Feeds:
Posts
Comments

Archive for January, 2013

Daniel Hannan is a member of the European Parliament from England. He is one of the few economically sensible people in that body, as demonstrated in these short clips of him speaking about tax competition and deriding the European Commission’s corrupt racket.

And as you can see from his latest article in the UK-based Telegraph, he’s also very wise on issues of class warfare tax policy and Laffer Curve responses to punitive taxation.

France’s richest man, Bernard Arnault, is shifting his fortune to Belgium. Gérard Depardieu, the country’s greatest actor (figuratively and literally)is moving to Russia. And, if rumours are to be believed, Nicolas Sarkozy is planning a new career in London. That’s the problem with very high taxes – they don’t redistribute wealth; they redistribute people. …the rich don’t sit around waiting to be taxed. …many financiers can open their businesses abroad simply by opening their laptops. The result of a hike in tax rates is thus often a fall in tax revenue – which means, of course, that the rest of us end up paying more to cover the share of the departed plutocrats.

Hannan understands that rich people have considerable control over the timing, level, and composition of their income, which is precisely why there are powerful Laffer Curve effects when politicians go after the so-called rich (as I tried to explain in a lesson for President Obama).

But Hannan also makes a good point about complexity.

The complexity of a tax system is every bit as damaging to competitiveness as the overall tax rate. The more convoluted the tax code becomes, the more time we have to take off work to comply with it.Tolley’s Tax Handbook is now 11,500 pages long, twice what it was when Gordon Brown became chancellor, and the number of tax lawyers has increased commensurately. …The very wealthy, who can afford ingenious tax advisers and high upfront fees, turn this complexity to their advantage, sheltering their assets in various pockets unintentionally created by government schemes. Again, the rest of us then have to pay more to make up their portion.

Since we have 72,000 pages of complexity and corruption in our tax code, I can’t help but comment that the Brits are lucky that they “only” have 11,500 pages (assuming, of course, that the methodology in both page counts is similar).

In both cases, though, Hannan is right in stating that complexity benefits those who can hire lots of tax lawyers, financial planners, accountants, and other tax advisers.

The answer, of course, is a flat tax. Hannan doesn’t explicitly embrace that option, but he does write about the benefits of lower rates and fewer distortions.

There is one other point he makes that is worth noting. He cites a former Labour Party politician who explicitly was willing to have less prosperity if it meant more equality.

You might, of course, agree with Roy Hattersley, who once said that he’d rather have 5% more equality than 10% more prosperity. That is a respectable position, but at least be honest about it. Wealth taxes create more equal, but poorer societies.

Margaret Thatcher eviscerated that destructive mentality many years ago in this famous speech, but this is an area where proponents of limited government need to do more work.

There are plenty of well-meaning people who mistakenly think the economy is a fixed pie. If we want to help them understand the benefits of small government and free markets, we need to come up with more effective ways of educating them about the important implications of even small differences in economic growth.

I try to make that point in this PBS interview, but I suspect these charts comparing North Korea and South Korea and comparing Chile, Argentina, and Venezuela are much more compelling.

Read Full Post »

Fighting against statism in Washington is a lot like trying to swim upstream. It seems that everything (how to measure spending cuts, how to estimate tax revenue, etc) is rigged to make your job harder.

A timely example is the way the way government puts together data on economic output and the way the media reports these numbers.

Just yesterday, for instance, the government released preliminary numbers for 4th quarter gross domestic product (GDP). The numbers were rather dismal, but that’s not the point.

I’m more concerned with the supposed reason why the numbers were bad. According to Politico, “the fall was largely due to a drop in government spending.” Bloomberg specifically cited a “plunge in defense spending” and the Associated Press warned that “sharp government spending cuts” are the economy’s biggest threat in 2013.

To the uninitiated, I imagine that they read these articles and decide that Paul Krugman is right and that we should have more government spending to boost the economy.

But here’s the problem. GDP numbers only measure how we spend or allocate our national income. It’s a very convoluted indirect way of measuring economic health. Sort of like assessing the status of your household finances by adding together how much you spend on everything from mortgage and groceries to your cable bill and your tab at the local pub.

