I want to stop blogging about this issue, but can’t resist sharing this video.
Archive for November, 2010
I was on Fox News last week and unloaded on the General Motors bailout.
I’m surprised I wasn’t foaming at the mouth.
My conclusion is that people with honor and integrity should refuse to buy cars from companies that stole money from taxpayers.
Posted in Class warfare, Federalism, Fiscal Policy, Higher Taxes, Public Opinion, Switzerland, Tax Increase, Taxation, tagged Class warfare, Higher Taxes, Public Opinion, Referendum, Switzerland, Tax Increases, Taxation on November 29, 2010 | 19 Comments »
I’ve always had a soft spot for Switzerland. The nation’s decentralized structure shows the value of federalism, both as a means of limiting the size of government and as a way of promoting tranquility in a nation with several languages, religions, and ethnic groups. I also admire Switzerland’s valiant attempt to preserve financial privacy in a world dominated by greedy, high-tax governments.
I now have another reason to admire the Swiss. Voters yesterday overwhelmingly rejected a class-warfare proposal to impose higher tax rates on the income and wealth of rich residents. The Social Democrats did their best to make the hate-and-envy scheme palatable. Only the very richest taxpayers would have been affected. But Swiss voters, like voters in Washington state earlier this month, understood that giving politicians more money is never a solution for any problem.
Here’s an excerpt from Bloomberg’s report on the vote.
In a referendum today, 59 percent of voters turned down the proposal by the Social Democrats to enact minimum taxes on income and wealth. Residents would have paid taxes of at least 22 percent on annual income above 250,000 francs ($249,000), according to the proposed changes. Switzerland’s executive and parliamentary branches had rejected the proposal, saying it would interfere with the cantons’ tax-autonomy regulations. The changes would also damage the nation’s attractiveness, the government, led by President Doris Leuthard, said before the vote. The Alpine country’s reputation as a low-tax refuge has attracted bankers and entrepreneurs such as Ingvar Kamprad, the Swedish founder of Ikea AB furniture stores, and members of the Brenninkmeijer family, who owns retailer C&A Group.
It’s never wise to draw too many conclusions from one vote, but it certainly seems that voters usually reject higher taxes when they get a chance to cast votes. Even tax increases targeting a tiny minority of the population generally get rejected. The only exception that comes to mind is the unfortunate decision by Oregon voters earlier this year to raise tax rates.
I’m understandably fond of my video exposing the flaws of Keynesian stimulus theory, but I think my former intern has a great contribution to the debate with this new 5-minute mini-documentary.
You may recognize Hiwa. She narrated a very popular video earlier this year on the nightmare of income-tax complexity.
Posted in Bureaucracy, Bureaucrats, Government stupidity, Government Thuggery, Terrorism, TSA, tagged Bureaucracy, Bureaucrats, Government stupidity, Government Thuggery, Terrorism, TSA on November 28, 2010 | 4 Comments »
I hate writing about the TSA and airport security, especially since I fly frequently and despise the pointless “security theater” of the whole process. I keep doing posts about the issue, though, because it seems a day doesn’t go by without some new revelation about foolish government action.
A couple of quick thoughts…
1. If the statements in this video about the treatment of breast milk are true, the manager and screeners involved should be fired. And if they’re not fired, that tells us things will get even worse.
2. The passenger being harassed may be an activist who deliberately wanted to provoke this reaction, but even if she was the world’s biggest b*tch, that does not justify the TSA’s behavior.
3. What did the TSA accomplish by making the woman pour the breast milk into smaller containers? Let’s assume the liquid actually was some sort of compound that becomes dangerous in amounts greater than 3 ounces. Couldn’t the woman just pour the little bottles back into the big bottle once she got on the plane?
4. Having said all this, we do have real security concerns. I have no doubt that there are people in the world (and even in America, as shown by the recent Portland bombing plot) who gladly would like to blow up a plane using fake breast milk. Heck, some of these nut-jobs would probably be willing to smuggle explosives onto a plane in the diaper of one of their own children (though I’m not sure what an infant will do with 72 virgins if such a bomb plot succeeded).
