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Archive for June, 2011

For both political and policy reasons, the left is desperately trying to maneuver Republicans into going along with a tax increase. And they are smart to make this their top goal. After all, it will be very difficult – if not impossible – to increase the burden of government spending without more revenue coming to Washington.

But how to make this happen? President Obama is mostly arguing in favor of class-warfare tax increases, but that’s a non-serious gambit driven by 2012 political considerations. Moreover, there’s presumably zero chance that Republicans would surrender to higher tax rates on work, saving, and investment.

The real threat is back-door hikes resulting from the elimination and/or reduction of so-called tax breaks. The big spenders on the left are being very clever about this effort, appealing to anti-spending and pro-tax reform sentiments by arguing that it is important to get rid of “tax expenditures” and “spending in the tax code.”

I recently warned, however, that GOPers shouldn’t fall for this sophistry, noting that “If legislation is enacted that results in more money coming into Washington, that is a tax increase.” I also explained that tax breaks are not spending, stating that “When politicians tax (or borrow) money from one person and give it to another, that’s government spending. But if politicians allow a person keep more of their own money, that’s a tax cut.”

To be sure, the tax code is riddled with inefficient and corrupt loopholes. But those provisions should be eliminated as part of fundamental tax reform, such as a flat tax. More specifically, every penny of revenue generated by shutting down tax preferences should be used to lower tax rates. This is a win-win situation that would make America more prosperous and competitive.

It’s also important to understand what’s a loophole and what isn’t. Ideally, you determine special tax breaks by first deciding on the right benchmark and then measuring how the current tax system deviates from that ideal. That presumably means all income should be taxed, but only one time.

So what can we say about the internal revenue code using this neutral benchmark? Well, there are lots of genuine loopholes. The government completely exempts compensation in the form of employer-provided health insurance, for instance, and everyone agrees that’s a special tax break. There’s also the standard deduction and personal exemptions, but most people think it’s appropriate to protect poor people from the income tax (though perhaps we’ve gone too far in that direction since only 49 percent of households now pay income tax).

Sometimes the tax code goes overboard in the other direction, however, subjecting some income to double taxation. Indeed, because of the capital gains tax, corporate income tax, personal income tax, and death tax, it’s possible for some types of income to be taxed as many of three or four times.

Double taxation is a special tax penalty, which is the opposite of a special tax break. The good news is that there are some provisions in the tax code, such as IRAs and 401(k)s, that reduce these tax penalties.

The bad news is that these provisions get added to “tax expenditure” lists, and therefore get mixed up with the provisions that provide special tax breaks. This may sound too strange to be true, but here’s a list of the biggest so-called tax expenditures from the Tax Policy Center (which is a left-leaning organization, but their numbers are basically the same as the ones found at the Joint Committee on Taxation).

Since this post already is too long, I’ll close by simply noting that items 2, 4, 7, 8, 11, and 12 are not loopholes. They are not “tax expenditures.” And they are not “spending in the tax code.” Every one of those provisions is designed to mitigate a penalty in the tax code.

So even if lawmakers have good motives (i.e., pursuing real tax reform such as the flat tax) when looking to get rid of special tax breaks, they need to understand what’s actually a loophole.

But since politicians rarely have good motives, there’s a real threat that they will take existing tax penalties and make them even worse. That’s another reason why tax increases should be a non-starter.

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Regular readers know that I don’t have high regard for government. I’m willing to believe just about anything bad about politicians and bureaucrats, and I am not the least bit surprised when I hear horror stories about counterproductive government programs riddled with waste, fraud, and abuse.

So you can imagine that it takes something truly mind-boggling to make me lower my opinion of government.

Well, that’s happened. Apparently, a woman drowned in a government-run pool and it took two days for the bureaucrats to notice her dead body. Here are some excerpts from a Boston news report.

The body of a Fall River woman was discovered floating in a state run pool late Tuesday night, two days after she apparently drowned in that same pool. Police say lifeguards were on duty and people were swimming in the Veterans Memorial pool at Lafayette Park Sunday, Monday and Tuesday and it appears no one noticed the dead body. …Police say Joseph was watching her 9-year-old neighbor at the pool on Sunday when she apparently had an accident sliding down a waterside. Family friends tell FOX25 the little boy told lifeguards that she did not come up from above water but no action was taken.