Wouldn’t it make much more sense to directly measure income? Isn’t the amount of money going into our bank accounts the key variable?

The same principle is true – or should be true – for a country.

That’s why the better variable is gross domestic income (GDI). It measures things such as employee compensation, corporate profits, and small business income.

These numbers are much better gauges of national prosperity, as explained in this Economics 101 video from the Center for Freedom and Prosperity.

The video is more than two years old and it focuses mostly on the misguided notion that consumer spending drives growth, but you’ll see that the analysis also debunks the Keynesian notion that government spending boosts an economy (and if you want more information on Keynesianism, here’s another video you may enjoy).

The main thing to understand is that GDP numbers and the press coverage of that data is silly and misleading. We should be focusing on how to increase national income, not what share of it is being redistributed by politicians.

But that logical approach is not easy when the Congressional Budget Office also is fixated on the Keynesian approach.

Just another example of how the game in Washington is designed to rationalize and enable a bigger burden of government spending.

Addendum: I’m getting ripped by critics for implying that GDP is Keynesian. I think part of the problem is that I originally entitled this post “Making Sense of Keynesian-Laced GDP Reports.” Since GDP data is simply a measure of how national output is allocated, the numbers obviously aren’t “laced” one way of the other. So the new title isn’t as pithy, but it’s more accurate and I hope it will help focus attention on my real point about the importance of figuring out the policies that will lead to more output.

Read Full Post »

Last year, I explained with considerable relief that President Obama would never be as bad as Franklin Roosevelt.

Yes, Obama has imposed a class-warfare tax hike, pushed through Obamacare, and squandered $billions on a faux stimulus (perfectly captured by this cartoon). But that’s trivial compared to the damage caused by FDR (and Hoover).

“I’ve tried, but it’s time for me to admit I’m not as bad as FDR”

Obama’s policies, to be sure, have contributed to an extremely weak expansion.

That’s bad, but FDR’s statism helped extend the Great Depression – by an additional seven years according to scholarly research! That’s a much worse track record.

But that doesn’t mean Obama doesn’t want to be as bad as FDR. Indeed, one of his top advisers seems very happy that the President’s second inaugural address was reminiscent of Roosevelt’s so-called Second Bill of Rights.

Here’s some of what Cass Sunstein wrote for Bloomberg.

Obama is updating Franklin Delano Roosevelt’s Second Bill of Rights. …Roosevelt announced the Second Bill of Rights in his State of the Union address in 1944. With the Great Depression over, and the war almost won, FDR declared that we “have come to a clear realization of the fact that true individual freedom cannot exist without economic security and independence.” …Then he listed them:

  • The right to a useful and remunerative job in the industries or shops or farms or mines of the nation.
  • The right to earn enough to provide adequate food and clothing and recreation.
  • The right of every farmer to raise and sell his products at a return which will give him and his family a decent living.
  • The right of every businessman, large and small, to trade in an atmosphere of freedom from unfair competition and domination by monopolies at home or abroad.
  • The right of every family to a decent home.
  • The right to adequate medical care and the opportunity to achieve and enjoy good health.
  • The right to adequate protection from the economic fears of old age, sickness, accident and unemployment.
  • The right to a good education.

…the Second Bill was meant to specify the goals of postwar America… Obama took more such steps. …Obama’s second inaugural did not refer explicitly to the Second Bill of Rights, but it had an unmistakably Rooseveltian flavor. …Obama emphasized “that a great nation must care for the vulnerable, and protect its people from life’s worst hazards and misfortune.” …Having helped America to survive its greatest economic challenge since the 1930s, the current occupant of that office is giving new meaning to those commitments, and making them his own.

I guess we have to give Sunstein credit for chutzpah. We’re suffering through the weakest expansion since the end of World War II, and he wants us to be grateful for Obama’s policies since they supposedly “helped America to survive.”

Wow, I’d hate to see his idea of failure.

But here’s the good news. America will have gridlock for the next two years, and probably the next four years.

