clicking here, here, and here.

P.P.S. I also very much recommend what George Will wrote about the value-added tax.

P.P.P.S. I’m also quite amused that the IMF accidentally provided key evidence against the VAT.

I wouldn’t be too upset about Hillary Clinton winning the White House in 2016, but only if I somehow could be assured that we would get the kind of policies we got when her husband was President.

After all, economic freedom increased during the 1990s, largely because of a smaller burden of government spending and less intervention.

Unfortunately, I suspect Hillary isn’t a “Clinton Democrat.”

Indeed, it’s worth noting that she was a doctrinaire statist when she was in the Senate. Here’s what the National Taxpayers Union revealed about her performance in her last year in office.

Sen. Hillary Clinton…received a score of 4 percent and the title of “Big Spender” in 2008 — a slight increase from her 2007 rating of 3 percent.

The good news, if you have the ability to detect very small silver linings, is that her score did increase in her final year.

And it doesn’t appear that she’s learned anything since she left the Senate. Consider some of the bizarre statements she has made in the past few years.

Now she’s added to the list. Here’s what she said the other day about job creation.

Wow. I’m not even sure what to say, other than I wish somebody would ask her where jobs do come from, the Tooth Fairy? Santa Claus?

I’m pretty sure, if pressed, she would use the same argument as her potential 2016 rival, Elizabeth Warren, and claim that government enables all the jobs by providing infrastructure and other public goods.

But there are roads and police in places such as Cuba and North Korea, yet we don’t see jobs there.

Or, to use more reasonable examples, France, Italy, and Greece have lots of roads and cops, yet all of those countries have very weak labor markets.

Maybe, just maybe, you also need some breathing room for private enterprise if you want robust job creation.

An editorial in the Washington Examiner correctly observed that Hillary Clinton’s comments demonstrate ignorance of basic economic principles.

…the private sector accounts for 84 percent of American jobs. But one must remember that the private sector also accounts for 100 percent of the wealth America creates. Meanwhile, government is funded exclusively through various taxes on private production and accumulation of this wealth — and that includes any taxes that fall upon the portion of privately created wealth that government collects and then uses to pay its own employees. This insight should be brought to Clinton’s attention, because Americans cannot afford to have one of their two major political parties reject basic economic principles.

I also like that the editorial explains that even public goods wouldn’t be possible if the private sector wasn’t creating the wealth to finance them.

P.S. Yes, I realize that many of the good policies America enjoyed in the 1990s were driven by Congress. I’m not saying the Bill Clinton deserves credit for those policies. Instead, I am merely pointing out that they were implemented during his presidency.

P.P.S. That being said, it’s worth noting that Bill Clinton seems much more rational than either his wife or the current President.

P.P.P.S. Since I mentioned statist heroine Elizabeth Warren, this is a good opportunity to recycle some humor. Here’s some mockery of her make-believe Indian ancestry, and here’s a clever application of her philosophy to dating choices for attractive women.

P.P.P.P.S. Here are some additional Hillary quotes as part of an amusing quiz.

P.P.P.P.P.S. One final point. I’m not sure who deserves the credit, but somebody in the Clinton household believes in proper (albeit hypocritical) tax planning.

The world is a laboratory, with lots of experiments to see if a nation can prosper with big government and pervasive intervention.

The results are not encouraging. I’ve written about France being a basket case, over and over again.

And I am equally pessimistic about Greece because the moochers and looters outnumber productive people in that country.

Heck, much of Europe is a mess because of widespread statism.

But the rest of the world is filled with bad examples as well. Japan has attracted my critical attention, and I have very little reason to think that nation has a bright future.

I’ve also dinged bad policy in Mexico and South Africa, so nobody can accuse me of being parsimonious when it comes to criticizing politicians that promote big government.

But the country that may be in the deepest trouble is Italy.

To understand the depth of the problem, you should read a recent article in the U.K.-based Spectator.

Here are some excerpts, starting with an anecdote about the government-funded opera house in Rome.