I actually hope this story is somehow false. Sure, I enjoy mocking the incompetence of government, but I would hate to think that lifeguards, other staff, and supervisors (not to mention other swimmers) could overlook a dead body for two days.

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Those who had the misfortune of seeing President Obama go after “tax breaks for corporate jets” as part of his press conference may be wondering why he was attacking a provision that was in his so-called stimulus and enacted by a Democratic-controlled Congress in 2009.

But that’s just routine politics. The folks in the White House are probably laughing about screwing jet builders after collecting campaign money from them in exchange for that provision two years ago.

The more important thing to focus on is the way that the big spenders in the White House and elsewhere are trying to build support for a big tax increase by characterizing tax breaks as “spending in the tax code.” The left obviously hopes Republicans are so stupid that Orwellian word games are all that is needed to get them to acquiesce to legislation that would increase the amount of revenue going to Washington.

To be sure, Republicans are known as the “Stupid Party,” so anything is possible. But if GOPers can simply remember these three simple concepts, they will be in good shape.

    1. Tax reform is when you get rid of special tax breaks and use the revenue to finance lower tax rates.

      Under a flat tax, for instance, all the loopholes and distortions in the tax system are eliminated, and every single penny is used to finance lower tax rates. The politicians don’t get any additional revenue to waste.

      But if the crowd in Washington gets rid of the tax preferences without lowering tax rates, that’s just a tax increase. It’s a less-destructive way of raising revenue, at least compared to higher tax rates, but it’s still a tax increase.

    2. A tax increase is when politicians impose legislation that increases the overall burden on taxpayers and results in more revenue in Washington.

      If legislation is enacted that results in more money coming into Washington, that is a tax increase. It doesn’t matter if the additional revenue is generated by eliminating a special tax break (such as for ethanol). If politicians wind up having more money to waste, that is a tax increase.

      The only exception is if the additional revenue is from some sort of Laffer Curve effect – i.e., a lower tax rate that generates higher tax receipts.

    3. Government spending is when politicians give you other people’s money, not when you’re allowed to keep your own money.

      When politicians tax (or borrow) money from one person and give it to another, that’s government spending. But if politicians allow a person keep more of their own money, that’s a tax cut. The tax cut may be pro-growth, such as a lower tax rate. Or the tax cut may be inefficient and distorting, such as an expanded tax loophole for healthcare.

      From a moral perspective (at least if one believes in the right of self-ownership), there’s a big difference between taking what someone else has produced or keeping what you have produced. Politicians want to blur that difference, but that doesn’t change reality.

I’ve already explained that left has one fiscal policy goal. They want to seduce Republicans into a tax hike. Orwellian dishonesty about tax reform is just another scheme to accomplish that goal.

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Here’s a new video, less than 2-1/2 minutes, pointing out some of the key differences between rich nations and poor nations. Not surprisingly, small government, free markets, and sound institutions are critical.

I narrated a similar video, released more than two years ago, that makes similar points. The production values are not as high, but I had six minutes to play with, so it gave me an opportunity to elaborate on the various factors that contribute to growth. I think the videos are good complements.

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Okay, the title of this post is a huge overstatement. I’ve already noted here that Argentina is not a good role model and warned here how that Obama is repeating many of the mistakes that undermined Argentinian prosperity.

But I’m nonetheless impressed that Argentina actually allows people at the Lujan Zoo to freely choose whether to enter cages with potentially deadly animals.

Here at the Lujan Zoo near Buenos Aires visitors can ride lions, cuddle bears, stroke tigers and feed cheetahs. Cages are accessible to everyone who paid $50 and signed the paper saying that if you are eaten, the Zoo is not responsible. Lujan Zoo is about 50 miles from from Buenos Aires, has an entrance fee of just £5. Visitors can even pick up the smaller animals and manhandle them at risk to themselves and the creatures. Shockingly there doesn’t appear to be much in the way of safety regulations.

I would probably be a wimp if I went to this zoo, so I would limit myself to the lion cubs or something like that. But I support the right of other people to engage in risky behavior

(h/t: Marginal Revolution)

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As far as I can tell, everything that Thomas Sowell writes is worth reading, but I especially like how he is so effective at linking his arguments to the underlying principles of a free society.