The bad news is that we won’t take necessary steps to reform entitlements, but the good news is that we won’t make things worse with the kind of statist policies outlined in FDR’s fake Bill of Rights.

Yes, I expect Republicans to screw up on some of the small issues and give the White House a few minor victories, but I can’t imagine them approving any big Obama initiatives, even if their opposition is driven only by partisanship rather than principle.

Read Full Post »

I’m at Hillsdale College in Michigan for a conference on taxation. The event is called “The Federal Income Tax: A Centenary Consideration,” though I would have called it something like “100 Years of Misery from the IRS.”

I’m glad to be here, both because Hillsdale proudly refuses to take government money (which would mean being ensnared by government rules) and also because I’ve heard superb speeches by scholars such as Amity Shlaes (author of The Forgotten Man, as well as a new book on Calvin Coolidge that is now on my must-read list) and George Gilder (author of Wealth and Poverty, as well as the forthcoming Knowledge and Power).

My modest contribution was to present “The Case for the Flat Tax,” and I was matched up – at least indirectly, since there were several hours between our presentations – against former Congressman John Linder, who gave “The Case for the Fair Tax.”

I was very ecumenical in my remarks.  I pointed out the flat tax and sales tax (and even, at least in theory, the value-added tax) all share very attractive features.

  • A single (and presumably low) tax rate, thus treating taxpayers equally and minimizing the penalty on productive behavior.
  • No double taxation of saving and investment since every economic theory agrees that capital formation is key to long-run growth.
  • Elimination of all loopholes (other than mechanisms to protect the poor from tax) to promote efficiency and reduce corruption.
  • Dramatically downsize and neuter the IRS by replacing 72,000 pages of complexity with simple post-card sized tax forms.

For all intents and purposes the flat tax and sales tax are different sides of the same coin. The only real difference is the collection point. The flat tax takes a bite of your income as it is earned and the sales tax takes a bite of your income as it is spent.

That being said, I do have a couple of qualms about the Fair Tax and other national sales tax plans.

First, I don’t trust politicians. I can envision the crowd in Washington adopting a national sales tax (or VAT) while promising to phase out the income tax over a couple of years. But I’m afraid they’ll discover some “temporary” emergency reason to keep the income tax, followed by another “short-term” excuse. And when the dust settles, we’ll be stuck with both an income tax and a sales tax.

As we know from the European VAT evidence, this is a recipe for even bigger government. That’s a big downside risk.

I explore my concerns in this video.

To be sure, there are downside risks to the flat tax. It’s quite possible, after all, that we could get a flat tax and then degenerate back to something resembling the current system (though that’s still better than being France!).

My second qualm is political. The Fair Tax seems to attract very passionate supporters, which is admirable, but candidates in competitive states and districts are very vulnerable to attacks when they embrace the national sales tax.

On dozens of occasions over the past 15-plus years, I’ve had to explain to reporters that why anti-sales tax demagoguery is wrong.

So I hope it’s clear that I’m not opposed to the concept. Heck, I’ve testified before Congress about the benefits of a national sales tax and I’ve debated on C-Span about how the national sales tax is far better than the current system.

I would be delighted to have a national sales tax, but what I really want is a low-rate, non-discriminatory system that isn’t biased against saving and investment.

Actually, what I want is a very small federal government, which presumably could be financed without any broad-based tax, but that’s an issue for another day.

Returning to the issue of tax reform, there’s no significant economic difference between the flat tax and the sales tax. What we’re really debating is how to replace the squalid internal revenue code with something worthy of a great nation.

And if there are two paths to the same destination and one involves crossing an alligator-infested swamp and the other requires a stroll through a meadow filled with kittens and butterflies, I know which one I’m going to choose. Okay, a slight exaggeration, but I think you get my point.

Read Full Post »

I posted a horrifying story last week about a Lithuanian immigrant who was mooching off British taxpayers.

She basically had a very comfortable life thanks to beleaguered taxpayers, and I compared her to a Greek woman who thought the state owed her everything.

But there’s no ethnic requirement to be a bum. I’ve also shared stories about American moochers and Austrian moochers.