5. When all is said and done, I’m amazed that these fanatic morons haven’t blown up a plane since 9-11. In part, this may be because they actually are morons. But I suspect a lot of the credit goes to our intelligence services, so kudos to the FBI, CIA, et al, but continued jeers for the TSA’s empty security theater.
The resolution on these is not exactly crisp. Clicking and zooming will give you a better view.
In any event, many of them are worth the trouble. I think the last one is my favorite.
Posted in Big Government, Dependency, Redistribution, Roosevelt, Welfare, tagged Big Government, Dependency, Incentives, Redistribution, Self-Reliance, Welfare on November 27, 2010 | Leave a Comment »
Here’s a passage from a speech by a well-known political figure, but it wasn’t Ronald Reagan, Ron Paul, or Milton Friedman.
The lessons of history, confirmed by the evidence immediately before me, show conclusively that continued dependence upon relief induces a spiritual and moral disintegration fundamentally destructive to the national fibre. To dole out relief in this way is to administer a narcotic, a subtle destroyer of the human spirit. It is inimical to the dictates of sound policy. It is in violation of the traditions of America. …The Federal Government must and shall quit this business of relief.
Interestingly, it was Franklin Delano Roosevelt, in his 1935 State of the Union address. FDR recognized that welfare was akin to a drug that sapped people’s independence. (Or he at least was politically astute enough to realize he should pretend to be concerned about the impact of government-induced dependency.)
Here’s a more recent example, which was cited in a National Review Online column by my Cato colleague Mike Tanner. A prominent politician in DC said that welfare leads to “a cycle of generational poverty, government dependency, and economic disparity.”
But the person who said this wasn’t Jim DeMint, Barry Goldwater, or Friedrich Hayek. It was the former Mayor of Washington, DC, Marion Barry.
Freedom, liberty, and common sense are all good things, which explains why I criticize the TSA’s bureaucratic approach to airport safety.
But I’m a glass-half-full guy, so here’s one good argument for the TSA’s new guidelines.
And since we’re having some fun at TSA’s expense, here’s how the Taiwanese interpret our policy.
One of John Boehner’s first announcements after the GOP House takeover was that he would continue to fly commercial. This is in sharp contrast to Nancy Pelosi, who insisted on using luxury jets operated by the military. Boehner deserves praise for that decision, but he only gets two cheers rather than three since, like many other government officials, he is spared the indignity of being groped by the TSA.
This is wrong. The political elite should have to live under the rules that are imposed on the peasantry. Yes, it will be stupid and pointless for Boehner and other officials to be harassed by TSA, but it’s equally dumb for TSA to be frisking little kids from Minnesota, grandmothers from Kentucky, and frequent business travelers from Dallas.
And if we want to force the TSA to use common sense, letting politicians get some first-hand experience (no pun intended) with the process is a good idea. Here’s a blurb from an article in the New York Times.
The Republican leader, who will become the second person in line to assume the presidency after the new Congress convenes in January, took great pride after the midterm elections in declaring his man-of-the-people plans to travel home as other Americans do. In a time of economic difficulty, it was a not-so-subtle dig at Ms. Pelosi, who has access to a military jet large enough to avoid refueling for her flights home to San Francisco. But he is not giving up all the perquisites of power. …Congressional leaders or members of Congress with armed security details are allowed to go around security. The same privilege is afforded to governors and cabinet members if they are escorted by agents or law enforcement officers. Michael Steel, a spokesman for Mr. Boehner, said the Republican leader had neither requested nor received special treatment at the airport security line.
Things you should only say on Thanksgiving, the R-rated version.
1. Talk about a huge breast!
2. Tying the legs together keeps the inside moist.
3. It’s Cool Whip time!
4. If I don’t undo my pants, I’ll burst!
5. Whew, that’s one terrific spread!
6. I’m in the mood for a little dark meat.
7. Are you ready for seconds yet?
8. It’s a little dry, do you still want to eat it?
9. Just wait your turn, you’ll get some!
10. Don’t play with your meat.
11. Just spread the legs open and stuff it in.
12. Do you think you’ll be able to handle all these people at once?
13. I didn’t expect everyone to come at once!
14. You still have a little bit on your chin.
15. How long will it take after you stick it in?
16. You’ll know it’s ready when it pops up.
17. Wow, I didn’t think I could handle all of that!
18. That’s the biggest one I’ve ever seen!
19. How long do I beat it before it’s ready?
A young man named John received a parrot as a gift.