Financed and managed by the state, and therefore crippled by debt, the opera house — like so much else in Italy — had been a jobs-for-life trade union fiefdom. Its honorary director, Riccardo Muti, became so fed up after dealing with six years of work-to-rule surrealism that he resigned. It’s hard to blame him. The musicians at the opera house — the ‘professori’ — work a 28-hour week (nearly half taken up with ‘study’) and get paid 16 months’ salary a year, plus absurd perks such as double pay for performing in the open air because it is humid and therefore a health risk. Even so, in the summer, Muti was compelled to conduct a performance of La Bohème with only a pianist because the rest of the orchestra had gone on strike.

The story says all the staff eventually were fired.

Is that a sign that policy makers in Italy are sobering up? Or is it too little, too late?

The author of the column, Nicholas Farrell, is not optimistic.

Italy’s irreversible demise is a foregone conclusion. The country is just too much of a basket case even to think about. …The youth unemployment rate here is 43 per cent — the highest on record. That figure doesn’t factor in the black market, which is so big that the Italian government now wants to include certain parts of it — prostitution, drug dealing and assorted smuggling — into its official GDP figures.  …Just 58 per cent of working-age Italians are employed, compared with an average 65 per cent in the developed world. …Italy’s economy has been stagnant since 2000. Indeed, over the past five years it has shrunk by 9.1 per cent. …Italy’s sovereign debt, meanwhile, continues to grow exponentially. It is now €2.2 trillion, which is the equivalent of 135 per cent of GDP — the third highest in the world after Japan and Greece. …In Italy, as in France, a dirigiste philosophy has predominated since the second world war. The government is run like a protection racket… Even newspapers are publicly subsidised, which is why there are so many of them.

But high debt in Italy isn’t because of low taxes.

Anyone who works in the real private sector — the family businesses that have made Italy’s name around the world — is in a bad place. Italy has the heaviest ‘total tax’ burden on businesses in the world at 68 per cent… To start a business in Italy is to enter a Kafkaesque bureaucratic nightmare, and to keep it going is even worse. It also means handing the state at least 50 cents for every euro paid to staff.

So where do all this tax money go?

Not surprisingly, there’s a parasitic public sector that is very well compensated. Starting with the politicians.

Italian MPs are the highest paid in the civilised world, earning almost twice the salary of a British MP. Barbers in the Italian Parliament get up to €136,120 a year gross. All state employees get a fabulous near-final–salary pension. It is not difficult to appreciate the fury of the average Italian private sector worker, whose gross annual pay is €18,000. The phrase ‘you could not make it up’ fits the gold-plated world of the Italian state employee to a tee — especially in the Mezzo-giorno, Italy’s hopeless south. Sicily, for instance, employs 28,000 forestry police — more than Canada — and has 950 ambulance drivers who have no ambulances to drive.

I gather Sicily is like the Illinois of Italy, so those horrifying numbers don’t surprise me.

And don’t forget that Italy’s representative in the Bureaucrat Hall of Fame is from Sicily as well.

So what’s the solution to this mess?

Simple, adopt a policy of small government and free markets.

An Italian government that really meant business would make urgent and drastic cuts not just to the bloated, parasitical and corrupt state sector, but also to taxes, labour costs and red tape.

And the current Prime Minister, to be fair, is proposing baby steps in the right direction. Unfortunately, he’s being far too timid.

To get an idea of the magnitude of the problem, the Wall Street Journal opined on Italian labor markets, explaining that “pro-worker” interventions by government impose very high costs.

Led by the country’s largest union, the Italian General Confederation of Labor, or CGIL, the activists want to preserve Italy’s job guarantees as they are. Call it Italy’s economic suicide movement. …there is the Cassa Integrazione Guadagni. Under this income-assistance scheme, businesses that need to downsize can put some workers on “standby,” and the government will cover a significant share of the normal salary until the company can hire back the worker. The program strains the state’s budget, discourages workers from seeking other jobs, and prevents struggling companies from downsizing to stay competitive. Need to fire a worker for poor job performance? To do so, businesses must persuade a judge that no alternative short of termination was available—a process of administrative hearings and litigation that can take months and drain company resources. The World Economic Forum in its 2014-15 assessment of labor-market efficiency ranked Italy 141 out of 144 countries for hiring and firing practices, just above Zimbabwe.

