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Archive for August, 2011

In a perverse way (pun intended), I admire German politicians for their creativity. They will figure out ways to tax just about anything.

Their latest scheme is a plan that requires streetwalkers to put money in parking meters in exchange for a slip of paper that entitles them to…um…ply their trade for a specified period of time.

Here are some excerpts from the Daily Mail report.

German Parking and/or Prostitute Meter

Prostitutes working the streets of the former German capital are now having to pay £5.30 per night to a modified parking meter – to gain permission to ply their trade. Sex workers in Bonn face hefty fines for not forking out the new ‘income tax’ which has been brought in to try and regulate the outdoor aspect of the industry. It is to bring them into line with the country’s brothel workers who already pay out a percentage of their profits in tax, which varies depending on the region. …if caught without a valid ticket, offenders would be reprimanded. They would then face fines, and later a ban. The fee is a daily charge, and irrespective of how many punters are entertained. …specific quarters have been designated as sex work zones. City officials have created ‘consummation areas’, which are wooden parking garages where customers driving cars can retreat to with their prostitutes. Dortmund has a similar system where prostitutes buy tickets from petrol stations.

I suppose this is the point where I normally would make some snide comments about greedy politicians, or perhaps offer some analysis about the economic impact of taxation.

But this story is so bizarre that I can’t even get to that stage.

What happens if you’re just a regular motorist and you put money in the meter and press the wrong button?

And I know that most governments will put a boot on one of your tires to disable your car if you don’t pay your parking tickets. Does this mean hookers who don’t buy a street-walking pass will get a chastity belt?

Does the city government also charge for use of the garages in the “consummation areas”? And when did it become the responsibility of German taxpayers to finance something like that?!?

And for the hookers in Dortmund who get their passes at the petrol station, do the mechanics check “under the hood” if they use full service? (okay, pretty lame, but I couldn’t resist)

Most important, will the politicians take this idea to its logical conclusion and put prostitute meters in Parliament? In other words, require politicians to put money in a meter before  they try to buy support from interest groups by providing handouts and special preferences.

That’s one tax increase even I could support.

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I’m normally disappointed when religious figures comment on economics, particularly since they often turn the individual call to charity into a blank check for government-coerced redistribution. This runs contrary to individual choice, free will, and morality.

So I’m delighted that Ettore Gotti Tedeschi, writing for  L’Osservatore Romano, the quasi-official newspaper of the Vatican,  persuasively explains how higher taxes simply encourage a downward spiral of more spending, more debt, and economic despair. Here’s the key segment from his column.

…taxation in all its forms only permits further growth in public spending… During a prolonged crisis, inheritance taxes, new forms of taxation or similar alternatives reduce or wipe out resources for investments, discouraging the trust of investors, penalizing the cost of the public debt and the possibilities of its renewal at its expiration. In this context, imposing taxes on property and on income is equivalent to a suicidal anti-subsidiarity of the state to the citizen. Those who legally possess assets, on which they have paid the proper taxes, have contributed to creating wealth and, thanks precisely to these assets, continue to produce them with investments and consumption. Further forms of taxation would not be synonymous with solidarity but only with greater public spending and, perhaps, a higher debt and more widespread poverty. High taxes penalize saving, generate distrust in the ability to stimulate recovery, hit families and prevent the formation of new ones, as well as creating uncertainty and precariousness in employment. In short, they lay the foundations for another phase of unsustainable development.

What makes the editorial so remarkable is that Mr. Tedeschi not only understands economics – as illustrated by his discussion of how higher tax rates discourage productive behavior, but his grasp of real-world politics. He recognizes that higher taxes will simply lead to higher spending.

But maybe that’s an easier lesson for honest Europeans to grasp. For the past several decades, they have seen politicians – over and over again – play the bait-and-switch game of raising taxes, supposedly to reduce red ink, only to have the money used to expand already bloated public sectors.

The value-added tax, not surprisingly, has played a key role in Europe’s fiscal nightmare.