And when he writes a column focused on those underlying principles, I can’t help but get inspired. He reminds me why I’m at the Cato Institute and why the fight for liberty is so important.

Indeed, what he says about the Constitution in his latest column is so good that I sort of view it as a birthday present for me. But the rest of you should enjoy it as well.

The American Revolution was not simply a rebellion against the King of England, it was a rebellion against being ruled by kings in general. That is why the opening salvo of the American Revolution was called “the shot heard round the world.” Autocratic rulers and their subjects heard that shot — and things that had not been questioned for millennia were now open to challenge. As the generations went by, more and more autocratic governments around the world proved unable to meet that challenge. Some clever people today ask whether the United States has really been “exceptional.” You couldn’t be more exceptional in the 18th century than to create your fundamental document — the Constitution of the United States — by opening with the momentous words, “We the people…” Those three words were a slap in the face to those who thought themselves entitled to rule, and who regarded the people as if they were simply human livestock, destined to be herded and shepherded by their betters. Indeed, to this very day, elites who think that way — and that includes many among the intelligentsia, as well as political messiahs — find the Constitution of the United States a real pain because it stands in the way of their imposing their will and their presumptions on the rest of us. More than a hundred years ago, so-called “Progressives” began a campaign to undermine the Constitution’s strict limitations on government, which stood in the way of self-anointed political crusaders imposing their grand schemes on all the rest of us. That effort to discredit the Constitution continues to this day, and the arguments haven’t really changed much in a hundred years. …A constitution exists to create a framework for government — and the Constitution of the United States tries to keep the government inside that framework. …Does the Constitution matter? If it doesn’t, then your Freedom doesn’t matter.

The column was written to debunk and mock a vacuous piece by the Managing Editor of Time magazine. If today is the opposite of your birthday, and you deserve to suffer for some reason, then you might want to track down and read that article. I wouldn’t recommend that level of masochism.

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I’ve largely stopped beating up on the TSA because it seems like a dog-bites-man or sun-rises-in-the-east issue. Do we really learn anything by repetitively discussing the stupidity on one bureaucracy?

But sometimes the idiocy reaches such an extreme level that it can’t be ignored.

Here are the nauseating details of how TSA bureaucrats confiscated a toy hammer – made out of plastic – that a mentally retarded man had used as a sort of security blanket for 20 years.

The Mandy family says they were on their way to the happiest place on earth (Disney), but had to go through hell to get there. …The family was going through security when two TSA agents singled Drew Mandy out for a special pat down. Drew is severely mentally disabled. He’s 29, but his parents said he has the mental capacity of a two-year-old, which made the experience that followed at metro Detroit’s McNamera Terminal that much harder to deal with. …The TSA agents saw Drew holding a six-inch plastic hammer. “My son carries his ball and his hammer for security. He goes everywhere with (them),” said Mandy. The TSA it seems saw the toy as a weapon. “He took the hammer and he tapped the wall. ‘See, it’s hard. It could be used as a weapon,'” Mandy explained. …”It just killed me to have to throw it away because he’s been carrying this like for 20 years,” Mandy said.

That’s a disgusting example of bureaucratic stupidity, but I don’t know whether it’s better or worse than what happened in Florida, where the Keystone Cops of the TSA made a 95-year old cancer patient remove her adult diaper as part of the screening process.

The Transportation Security Administration doesn’t think its agents did anything wrong in asking an elderly woman with cancer to remove her adult diaper during an airport security screening. The agency came under fire after Florida woman Jean Weber claimed her 95-year-old mother was forced to take off her diaper for a pat down at the Destin-Fort Walton Beach Airport last weekend. “It’s something I couldn’t imagine happening on American soil,” Weber told the Northwest Florida Daily News. …Weber says watching her mother, who is battling leukemia, be subjected to the security screening drove her to tears.

Plastic hammers and soiled diapers are deadly weapons to be sure, especially in the hands of retarded people and senior citizens. We should be mighty proud that the TSA is on the job!!

Not surprisingly, Senator Rand Paul has the right assessment, believing in common sense and individual liberty. I’ve already shared a video of him mocking an Obama appointee for imposing inferior, toxic light bulbs. Now here’s a video of him grilling the head TSA bureaucrat.

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