The parrot had a bad attitude and an even worse vocabulary. Every word out of the bird’s mouth was rude, obnoxious and laced with profanity. John tried and tried to change the bird’s attitude by consistently saying only polite words, playing soft music and anything else he could think of to ‘clean up’ the bird’s vocabulary.
Finally, John was fed up and he yelled at the parrot. The parrot yelled back. John shook the parrot and the parrot got angrier and even more rude. John, in desperation, threw up his hand, grabbed the bird and put him in the freezer. For a few minutes the parrot squawked and kicked and screamed. Then suddenly there was total quiet. Not a peep was heard for over a minute.
Fearing that he’d hurt the parrot, John quickly opened the door to the freezer. The parrot calmly stepped out onto John’s outstretched arms and said “I believe I may have offended you with my rude language and actions. I’m sincerely remorseful for my inappropriate transgressions and I fully intend to do everything I can to correct my rude and unforgivable behavior.”
John was stunned at the change in the bird’s attitude.
As he was about to ask the parrot what had made such a dramatic change in his behavior, the bird spoke-up, very softly, “May I ask what the turkey did?”
I’m not sure if “killing two birds with one stone” is the right phrase in this situation, but…
At least, that’s what a left-wing blogger thinks.
So what did I do to earn this honor? I had the gall to say that tax loopholes should be removed, but that all the revenues should be used to finance lower tax rates.
Call me crazy, but I don’t think either our economy or our fiscal situation will be improved by giving more money to the folks in Washington. I guess that means I should be sent to an asylum.
The folks at Reason TV have a fascinating interview with one of President Obama’s former colleagues at the University of Chicago Law School.
But while it is interesting the hear Professor Epstein reminisce about his interactions with Obama, the best part of the interview is his commentary about public policy. If we had five people like him and Clarence Thomas on the Supreme Court, liberty and constitutional governance in America would be restored.
Tax Loopholes Are Corrupt and Inefficient, but They Should only Be Eliminated if Every Penny of New Revenue Is Used to Lower Tax Rates
Posted in Balanced Budget, Big Government, Economics, Fiscal Policy, Flat Tax, Government Spending, Higher Taxes, Tax Increase, Tax Reform, tagged Balanced Budget, Big Government, Domenici-Rivlin, Fiscal Policy, Government Spending, Higher Taxes, Simpson-Bowles, Tax Increase, Tax Reform, Taxation on November 22, 2010 | 33 Comments »
There’s been a lot of heated discussion about various preferences, deductions, credits, shelters, and other loopholes in the tax code. Some of this debate has revolved around whether it is legitimate to refer to these provisions as “tax expenditures” or “subsidies.”
My Cato colleague Michael Cannon vociferously argues that subsidies and expenditures only occur when the government takes money from person A and gives it to person B. On the other side of the debate are people like Josh Barro of the Manhattan Institute, who argues that tax preferences are akin to subsidies or expenditures since they can be just as damaging as government spending programs when looking at whether resources are efficiently allocated.
Since I’m a can’t-we-all-get-along, uniter-not-divider kind of person, allow me to suggest that this debate should be set aside. After all, we all agree that tax preferences can lead to inefficient outcomes. So let’s call them “tax distortions” and focus on the real issue, which is how best to eliminate them.
This is an important issue because both the Domenici-Rivlin Task Force and the Chairmen of the Simpson-Bowles Commission have unveiled plans that would reduce or eliminate many of these tax distortions and also lower marginal tax rates. That’s the good news.
The bad news is that their plans result in more revenue going to Washington. In other words, the tax increase resulting from fewer tax distortions is larger than the tax decrease resulting from lower tax rates. To put it bluntly, the plans would increase the overall tax burden.
Some argue that this is an acceptable price to pay. They point out, quite correctly, that lower tax rates will help the economy by improving incentives for productive behavior. And they also are right in arguing that fewer tax distortions will help the economy by improving efficiency. Seems like a win-win situation. What’s not to like?
The problem is on the spending side of the fiscal ledger. The Simpson-Bowles Commission and the Domenici-Rivlin Task Force were charged with figuring out how to reduce red ink. We already know from Congressional Budget Office data, however, that we can balance the budget fairly quickly by limiting the growth of government spending. As the chart illustrates, the deficit disappears by 2016-2017 with a hard freeze and goes away by 2019-2020 if spending increases by two percent each year (and this assumes all the 2001 and 2003 tax cuts are made permanent).
If tax revenue is increased, that simply means that the budget gets balanced at a higher level of spending. And since government spending, at current levels and composition, hinders economic growth by diverting labor and capital to less productive (or unproductive) uses, any proposal that enables higher levels of government spending will further undermine economic performance.
It goes without saying (but I’ll say it anyhow) that this analysis is overly optimistic since it assumes that politicians actually will balance the budget. In all likelihood, as explained in today’s Wall Street Journal, any tax increase would probably be followed by even more spending. So if politicians raise the tax burden, we might still have a deficit of $685 billion in 2020 (CBO’s most-recent estimate assuming all programs are left on auto-pilot), but the overall levels of both spending and taxes would be higher. This modified cartoon captures this real-world effect.
This is why revenue-neutral tax reform, like the flat tax, is the only pro-growth way of eliminating tax distortions.
A “bipartisan” task force recently unveiled a budget plan that includes lots of tax increases, but also has a one-year payroll tax holiday supposedly designed to boost the economy. In a debate with a former Bush Administration appointee on CNBC, I explain why this is a dumb way to try to boost growth. My Lima-beans-in-a-steakhouse analogy hopefully gets the point across, though the line about supermodels will get more attention.
On my recent trip to Colorado, I had dinner with Congressman Jared Polis, a Democrat from Boulder. He’s not exactly a small-government conservative, but he understands the importance of low marginal tax rates, free trade, and other important economic principles (whether he votes the right way is a separate question, of course, so I’m curious to see what he decides to do about Obama’s plan to increase tax rates on investors, entrepreneurs, and small business owners).
One of the topics we discussed was his proposal to create a special visa for entrepreneurs. I won’t pretend to be an immigration expert or legislative lawyer, so I reserve the right to quibble about the legislation if there are details I don’t like, but the concept is a no-brainer. America gets to bring in the best and brightest from around the world. We give a green light to people who will be creating jobs rather than people who might want to mooch off taxpayers. And we make it easier to retain job-creating foreigners who already are in the United States. What’s not to like? Am I missing something?
A change to immigration policy could help create jobs and rev up economic growth. It’s a change that wouldn’t be hard to bring about. I’m talking about the establishment of a Startup Founders Visa program. The program would make it easier for those with great ideas and the desire to start a company to live and work in the U.S. The idea is simple, yet powerful. By letting in company founders, the U.S. would bring in risk-takers who want to create jobs and potentially build the next Google, Cisco Systems, or Microsoft. At the same time, a founder visa program could stem the tide of talented, tech-savvy foreigners who are leaving the U.S. to seek fortunes in their home countries, primarily China and India. …U.S. Representative Jared Polis (D-Colo.), himself a former entrepreneur, is developing legislation to make it easier for foreign founders of investor-backed startups to secure visas to remain in the U.S. On the other end of the political spectrum, even Newt Gingrich, the Republican former Speaker of the House, has blogged about the need to make the country “more accessible to skilled immigrants.” He wrote this after witnessing “the dynamic entrepreneurial and high-tech business culture in Tokyo, Beijing, and Seoul”—countries with which we are competing for top talent. Representatives of both ends of the political spectrum can agree on this issue. As things stand, we’re losing the battle to retain the immigrants who fueled the recent tech boom. We’re experiencing the first brain drain in American history.Other countries in Europe and South America are realizing the potential of attracting skilled immigrants and are putting together programs to snap them up.
I haven’t commented much on earmarks, but an oped in today’s Washington Post was has goaded me into action. A former Reagan Administration appointee (the Gipper must be spinning in his grave), who now makes a living by selling our money to the highest bidder, made several ridiculous assertions, including:
…earmarks are largely irrelevant to balancing the budget. The $16.5 billion Congress spent on earmarks in fiscal year 2009 sounds like a lot, but leaves a minuscule footprint – about 1 percent of 2009′s $1.4 trillion deficit. Those seriously concerned about deficits should look elsewhere for meaningful spending reductions. …On Capitol Hill, party leaders must appeal to lawmakers’ interests as well as their principles to get the votes they need. The leaders must be able to offer incentives – such as earmarks – to win votes on difficult issues. Earmarks are not the only possible incentives, nor do they need to be the most compelling ones. But they are a tool for taking care of members who might otherwise stray.
The author is right that earmarks technically are not a big share of the budget. But he conveniently forgets to address the real issue, which is the degree to which earmarks are the proverbial apple in the congressional Garden of Eden. Members who otherwise might want to defend taxpayers are lured into becoming part of the problem. This is how I described the process in a recent PolitiFact article.
Daniel Mitchell, a senior fellow with the libertarian Cato Institute, …adds that the existence of earmarks increases the upward pressure on federal spending indirectly, since lawmakers “know they need to support the relevant powers on the spending committees in order to have their earmarks approved.” Mitchell calls earmarks a “gateway drug” that “seduces members into treating the federal budget as a good thing that can be milked for home-state/district projects.”
Since the author of the Washington Post column is trying, at least in part, to appeal to advocates of smaller government, I’m also puzzled that he says earmarks are good because they help grease the wheels so that more legislation can be passed. Does he really think reminding us about the “Cornhusker Kickback” and “Louisiana Purchase” will make us more sympathetic to his argument? Yes, it’s theoretically possible that congressional leaders will use earmarks to help pass legislation shrinking the burden of government. It’s also possible that I’ll play centerfield next year for the Yankees. But I’m not holding my breath for either of these things to happen.
Last but not least, earmarks are utterly corrupt. The fact that they are legal does not change the fact that they finance a racket featuring big payoffs to special interests, who give big fees to lobbyists (often former staffers and Members), who give big contributions to politicians. Everyone wins…except taxpayers.
This is one of the many reasons why I did this video a couple of years ago with the simple message that big government means big corruption.
A pretty good summary of where we stand. I wonder if the IRS is getting jealous of their friends at the TSA?
I generally focus on fiscal policy and I love low tax rates, so when I say that what happens on school choice in Douglas County, Colorado, may be more important to the future of the nation than what happens with Obama’s plan for higher tax rates next year, that should give you an idea of the critical importance of this education battle.
The union bosses at the National Education Association have been waging a vicious national campaign against competition and choice and have succeeded in limiting school choice to a handful of small systems (largely focused just on the poor) in places such as Milwaukee.
These are great success stories, but the government education monopoly won’t be broken until there is a big, highly visible, school choice success in a large, mostly white, jurisdiction. Douglas County is that example. Here’s an excerpt from a story in today’s Wall Street Journal.
The school board in a wealthy suburban county south of Denver is considering letting parents use public funds to send their children to private schools—or take classes with private teachers—in a bid to rethink public education. The proposals on the table in Douglas County constitute a bold step toward outsourcing a segment of public education…In 2002, the U.S. Supreme Court ruled in a case involving a voucher program in Cleveland that public money could be used for private religious schools as long as parents were not steered to any one particular faith-based program and had a “genuine choice” on where to use their vouchers. About 160,000 children in the U.S., mostly low-income or with special needs, use vouchers or scholarships subsidized indirectly by the state to attend private schools, according to the Brookings Institution in Washington, D.C. …Douglas County School District board members are also considering letting students enrolled in public schools opt out of some classes in favor of district-approved alternatives offered at for-profit schools or by private-sector instructors. Students might skip high-school Spanish, for example, to take an advanced seminar in Chinese, or bypass physics to study with a rocket scientist, in person or online. …The school board is dominated by conservatives, including several who won election last fall on vows to expand educational choices. “These days, you can build a custom computer. You can get a custom latte at Starbucks,” said board member Meghann Silverthorn. “Parents expect the same out of their educational system.” …Douglas County, a swath of tidy cul-de-sacs and look-alike subdivisions, already boasts nine charter schools, two magnet schools and an online school as well as 65 traditional schools—all funded by tax dollars. Students receive high scores on standardized tests and a recent community survey found overwhelmingly positive views about the public schools. Fewer than 4,000 students in the district chose private or home schools last year, according to state statistics. “But we will not rest on our laurels,” board president John Carson said at a recent meeting. …The voucher plan…would give participants about $5,000, enough to cover 35% to 100% of tuition at local private schools.
The President wants us to believe that the recent IPO for General Motors was a smashing success. And it was…if you believe that it’s a good idea to lose money (the direct cost of the bailout) and make the economy less efficient by misallocating resources (the indirect cost of the bailout). The always superb John Lott has a good explanation at Foxnews.com, and here is an excerpt.
Only the government would consider it a success to buy stock at $43.84 a share and sell it at $33. — But President Obama and those who supported his bailout of General Motors and Chrysler are claiming just that… It simply doesn’t account for the over $50 billion in direct bailout funds and the tens of billions of dollars in other breaks President Obama gave the company and its unions. It also ignores that GM’s stockholders and particularly its bondholders had their wealth stolen from them when the government took over ownership of the company. Traditional property right protections were shredded by the Obama administration, making corporate investments in America riskier as a result.
By the way, Mickey Kaus is surprised that investors were willing to buy GM shares, but he hypothesizes that they were fools or that they expect GM to hollow out its American operations and build cars in China.
Either way, not a good way to squander the tax dollars of the American people. Another legacy of Bush-Obama statism. Way to go, guys!
I get nauseated and disgusted when guilt-ridden wealthy people try to come across as friends of the common man by endorsing soak-the rich taxes. I’ve even debated a couple of self-loathing trust fund babies (see here and here) about class-warfare policy.
If neurotic rich people believe that the government should have more money, there’s nothing stopping them from writing big checks to Uncle Sam. This is a free country and they have the right to be stupid.
But they shouldn’t be allowed to lie, either intentionally or accidentally. And this is why I get so upset when Warren Buffett says that rich people have lower tax rates than their secretaries. I’ve already explained on the blog that this is completely inaccurate because it ignores double taxation, and I reiterated that argument in this CNBC interview.
I’m not surprised that my debate opponent disagreed (even though I assume he knows I’m right), but I am surprised that one of the CNBC hosts didn’t understand the concept.
Here are two interesting quotes.
The first is from the New International Version of the Bible, and it’s been circulating among right wingers over email. Have fun with it.
The heart of the wise inclines to the right, but the heart of the fool to the left.
The second quote – and this one is serious – is from President Andrew Jackson’s remarkable farewell address in March of 1837. Wouldn’t it be amazing to have leaders who still cherished the Constitution and understood the danger of excessive government?
It is well known that there have always been those amongst us who wish to enlarge the powers of the General Government, and experience would seem to indicate that there is a tendency on the part of this Government to overstep the boundaries marked out for it by the Constitution. …There is, perhaps, no one of the powers conferred on the Federal Government so liable to abuse as the taxing power. …Congress has no right under the Constitution to take money from the people unless it is required to execute some one of the specific powers intrusted to the Government; and if they raise more than is necessary for such purposes, it is an abuse of the power of taxation, and unjust and oppressive. …Plain as these principles appear to be, you will yet find there is a constant effort to induce the General Government to go beyond the limits of its taxing power and to impose unnecessary burdens upon the people. …There is but one safe rule, and that is to confine the General Government rigidly within the sphere of its appropriate duties. It has no power to raise a revenue or impose taxes except for the purposes enumerated in the Constitution, and if its income is found to exceed these wants it should be forthwith reduced and the burden of the people so far lightened.
Every since the current government won a landslide election, there’s been a widespread assumption that Hungary would be the next nation in Europe to hop on the flat tax bandwagon. Well, the assumption has become reality. Here’s a report from Tax-news.com.
The Hungarian parliament has approved the government’s 2011 tax bill, which introduces a flat rate personal income tax of 16%, and grants a 10% corporate tax rate to certain companies from next year. The bill also contains a highly controversial amendment to the country’s original bank tax legislation. Hungary’s 2011 tax bill, which was adopted by 259 votes to 104, provides for a 16% flat rate of personal income tax in a bid to boost domestic demand. It also reduces the corporate tax rate from 19% to 10% for all companies from January 1, 2013.
It’s a bit disturbing to see that Keynesian theory (“boost domestic demand”) was part of the rationale for this tax reform, but I’m not going to quibble. Any port in a storm, as the saying goes.
So it’s time to cue up the flat tax theme song and celebrate the growing list of flat tax nations. More than 30 nations now have the morally and economically superior tax regime, a remarkable increase since I narrated a video two years ago and there were only 25 countries on the list.
Posted in Bailout, Big Government, Corporate income tax, Corporate tax, Debt, Deficit, Economics, Euro, Financial Crisis, France, Germany, Government Spending, Ireland, Tax Increase, Taxation, tagged Bailouts, Corporate tax, Financial Crisis, Government Spending, Ireland, Taxation on November 18, 2010 | 15 Comments »
Ireland is in deep fiscal trouble and the Germans and the French apparently want the politicians in Dublin to increase the nation’s 12.5 percent corporate tax rate as the price for being bailed out. This is almost certainly the cause of considerable smugness and joy in Europe’s high-tax nations, many of which have been very resentful of Ireland for enjoying so much prosperity in recent decades in part because of a low corporate tax burden.
But is there any reason to think Ireland’s competitive corporate tax regime is responsible for the nation’s economic crisis? The answer, not surprisingly, is no. Here’s a chart from one of Ireland’s top economists, looking at taxes and spending for past 27 years. You can see that revenues grew rapidly, especially beginning in the 1990s as the lower tax rates were implemented. The problem is that politicians spent every penny of this revenue windfall.
When the financial crisis hit a couple of years ago, tax revenues suddenly plummeted. Unfortunately, politicians continued to spend like drunken sailors. It’s only in the last year that they finally stepped on the brakes and began to rein in the burden of government spending. But that may be a case of too little, too late.
The second chart provides additional detail. Interestingly, the burden of government spending actually fell as a share of GDP between 1983 and 2000. This is not because government spending was falling, but rather because the private sector was growing even faster than the public sector.
This bit of good news (at least relatively speaking) stopped about 10 years ago. Politicians began to increase government spending at roughly the same rate as the private sector was expanding. While this was misguided, tax revenues were booming (in part because of genuine growth and in part because of the bubble) and it seemed like bigger government was a free lunch.
But big government is never a free lunch. Government spending diverts resources from the productive sector of the economy. This is now painfully apparent since there no longer is a revenue windfall to mask the damage.
There are lots of lessons to learn from Ireland’s fiscal/economic/financial crisis. There was too much government spending. Ireland also had a major housing bubble. And some people say that adopting the euro (the common currency of many European nations) helped create the current mess.
The one thing we can definitely say, though, is that lower tax rates did not cause Ireland’s problems. It’s also safe to say that higher tax rates will delay Ireland’s recovery. French and German politicians may think that’s a good idea, but hopefully Irish lawmakers have a better perspective.
Our airport security system is a giant hassle. It’s very costly. And now we have the incredible privilege of having government bureaucrats grope our private parts.
So are we getting big benefits to offset these high costs? Mark Tapscott of the Washington Examiner has a column about the TSA that includes a single sentence (actually, a fragment of a sentence) that pretty much tells us what we need to know.
…despite years of imposing increasingly invasive new security procedures, the TSA has yet to catch one terrorist.
To be fair, one interpretation of this sentence is that the TSA and its overseas counterparts have done such a great job that terrorists have given up. Yet the “shoe bomber” made it on a plane, as did the “underwear bomber.”
Moreover, the Government Accountability Office warns that it’s unclear whether the new body-imaging approach would have caught the underwear bomber. And since this approach apparently is unable to detect certain types of bombs hidden in body cavities (use your imagination), we’re still left with the fundamental issue of whether the bureaucracy is imposing high costs on innocent people without providing a fail-safe way of stopping bad guys.
That being said, I confess that I’m amazed that terrorists haven’t succeeded in knocking down more planes since 9-11. Somebody, somewhere, deserves some credit. After all, protecting us from aggression is one of the few legitimate responsibilities of government.
Time for a brief detour from political commentary.
We finally got the picture from last month’s softball world series tournament in Arizona. These amazing specimens of manhood are the ”Beltway Bandits,” our over-50 team. As noted in an earlier post, we made it to the final day but didn’t come back with a first-place trophy.
Liberals should be happy with our team’s diversity. No, I’m not talking about racial composition. I’m referring to the teammate with strange preferences. I won’t identify him, but suffice to say his favorite song is a modified version of a Nat King Cole classic that he calls “Unforgettable Ewe.”
Posted in Big Government, Debt, Deficit, Government Spending, Higher Taxes, Obama, Tax Increase, Taxation, Value-Added Tax, VAT, tagged Big Government, Debt, Deficits, Fiscal Policy, Government Spending, Higher Taxes, Obama, Tax Increase, Value-Added Tax, VAT on November 17, 2010 | 8 Comments »
I’ve already commented on the proposal from the Chairmen of President Obama’s Fiscal Commission (including a very clever cartoon, if it’s okay to pat myself on the back).
Now we have a similar proposal from the so-called Debt Reduction Task Force. Chaired by former Senator Pete Domenici and Clinton Administration Budget Director Alice Rivlin, the Task Force proposed a series of big tax increases to finance bigger government. I have five observations.
1. Notwithstanding a claim of $2.68 trillion of “spending cuts” during the 2012-2020 period, government gets a lot bigger during the decade. All of the supposed “cuts” are measured against an artificial baseline that assumes bigger government. In other words, the report is completely misleading in that spending increases get portrayed as spending cuts simply because government could be growing even faster. Interestingly, nowhere in the report does it show what total spending is today and what it will be in 10 years, presumably because the authors realized that the fiction of spending cuts would be hard to maintain if people could see real-world numbers showing the actual size of government now and in the future.
This chart shows what it would actually take to balance the budget over the next 10 years – and these numbers assume all of the tax cuts are made permanent and that the alternative minimum tax is extended.
2. The Task Force proposes a value-added tax, which is estimated to generate more than $3 trillion between 2012 and 2020. They call this new tax a “debt reduction sales tax” and I can just imagine the members giggling as they came up with this term. They may think the American people are a bunch of yokels who will get tricked by this language, but one can only wonder why they think making our tax system more like those in Europe will lead to anything other than more spending and less growth.
3. The Task Force proposes to dramatically increase the scope of the Social Security payroll tax. Since this is something Obama called for in the campaign and also something endorsed by the President’s Fiscal Commission, this proposed tax hike should be viewed as a real threat. I’ve explained elsewhere why this is bad tax policy, bad fiscal policy, bad entitlement policy, and bad Social Security policy.
4. To add “stimulus” to the package, the Task Force proposes a one-year payroll tax holiday. The good news is that they didn’t call for more spending. The bad news is that temporary tax cuts have very little pro-growth impact, especially if a tax cut will only last for one year. Unfortunately, the Task Force relied on the Congressional Budget Office, which blindly claimed that this gimmicky proposal will create between 2.5 million-7.0 million jobs. But since these are the geniuses who recently argued that higher tax rates boost growth and also claimed that Obama’s faux stimulus created jobs, those numbers have very little credibility.
5. While the Task Force’s recommendations are unpalatable and misleading, there is a meaningful distinction between this plan and the Obama Administration’s fiscal policy. The Task Force assumes that government should get even bigger than it is today, but the Obama Administration wants government to grow at a much faster rate. The Task Force endorses massive tax hikes, but generally tries to avoid marginal tax rate increases that have especially large negative supply-side consequences. The Obama White House, by contrast, is fixated on a class-warfare approach to fiscal policy. And the Task Force proposes real entitlement reform, unlike either the Obama White House or the Simpson-Bowles Fiscal Commission. One way of characterizing the different approaches is that the Task Force represents the responsible left while the Obama Administration represents the ideological left.