Forty years ago, southern European nations had medium-sized governments and large deficits and northern European nations had medium-sized governments and small deficits.

Today, southern European nations have had large-sized governments and large deficits and northern European nations have had large-sized governments and small deficits.

The only big change is that all these nations now have VATs and the burden of government spending is much higher. But the deficits generally have stayed the same, consistent with the political culture of the respective regions.

In other words, Milton Friedman was correct many years ago 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.”

And Mr. Tedeschi is correct today with a similar observation.

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There’s a very provocative article on the New York Times website that criticizes Steve Jobs for his supposed lack of charitable giving.

Surprisingly, there is one thing that Mr. Jobs is not, at least not yet: a prominent philanthropist. Despite accumulating an estimated $8.3 billion fortune through his holdings in Apple and a 7.4 percent stake in Disney (through the sale of Pixar), there is no public record of Mr. Jobs giving money to charity. He is not a member of the Giving Pledge, the organization founded by Warren E. Buffett and Bill Gates to persuade the nation’s wealthiest families to pledge to give away at least half their fortunes. (He declined to participate, according to people briefed on the matter.) Nor is there a hospital wing or an academic building with his name on it. …the lack of public philanthropy by Mr. Jobs — long whispered about, but rarely said aloud — raises some important questions about the way the public views business and business people at a time when some “millionaires and billionaires” are criticized for not giving back enough… In 2006, in a scathing column in Wired, Leander Kahney, author of “Inside Steve’s Brain,” wrote: “Yes, he has great charisma and his presentations are good theater. But his absence from public discourse makes him a cipher. People project their values onto him, and he skates away from the responsibilities that come with great wealth and power.”

But why, to address Leander Kahney’s criticism, should we assume that Mr. Jobs has done nothing for the poor? He’s built a $360 billion company. That presumably means at least $352 billion of wealth in the hands of people other than himself. And that doesn’t even begin to count how consumers have benefited from his products, the jobs he has created, and the indirect positive impact of his company on suppliers and retailers.

To give credit where credit is due, the article does present this counter-argument. It reports that Mr. Jobs told friends, “that he could do more good focusing his energy on continuing to expand Apple than on philanthropy.”

This is a critical point. Do we want highly talented entrepreneurs and investors dropping out of the private sector and giving their money away after they’ve reached a certain point, say $5 billion. Or do we want them to focus on creating more wealth and prosperity?

Interestingly, Warren Buffett used to understand this point (before he started arguing that politicians could more effectively spend his money). And Carlos Slim Helu still does.

Mr. Jobs, 56 years old, is not alone in his single-minded focus on work over philanthropy. It wasn’t until Mr. Buffett turned 75 that he turned his attention to charity, saying that he was better off spending his time allocating capital at Berkshire Hathaway — where he believed he could create even greater wealth to give away — than he would ever be at devoting his energies toward running a foundation. And last year, Carlos Slim Helú, the Mexican telecommunications billionaire, defended his lack of charity and his refusal to sign the Giving Pledge. “What we need to do as businessmen is to help to solve the problems, the social problems,” he said in an interview on CNBC. “To fight poverty, but not by charity.”

None of this is to say that charitable giving is wrong. I’m proud to say that my employer, the Cato Institute, refuses to accept money from government. This means we are completely dependent of private philanthropy.

But those of us who work at Cato understand that creating wealth – maximizing the size of the economic pie – is the most important priority. And if the pie is big, generous people then have more ability to make contributions to worthy causes such as school choice scholarship funds, the Salvation Army, or (ahem) America’s best think tank.

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I wrote last year that, “I don’t think public policy should be based on polling data, but I always am happy when the American people are on the right side of an issue since it increases the possibility of good outcomes in Washington.”

One other thing to consider is that pollsters can manipulate results by changing how they word a question.

But even with those caveats, I feel good about two three new polls. First, from the folks at Gallup,we have two charts showing that the federal government isn’t winning any popularity contests.