And the biggest victim of the “pro-worker” interventions are…you guessed it…workers.

Italy has the largest number of small businesses in the European Union not because companies don’t want to grow, but because they fear growth will mean having to negotiate with the militant national unions like CGIL. The unsurprising result of all these barriers to firing and efficiency is that businesses are reluctant to hire. The official unemployment rate stands at 12%, and half of Italy’s young people are unemployed.

If you want more info about Italy’s dysfunctional labor markets, I also shared some good analysis from the WSJ back in 2012.

Let’s now circle back to a question asked above. Can Italy be saved?

Like Mr. Farrell, I’m not optimistic. There’s no pro-market political party in Italy. And the so-called technocrats have demonstrated amazing levels of incompetence, so they’re obviously not the solution.

P.S. There is one tiny bit of semi-good news from Italy. Over the past 8 years, government spending has increased, on average, by just 1.6 percent per year. The bad news, though, is that the private sector has grown at an even slower rate, so the actual burden of government spending has increased.

Between 1996-2000, by contrast, government spending grew by 1.1 percent per year. But since the private sector was growing, the burden of government spending fell as a share of GDP.

In other words, when you satisfy Mitchell’s Golden Rule, good things happen.

P.P.S. Even though Italy is a complete mess (or perhaps because it is a complete mess), you won’t be surprised to learn that a New York Times columnist thinks America should adopt Italian-style government policies.

P.P.P.S. Then again, American statists have been urging European-type statism in the United States for decades. To see where that leads, check out these cartoons from Michael Ramirez, Glenn Foden, Eric Allie and Chip Bok.

I don’t particularly care how people vote, but I do care whether they believe in freedom.

That’s why I periodically share stories that should convince everyone to believe in the libertarian philosophy of small government, individual liberty, and personal responsibility.

The stories that get me most agitated are the ones that involve innocent people being robbed by bureaucrats.

And when I say robbed, I use that word deliberately.

Such as the case of an elderly couple who had their hotel stolen by government.

Such as the case of the family grocer who had his bank account stolen by government.

Such as when the government wanted to steal someone’s truck because a different person was arrested for drunk driving.

Such as when the government tried to steal the bond money a family collected to bail out a relative.

Such as when the government seized nearly $400,000 of a business owner’s money because it was in the possession of an armored car company suspected of wrongdoing.

Such as when the government sought to confiscate an office building from the owner because a tenant was legally selling medical marijuana.

Such as when the government killed a man as part of an anti-gambling investigation undertaken in hopes of using asset forfeiture to steal other people’s cash.

With all this background, you can probably guess I’m going to add to that list.

And you’re right. We have a report from the New York Times that has me frothing at the mouth. I can’t imagine any decent person not being outraged by this example of big government run amok.

For almost 40 years, Carole Hinders has dished out Mexican specialties at her modest cash-only restaurant. For just as long, she deposited the earnings at a small bank branch a block away — until last year, when two tax agents knocked on her door and informed her that they had seized her checking account, almost $33,000. The Internal Revenue Service agents did not accuse Ms. Hinders of money laundering or cheating on her taxes — in fact, she has not been charged with any crime. Instead, the money was seized solely because she had deposited less than $10,000 at a time, which they viewed as an attempt to avoid triggering a required government report.

In other words, this is an example of two evil policies – asset forfeiture laws and money laundering laws – coming together in a vortex of we’ll-screw-you-over-even-if-you’re-law-abiding statism.

And you can forget about the Constitution’s presumption of innocence.

Ms. Hinders said in a recent interview. “Who takes your money before they prove that you’ve done anything wrong with it?” The federal government does. Using a law designed to catch drug traffickers, racketeers and terrorists by tracking their cash, the government has gone after run-of-the-mill business owners and wage earners without so much as an allegation that they have committed serious crimes. The government can take the money without ever filing a criminal complaint, and the owners are left to prove they are innocent. Many give up.

Of course, much of tax code enforcement is based on the upside-down premise that taxpayers are guilty and have to prove themselves innocent.

But that still doesn’t make it right. And the IRS is just the tip of the iceberg. Stealing is now a common practice by all sorts of bureaucracies at all levels of government.