I’ve even shared stories about terrorists getting welfare handouts in Australia and France!

UK BumsSo I hope my British friends won’t be upset that I’m now going to highlight a couple of English deadbeats.

Here are some odious details from the UK-based Sun.

Danny Creamer, 21, and Gina Allan, 18, spend each day watching their 47in flatscreen TV and smoking 40 cigarettes between them in their comfy two-bedroom flat. It is all funded by the taxpayer, yet the couple say they deserve sympathy because they are “trapped”.

Does this mean they are imprisoned? Is someone holding them at gunpoint?

Hardly. It simply means that these two scroungers get such lavish handouts that their living standards would fall if they actually lived decent and honorable lives and went to work.

The couple, who have a four-month-old daughter Tullulah-Rose, say they can’t go out to work as they could not survive on less than their £1,473-a-month benefits. The pair left school with no qualifications, and say there is no point looking for jobs because they will never be able to earn as much as they get in handouts. Gina admits: “We could easily get a job but why would we want to work — we would be worse off.” Danny’s father, 46, even offered him a job with his bowling alley servicing company — but could not pay him enough.

So how much are these moochers stealing from taxpayers? Quite a lot, particularly if you keep in mind that £1 is equal to $1.57.

The couple, who live in Hants, receive £340 a week, made up of £150 housing benefit, £60 child tax credit, £20 child benefit and £110 in Job Seeker’s Allowance. They pay just £25 towards their spacious £625-a-month home. Their lounge is dominated by the huge TV and a leather sofa. …They spend the same on tobacco as they do on their daughter’s milk and nappies.

Gee, isn’t that nice. Taxpayers are even financing their cigarettes.

I blame Danny and Gina for being a couple of bums, but I also blame British politicians for creating a lavish welfare state that enables this awful behavior.

It’s not that people are trapped in poverty, but they definitely are lured into dependency.

By the way, the same problem exists in the United States. Indeed, this chart shows that the plethora of freebies from taxpayers means a household can be better off with $29,000 of income rather than $69,000 of income.

No wonder the poverty rate stopped falling once the so-called War on Poverty began.

For more information, here’s a short debate I had about the topic, and here’s a video explaining how the welfare state is bad for both poor people and taxpayers.

Read Full Post »

As a public finance economist, I normally focus on big-picture arguments against excessive government.

If the public sector is too large, for instance, that undermines economic growth by diverting resources from the productive sector of the economy.

The damage is then compounded by a needlessly destructive and punitive tax system.

But I’ve also discovered that it helps to personalize the analysis by pointing out examples of ridiculous and wasteful behavior by government.

From England: The world’s most useless sign

That’s one of the reasons I share horror stories as part of the U.S. vs U.K. government stupidity contest.

Some actions by government, however, belong in a different category. I’m not sure what word I would choose to describe them – perhaps venal, evil, despicable, reprehensible, or disgusting would be good options.

Am I being overly dramatic? Perhaps, but is there any other reaction when the government persecutes a family with possible jail time for rescuing Bambi?

Here are some absurd and disturbing details from the Indianapolis Star.

When Connersville police officer Jeff Counceller first encountered the baby deer, she was curled up in the corner of a front porch.It was clear the fawn was injured. Counceller could see the wounds… If left to its own, the animal would surely die… So the Councellers took in the deer, which they named Dani, cleaned and dressed its wounds and nursed it back to health, all with the intention of turning it out into the wild once it was big enough and strong enough to have a chance on its own. …she was unable to stand, and her maggot-infested wound was ugly. The Councellers contacted DNR at the time but were told to return the deer to the wild and let nature take its course. “It would have been a death sentence,” Jeff said.

So the family did what any decent people would do. They nursed the deer back to health. But decency and government often are in conflict.

Trouble is, what the Councellers did is against the law. Now, more than two years after rescuing the deer, more than six months after conservation officers began an investigation, the Indiana Department of Natural Resources wants them prosecuted. …DNR officials began an investigation that entailed half a dozen visits to their home and numerous calls to local authorities. In July, the agency issued an eight-page report and asked for a special prosecutor from another county to handle the case. Why the charges are being sought now — six months later — isn’t clear.