And here’s some more data from the Gallup poll, showing that the federal government has the lowest net positive (or in this case, highest net negative) of any segment of the U.S. economy. It even ranks below lawyers and the oil/gas industry.

We also have some numbers from Rasmussen showing that voters are particularly dismayed by the power of the federal government.

A new Rasmussen Reports national telephone survey shows that 50% of Likely Voters believe the federal government has too much influence over state governments. Just 11% think the federal government does not have enough influence while 26% believe the balance is about right. Thirteen percent (13%) are not sure.  …These results come at a time when just 17% believe the federal government has the consent of the governed and only 14% believe the country is generally heading in the right direction.

I also like that only 17 percent think the federal government “has the consent of the governed.” Sounds like people have figured out that much of what happens in Washington is a racket for the benefit of insiders.

Numbers like these warm my heart – just as happened with recent polls on spending cuts, the VAT, and Social Security reform.

P.S. There’s a new Reason-Rupe poll showing that the American people understand that reducing the burden of government spending will boost the economy, whereas tax increases will just lead to bigger government.

…over 57 percent of Americans say reducing government spending will “mostly help” the economy, according to a new national Reason-Rupe Public Opinion Survey of 1,200 adults. Just 21 percent believe cutting spending will “mostly harm” the economy. …If taxes do go up, Americans don’t trust that the new revenue will be used to reduce the national debt.  When asked what they expect Congress would do with money generated by tax increases, 62 percent of Americans say Congress would spend that money on new programs. Only 27 percent of taxpayers believe Congress would actually use the money to pay down the national debt.

All these results demonstrate the wisdom of the American people (though I reserve the right to re-classify them as ignorant yokels when they disagree with me).

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In a decision that is overwhelmingly the result of the hard work and dedication of one person, Los Angeles is ending its revenue-generating red-light camera scheme.

Here’s Jay Beeber’s interview with Reason TV.

If you’re interested, this post has more information about how red-light cameras make intersections more dangerous.

It’s probably an exaggeration to say that Jay Beeber is an American hero, but he definitely deserves accolades of some kind.

Let’s not forget, though, that the voters of Houston also deserve some applause.

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The White House has announced that it is nominating Alan Krueger, a professor at Princeton, to be the new Chairman of the Council of Economic Advisers.

In a Freudian copy-editing slip, the Fox News story (at least as of 8:44 a.m.) says “Krueger’s job will be to provide policy prescriptions on ways to spur unemployment.”

That’s obviously tailor-made for a joke about the Obama Administration not needing any help when it comes to stimulating joblessness.

On a more serious note, though, I’m worried about Krueger’s sympathy for a value-added tax (VAT). Here’s what he wrote back in 2009.

…a 5 percent consumption tax would raise approximately $500 billion a year, and fill a considerable hole in the budget outlook. In addition, a consumption tax would encourage more saving in the long run. Many economists consider a consumption tax an efficient way of raising tax revenue, especially in a global economy. The prospect of greater revenue flowing into federal coffers would probably help lower long-term interest rates because the government would need to borrow less down the road, and further bolster the economy.

To be fair, Krueger was very careful to leave himself some wiggle room, even going so far as to write that, “I’m not sure it is the best way to go.”

But it seems rather obvious that Krueger, like other leftists, wants this giant new source of revenue. Heck, President Obama also has semi-endorsed a VAT, saying it is “something that has worked for other countries.”

The President’s assertion is especially foolish. After all, European nations imposed VATs about 40 years ago, which simply encouraged more spending and more debt – and now several nations are on the verge of bankruptcy.

If that’s “something that has worked,” I’d hate to see the President’s idea of failure.

The real lesson is that the United States should not copy Europe’s mistakes. This short video has the key arguments against this European-style national sales tax.

P.S. For a humorous perspective on the VAT, take a look at these clever cartoons (here, here, and here).

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I’m making the image a thumbnail, so click at your own risk.

You have only yourself to blame if you’re offended by juvenile humor.

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