The practice has swept up dairy farmers in Maryland, an Army sergeant in Virginia saving for his children’s college education and Ms. Hinders, 67, who has borrowed money, strained her credit cards and taken out a second mortgage to keep her restaurant going. Their money was seized under an increasingly controversial area of law known as civil asset forfeiture, which allows law enforcement agents to take property they suspect of being tied to crime even if no criminal charges are filed. Law enforcement agencies get to keep a share of whatever is forfeited. Critics say this incentive has led to the creation of a law enforcement dragnet, with more than 100 multiagency task forces combing through bank reports, looking for accounts to seize.

Here’s just one horrifying example of how this process works.

 In one Long Island case, the police submitted almost a year’s worth of daily deposits by a business, ranging from $5,550 to $9,910. The officer wrote in his warrant affidavit that based on his training and experience, the pattern “is consistent with structuring.” The government seized $447,000 from the business, a cash-intensive candy and cigarette distributor that has been run by one family for 27 years. …the government seized $447,000, and the brothers have been unable to retrieve it. …Mr. Potashnik said he had spent that time trying, to no avail, to show that the brothers were innocent. They even paid a forensic accounting firm $25,000 to check the books. “I don’t think they’re really interested in anything,” Mr. Potashnik said of the prosecutors. “They just want the money.” …“We’re just hanging on as a family here,” Mr. Hirsch said. “We weren’t going to take a settlement, because I was not guilty.”

Still not convinced about the venality of big government? Here’s another nauseating example.

Army Sgt. Jeff Cortazzo of Arlington, Va., began saving for his daughters’ college costs during the financial crisis, when many banks were failing. He stored cash first in his basement and then in a safe-deposit box. All of the money came from paychecks, he said, but he worried that when he deposited it in a bank, he would be forced to pay taxes on the money again. So he asked the bank teller what to do. “She said: ‘Oh, that’s easy. You just have to deposit less than $10,000.’” The government seized $66,000; settling cost Sergeant Cortazzo $21,000. As a result, the eldest of his three daughters had to delay college by a year. “Why didn’t the teller tell me that was illegal?” he said. “I would have just plopped the whole thing in the account and been done with it.”

By the way, some of you may be thinking that these terrible examples are somehow justifiable because the government is stopping crime in other instances.

But that’s not true. Experts who have looking at money laundering laws have found that there’s no impact on genuine criminal activity. But lots of costs imposed on innocent people.

Which probably explains why the first two directors of the Justice Department’s Asset Forfeiture Office now say the laws should be repealed.

If you want more information, here’s my video on the government’s costly and failed war on money laundering.

Sigh.

By the way, the government also abuses people in ways that have nothing to do with money laundering or asset forfeiture.

And there are more examples where those came from.

I sometimes think that working at the Cato Institute and trying to change Washington must be akin to working at a church in the middle of Amsterdam’s red light district.

In both cases, you’re wildly outnumbered by people with a different outlook on life. And it’s not that easy to save misguided souls.

The crowd in Washington, for instance, benefits enormously from a complicated tax system, a Byzantine regulatory regime, and a bloated budget.

All of these factors create big opportunities for unearned income for bureaucrats, cronies, politicians, contractors, lobbyists, and other insiders.

Telling those people they should back away from the public trough is not exactly a way to make friends in DC.

To cite just one example, look at how the Washington establishment is trying to defend the Export-Import Bank, a grotesque example of corporate welfare that is opposed by honest people on the right and left of the political spectrum.

Or, if you want to be partisan, what about the Democratic insiders who are getting rich from Obamacare?

Conversely, what about the Republican insiders who also get rich from big government?

But maybe all these examples are too indirect. So today’s column will give specific examples of people who get undeserved wealth thanks to influence peddling in Washington.

Here are some passages from a brutal expose written by Michelle Malkin for the Washington Examiner. She starts by looking at how Vice President Biden’s son got special treatment, first when he was handed a plum spot as a public relations hack in the Navy Reserve and then after he got tossed out after failing a drug test.

Everything you need to know about Beltway nepotism, corporate cronyism and corruption can be found in the biography of Robert Hunter Biden. …The youngest son of Vice President Joe Biden made news last week after the Wall Street Journal revealed he had been booted from the Navy Reserve for cocaine use. …Papa Biden loves to tout his middle-class, “Average Joe” credentials. But rest assured, if his son had been “Hunter Smith” or “Hunter Jones” or “Hunter Brown,” the Navy’s extraordinary dispensations would be all but unattainable. …Despite the disgraceful ejection from our military, Hunter’s Connecticut law license won’t be subject to automatic review. Because, well, Biden.

But special treatment apparently is nothing new for Biden’s son. And a lifetime of insider deals has been greased by the favor factory of big government.

Skating by, flouting rules and extracting favors are the story of Hunter’s life. Hunter’s first job, acquired after Joe Biden won his 1996 Senate re-election bid in Delaware, was with MBNA. …Hunter zoomed up to senior vice president by early 1998 and then scored a plum position in the Clinton administration’s Commerce Department, specializing in “electronic commerce” before returning to MBNA three years later as a high-priced “consultant.” While he collected those “consulting” (translation: nepotistic access-trading) fees, Hunter became a “founding partner” in the lobbying firm of Oldaker, Biden and Belair in 2002. …Hunter lobbied for drug companies, universities and other deep-pocketed clients to the tune of nearly $4 million billed to the company by 2007. …Continually failing upward, Hunter snagged a seat on the board of directors of taxpayer-subsidized, stimulus-inflated Amtrak, where he pretended not to be a lobbyist, but rather an “effective advocate” for the government railroad system serving the 1 percenters’ D.C.-NYC corridor. …Hunter joined Ukrainian natural gas company Burisma Holdings — owned by a powerful Russian government sympathizer who fled to Russia in February — this spring. The hypocritical lobbyist-bashers at the White House deny he will be lobbying and deny any conflict of interest.

At this point, some readers may be thinking that Democrats are the party of big-government corruption.

I’ll agree, but then I’ll add a very important caveat. It’s possible that this description applies to more than one political party.

Let’s look at the sordid details of a story about GOP lobbyists and political hacks taking dirty money to push for big government.

First, some background. For those of you who haven’t heard about “Obamaphones,” you’ll be delighted to learn that our bloated federal government has an entitlement program for cell phones.

The Federal Communications Commission program…charges a dollar or two per line on every American’s phone bill. The revenue generated by the “Universal Service Fund fee” is then used to pay select phone companies $9.25 per month for each poor person they sign up for a free phone. …its cost doubled in five years to $1.75 billion in 2011, and in some states, the number of phones given out exceeded the total eligible population. …The company that has received the most income from the Lifeline program is TracFone, whose CEO, F.J. Pollak, was an Obama campaign fundraiser. The company spent nearly $1 million on lobbying last year.

While an Obama donor is making big bucks off this federal handout, there also are a number of Republicans who are willing to agitate for wasteful spending so long as they get their pieces of silver as well.

Mary Cheney and prominent Republican consultants linked to Karl Rove, Mitt Romney and the Republican National Committee are working to expand or protect the Obamaphone entitlement program, apparently on behalf of the telecom companies that make millions on it. …The strategy is aimed at convincing congressional Republicans…to back off of their opposition to the Obamaphone program, which has no connection to veteran status and is more commonly associated with welfare. …The FCC paperwork also lists the names Patti Heck, who is president of Crossroads Media, and Main Street Media Group, a Crossroads affiliate. Crossroads Media has ties to Rove’s American Crossroads…and shared an office used by several political shops employed by Romney’s 2012 presidential campaign.

And you won’t be surprised to learn that these Republican influence peddlers are willing to engage in loathsome demagoguery.

The ad’s voiceover says “some in Congress want to take away his phone,” implying that not having it would endanger him because of his cancer. …Bennett unabashedly defended the Obamaphone and other entitlement programs. “Of course I support these programs, because I don’t hate poor people,” he told the Examiner.

Yup, if you don’t support a federal cell-phone entitlement program, you want veterans to die of cancer and you hate poor people. How do these people sleep at night?!?

Ugh, I want to take a shower after having read both of these stories. Now you see why I always say that Washington is a racket for insiders to get rich at our expense.

Fortunately, the article does quote some other people who are disturbed by this philosophical corruption.

Bill Allison, a lobbying expert at the Sunlight Foundation, said the fact that major Republican consultants are promoting an entitlement program shows that “in Washington’s mercenary culture, there are few principles that stand in the way of a payday.” …“Wow. Just wow. Big government money ensnares a lot of people,” said David Williams, president of the taxpayers group, when told of Jansen’s new client.

By the way, this doesn’t mean everybody in Washington is sleazy. And even the ones that are corrupt on some issues may be principled on others.

But the incentives to “play the game” are enormous. As I explain in this video, big government is inherently corrupting.

P.S. Folks are emailing me to ask me predictions for the 2014 mid-term elections.

I’m not sure why anyone should care. Yes, I did a good job in 2010, but my 2012 predictions were not very impressive.

That being said, I’m happy to oblige. We’re 10 days from the election, so I’ll make a set of predictions today, then another set of predictions with five days to go, then a final set of predictions the day before the election.

For the House of Representatives, I can say with near-100 percent certainty that Republicans will maintain control. Indeed, I suspect they’ll pick up some seats and have a bigger majority.

How big? Let’s go with 246-189, the biggest GOP margin since the late 1940s.

But what about the Senate? The race for partisan control on the upper chamber is getting all the attention.

In the for-what-it’s-worth department, I think Republicans will take control by a 52-48 margin, meaning a net gain of seven seats. Here’s a map showing the seats that will change hands, though I confess Iowa, Colorado, and Georgia could go either way.

 

It’s also possible that Republicans could lose Kansas, while the Democrats could lose North Carolina and New Hampshire.

In other words, the final results could be anywhere between 55-45 Republican control or 52-48 Democratic control.

P.P.S. If Republicans take control, don’t hold your breath waiting for big changes in policy. Even if they don’t get corrupted (like the Obamaphone-loving GOPers described above), the White House will still be controlled by Democrats.

So there won’t be any tax reform and there won’t be any entitlement reform.

Though there may be some fights in the next two years that help determine whether those things can happen after the 2016 election.

Since all economic theories – even Marxism and socialism – recognize that capital formation is a key to long-run growth, higher wages, and improved living standards, it obviously doesn’t make sense to penalize saving and investment.

Yet that’s exactly what happens because of double taxation in the United States, as can be seen by this rather sobering flowchart.

So how can we fix the problem? The best answer, particularly in the long run, is to shrink the burden of government spending so that there’s no pressure for punitive tax policies.

Good reform is also possible in the medium run. Policy makers could implement a big bang version of tax reform, replacing the corrupt internal revenue code with a simple and fair flat tax. That automatically would eliminate the tax bias against saving and investment since one of the key principles of the flat tax is that income gets taxed only one time.

That being said, there’s no chance of sweeping tax reform for the next few years (and maybe ever), so let’s look at some pro-growth incremental reforms that would reduce or eliminate the extra tax penalties on income that is saved and invested.

On the investment side of the ledger, any policies that lower or end the capital gains tax and the double tax on dividends would be desirable.

But let’s focus today on the saving side. And let’s start by explaining how a fair and neutral system would operate. Here’s what I wrote back in 2012 and I think it’s reasonably succinct and accurate.

…all saving and investment should be treated the way we currently treat individual retirement accounts. If you have a traditional IRA (or “front-ended” IRA), you get a deduction for any money you put in a retirement account, but then you pay tax on the money – including any earnings – when the money is withdrawn. If you have a Roth IRA (or “back-ended” IRA), you pay tax on your income in the year that it is earned, but if you put the money in a retirement account, there is no additional tax on withdrawals or the subsequent earnings. From an economic perspective, front-ended IRAs and back-ended IRAs generate the same result. Income that is saved and invested is treated the same as income that is immediately consumed. From a present-value perspective, front-ended IRAs and back-ended IRAs produce the same outcome. All that changes is the point at which the government imposes the single layer of tax.

The key takeaways are in the first and last sentences. All savings should be protected from double taxation, not just what you set aside for retirement. And that means government can tax you one time, either when you first earn the income or when you consume the income.

Our friends to the north can teach us some lessons on this issue.

Here are some excerpts from a column in the Wall Street Journal, authored by my colleague Chris Edwards and Amity Shlaes of the Calvin Coolidge Foundation.

Some Republicans are advocating a giant child tax credit, but there are more effective means for helping the middle class. One is a tax program already road-tested in the country whose populace most resembles our own, Canada. It’s called the Tax-Free Savings Account and TFSA, as most Canadians refer to it, is a roaring success. …what is this Canadian savings account? The nearest U.S. equivalent would be Roth Individual Retirement Accounts. With a Roth, workers pay taxes on earnings before they put their cash into the account. The money then grows tax-protected, and people pay no tax when they withdraw it.

But these accounts are much better than Roth IRAs.

Though these savings accounts were introduced only five years ago, 48% of Canadians have already signed up. That compares with only 38% of U.S. households owning any type of IRA—though IRAs have been around for decades….Roth accounts have numerous restrictions. You can’t open a Roth easily if your earnings are above certain limits: $191,000, for example, for a married couple filing jointly. You can’t withdraw cash whenever you feel like it, at least not without daunting penalties. …Canada’s TFSAs are like Roth IRAs—but supercharged. Citizens may deposit up to $5,500 after-tax each year, and all account earnings and withdrawals are tax-free. However, unlike Roth IRAs, funds can be withdrawn at any time for any reason with no penalties or taxes. Another feature: The annual limit on a contribution carries over from year to year if a citizen doesn’t reach it. So if a Canadian contributes $2,000 this year, he can put away up to $9,000 next year ($3,500 plus $5,500). There are other attractive features: Unlike in a Roth, there are no income limits for individuals contributing to a TFSA, and there are no withdrawal requirements at retirement.

In other words, the Canadian accounts are like unlimited or unrestricted Roth IRAs.

And because the government isn’t trying to micro-manage how people save, Canadians are very receptive. Chris adds some additional information in a post for Cato at Liberty.

…released new data confirming the popularity of TFSAs. In just the past year, TFSA account assets increased 34 percent, and the number of accounts increased 16 percent. In June 2014, 13 million Canadians held $132 billion in TFSA assets. Given that the U.S. population is about 10 times that of Canada, it would be like 130 million Americans pouring $1.3 trillion into a new personal savings vehicle. …In just five years, TFSAs have become the most popular savings vehicle in Canada, outstripping the Canadian version of 401(k)s.

Here’s a chart Chris included in his blog post.

And he adds some more analysis on the importance of simple vehicles to protect against double taxation.

Everyone agrees that Americans don’t save enough, so why don’t we kick-start a home-grown savings revolution with a U.S. version of TFSAs? …Canada has now run the real-world experiment on such accounts, and it has succeeded brilliantly. TFSAs, or USAs, are a better way to handle savings in the tax code. Currently, many people are scared off by the complexity of U.S. savings vehicles and by the lack of liquidity in retirement accounts. TFSAs solve these problems.

I guess we’ll have to wait and see whether American policy makers pay attention and follow Chris’ sage advice.

P.S. I realize I’m being picky, but I wish the Canadians didn’t use the term “tax-free savings accounts.” After the all, the income is taxed before it gets put into the accounts. Though even a nit-picker like me realizes that it might be a bit awkward to call them “no-double-taxation savings accounts.”

P.P.S. I do like that Chris and Amity argued that the accounts would be better than big child tax credits, particularly since I also argued in the Wall Street Journal that there were better ways to help the middle class.

P.P.P.S. Canada also can teach us important lessons on other issues, such as spending restraint, corporate tax reform, bank bailouts, and privatization of air traffic control. Heck, Canada even has one of the lowest levels of welfare spending among developed nations.

P.P.P.P.S. No wonder the two most capitalistic places in North America are in Canada. And Canada ranks above the United States in the Economic Freedom of the World Index.

P.P.P.P.P.S. Though there are still plenty of statists north of the border, so I’m not sure it’s the best escape option for advocates of small government. Though I doubt leftists no longer see it as an escape option, which was the premise of this joke that circulated after the 2010 election.

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