Bureaucrats wanted to kill this baby deer

Bureaucrats wanted to kill this baby deer

I think the answer is obvious. The bureaucrats from the Department of Natural Resources are sulking because their imperious demands weren’t obeyed.

So they’re lashing out at an innocent family, as indicated by the following excerpts.

…when the DNR came calling, the Councellers say they were almost ready to release Dani back into the woods. They were just waiting for the summer drought to pass and the nearby corn crops to mature enough to offer cover and food for Dani. They say they weren’t aware it was illegal to keep the deer.

That’s when the bureaucratic nightmare began.

When the DNR began its investigation, the Councellers say the conservation officer suggested they obtain a rescue permit. But that was denied. Soon, the DNR said the deer must be euthanized, that it was a safety threat to humans.

Fortunately, an unknown good Samaritan intervened and freed Dani before the government could kill the helpless animal.

But on the day of Dani’s scheduled execution, the deer turned up missing, its enclosure left open. The Councellers say they didn’t arrange the escape or know how the deer was freed but acknowledge that they didn’t probe too deeply to find out.

But no good deed goes unpunished when spiteful bureaucrats are involved.

…there was nothing but silence from the DNR until the Councellers received notice of the charges earlier this month. They plan to fight the case, even though jail is unlikely and the lawyer costs — which could reach $5,000 — are significantly higher than a likely fine. It’s a matter of principle, they say. They don’t want to plead guilty for trying to help an animal and when they had no criminal intent.

Not surprisingly, the rest of the community is on the side of the deer (and the persecuted family). Indeed, there’s even a Facebook page for folks who want to register their displeasure with this example of government thuggery.

“People are outraged at the DNR and that the government has nothing better to do than harass these people,” said John Waudby, an Indianapolis man who created the Facebook page after hearing about the story. “Anybody in their right mind would have done the same thing.”

All things considered, this story from Indiana shouldn’t be part of the government stupidity and incompetence contest. Given the venality of the bureaucrats, it belongs with this list of horrifying examples of government thuggery.

In a just world, a court will immediately dismiss the charges against the Counceller family.

I would urge that the family then be awarded damages, but that’s not the right response. The bureaucrats would merely shrug and let taxpayers pick up the cost.

The only good outcome is to unceremoniously fire every bureaucrat who played a role in this outrageous episode.

Like most bureaucrats, I suspect the pinheads at the Indiana Department of Natural Resources are overpaid. So losing their pampered positions would be genuine punishment and it would send a message to the rest of the paper pushers not to harass innocent and good people.

Read Full Post »

A lot of big-city police chiefs are political appointees who promote gun control, presumably to please their political masters.

911 Response TimeThey tell citizens that they should passively rely on government rather than take personal responsibility for self defense.

I have no idea if the numbers in this image are correct, but there’s no doubt that a gun is a lot quicker than the cops. Heck, just watch this video and ask yourself whether you would want your daughter armed.

And the cops I know – the ones who actually interact with the public and fight crime – are supportive of the Second Amendment, precisely because they realize they can’t be everywhere and they know there are bad people in the world.

But not all police chiefs and senior cops are mindless bureaucrats. In this video, the Sheriff of Milwaukee County not only acknowledges the right of self defense, but he’s also is willing to help train citizens to resist crime.

This doesn’t necessarily make him a libertarian hero. Indeed, his comments about layoffs and furloughs indicate that he’s also interested in maximizing the size of his staff.

And even though cops are probably my favorite government employees (at least when they’re fighting crime rather than giving me ridiculous traffic tickets), that doesn’t mean we should have too many of them or pay them too much (though, to be fair, they’re presumably not paid as much as cops in Oakland).

But I’ll forgive Sheriff Clarke for pursuing the interests of his staff, even if that conflicts with the interests of taxpayers.

P.S. Here’s a very good joke about what to say when you call 911.

Read Full Post »

Older Posts »

Follow

Get every new post delivered to your Inbox.

Join 2,476 other followers

%d bloggers like this: