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Archive for July 26th, 2011

I testified before the House Ways & Means Committee earlier today. As always, my trip inside the belly of the beast was an interesting adventure.

The tax-writing committee was holding a hearing on the value-added tax. I was on a panel with five other witnesses, and all of the other people testifying were sympathetic to a VAT. But since I had truth on my side, that made it a fair fight (though it did cross my mind that it’s not a good sign when a Republican-controlled committee stacks the witnesses in favor of a European-style tax system).

I made two points. First, a VAT is less destructive than the current income tax. As such, if we somehow repealed the 16th Amendment and replaced it with something ironclad that would prevent the income tax from ever again haunting the land, I would gladly make a trade.

But that’s not going to happen, so my second point was to warn that the VAT would be a recipe for bigger government. And even though some of my fellow witnesses said the revenue could be used to reduce deficits, I pointed out that Europe adopted VATs beginning in the 1960s and that hasn’t stopped welfare states such as Greece and Portugal from spending themselves into a fiscal crisis.

This chart, which is similar to what I included in my testimony, compares spending and debt levels in EU-15 nations (Western Europe) and the United States. As you can see, the burden of spending and debt is onerous in America (red columns), but even worse in Europe (blue columns).

That doesn’t prove that a VAT causes bigger government and more debt, to be sure, but it certainly seems to suggest that the other side is smoking dope when they claim a VAT will lead to deficit reduction. Instead, it seems like Milton Friedman was right when he warned that, “In the long run government will spend whatever the tax system will raise, plus as much more as it can get away with.”

I made some of these points in my VAT video.

P.S. Here are three very good cartoons on the VAT (here, here, and here).

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I don’t have my finger on the pulse of black America, and I don’t pretend to understand the emotional and symbolic value of a black President to the African-American community.

But I do know that the big-government policies of the Obama Administration have not been good news for blacks. Here’s an excerpt from a new Associated Press story about the growing wealth gap between white and black America.

The wealth gaps between whites and minorities have grown to their widest levels in a quarter-century. The recession and uneven recovery have erased decades of minority gains, leaving whites on average with 20 times the net worth of blacks and 18 times that of Hispanics, according to an analysis of new Census data. The analysis shows the racial and ethnic impact of the economic meltdown, which ravaged housing values and sent unemployment soaring.

To be fair, the numbers started turning in the wrong direction under Bush, and Obama is right when he says he inherited a bad situation. On the other hand, Obama has continued the big-government and interventionist policies of his predecessor, so it’s not clear that this is much of an excuse.

The unemployment data also shows bad news for blacks. This chart uses data from the Bureau of Labor Statistics and it shows unemployment among African-Americans has nearly doubled in recent years.

Once again, it’s worth pointing out that the numbers were heading in the wrong direction as Obama took office. But as I note above, I’m not sure that matters since Obama has continued Bush’s approach of higher spending and more intervention. But even if you can’t accept that analysis because you’re a partisan Democrat or Republican, all that really matters is that the black unemployment rate has increased dramatically and is now stubbornly high.

The moral of the story, needless to say, is that free markets and small government are the right policies. That’s the best approach to improve living standards for all Americans.

But lower-income Americans are especially vulnerable to economic fragility, so better economic performance disproportionately helps people on the bottom rungs of the economic ladder.

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