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Archive for July, 2013

President Obama made a much-hyped pivot-to-the-economy speech yesterday in Chattanooga, Tennessee.

I already explained, immediately following the speech, why his “grand bargain” on corporate taxes was not a good deal because of all the hidden taxes on new investment and international competitiveness.

But I also had a chance to dissect the President’s overall track record on the economy for today’s Chattanooga Times Free Press.

Here’s some of what I wrote.

…he didn’t say anything new or different. His audience was treated to the same tax-spend-and-regulate boilerplate that the President has been dispensing ever since he entered political life. …with Obamanomics, not only has America failed to enjoy the traditional period of four-to-five percent growth at the start of a recovery, the economy hasn’t even gotten close to the long-run average of 3 percent. That’s a damning indictment. But it gets worse. The data on employment is downright depressing. A look at the numbers reveals that the nation is suffering from the worst period of job creation since the Great Depression. Most startling, we still haven’t recovered the jobs we lost during the recession.

That’s some strong rhetoric, but there are plenty of numbers to back up my assertions.

Let’s take a look at the interactive website maintained by the Minneapolis Federal Reserve Bank. This site allows users to compare all business cycles since World War II.

Let’s start by comparing the current business cycle to what happened under Reaganomics.

AFP Reagan v Obama GDP

As you can see, we’ve had a very sluggish recovery compared to the boom we enjoyed in the 1980s.

Not all of this is Obama’s fault, by the way. Here’s some more of what I wrote for the Chattanooga Times Free Press.

…all of these problems started before President Obama ever got to the White House. President Bush also was guilty of too much spending and excessive regulation, and his policies helped push the economy into a ditch. Unfortunately, even though he promised “change,” President Obama has been adding to Bush’s mistakes — and also raising taxes.

Some people may be wondering whether it’s fair to compare Reaganomics to Obamanomics. Maybe I’m cherry-picking data to make Obama (and Bush) look bad.

Since I’ve already admitted that it’s good to be suspicious of all people who work in Washington, I don’t begrudge folks who are skeptical of what I write.

So let’s now look at the Minneapolis Fed’s data for every business cycle since the end of World War II. As you can see, we’re currently mired in the most anemic recovery on record.

AFP GDP

The employment data is even worse than the GDP data.

The comparison of Reaganomics with BushObamanomics is startling. There was a jobs boom in the 1980s, while today we haven’t even recovered all the jobs lost during the downturn.

AFP Reagan v Obama Jobs

And if we look at the current “recovery” compared to all other business cycles, it becomes even more apparent that big government is generating very bad results for the American people.

AFP Jobs

Here’s how I conclude my column.

…what’s the bottom line? The world is a laboratory, and the lessons are very clear. Jurisdictions with small government and free markets, such as Hong Kong and Singapore, grow rapidly. Nations with bloated welfare states, such as France, Italy and Greece, suffer from stagnation and decline. The United States historically has been somewhere between these two camps, which is why we had average growth of about 3 percent. We’ve become a lot more like Europe during the Bush-Obama years. That helps to explain why our growth numbers and jobs data are now so disappointing. Unfortunately, the President’s speech shows that he wants to step on the gas rather than turn the car in the right direction.

In other words, if we want more prosperity, we need to follow the recipe of free markets and small government.

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In his latest pivot to jobs and the economy, the President spoke earlier today in Tennessee.

Much of his speech was tax-spend-and-regulate boilerplate, but he did repackage some of his ideas into a so-called grand bargain.

He said he’s willing to cut the corporate tax rate in exchange for a bunch of new spending on things such as infrastructure (he didn’t specify whether it would be “shovel ready” this time) and dozens of “innovation institutes” (as if the notoriously sluggish and inefficient federal government can teach the private sector about being entrepreneurial.

In theory, however, such a deal might be worthwhile. It’s not a good idea to add to the burden of federal spending, of course, but if there’s a big enough reduction in the corporate tax rate, it might be worth the cost.

Worse than France? Worse than Greece?

After all, America has the highest corporate tax rate in the developed world and is ranked 94 out of 100 on other measures of business taxation.

But here’s why it’s important to read the fine print. The President wants to give with one hand and take away with the other. Yes, the corporate tax rate would come down, perhaps from 35 percent to 28 percent, but the White House has signaled that businesses would have to accept higher taxes on new investment (because of bad “depreciation” policy) and on international competitiveness (because of misguided “worldwide taxation” policy).

To cite a very simple example, is it a good deal for companies if the corporate tax rate is lowered by 20 percent but then other changes force companies to overstate their income by 25 percent?

In reality, it’s more complex, with some companies probably coming out ahead and others getting hit with a bigger tax bill.

I dig into some of these details in a debate on Larry Kudlow’s CNBC program.

The moral of the story is that it’s not clear whether the tax system would get better or worse under Obama’s proposal.

And if he wants the “grand bargain” to be a net tax increase, then the odds of seeing an improvement drop from slim to none.

So why trade more spending for – at best – sideways movement on tax policy?

P.S. Republicans hopefully learned important lessons about the risks of tax-hike budget deals from the debacles in 1982 and 1990. But if they need a helpful reminder, this chart from the New York Times reveals that the only successful budget agreement was the one in 1997 that cut taxes.

By the way,

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In an interview last week about Detroit’s bankruptcy, I explained that the city got in trouble because of growing dependency and an ever-rising burden of government spending.

I also warned that the federal government faces the same challenge. Washington is in trouble mostly because of poorly designed entitlement programs rather than excessive compensation for a bloated bureaucracy, but the end result is the same. Or, to be more accurate, the end result will be the same in the absence of genuine entitlement reform.

As I said in the interview, fiscal crisis was “the most predictable crisis in the world for Detroit [and] it’s the most predictable crisis for America.”

The Washington Examiner has the same assessment. Here’s how they conclude a recent editorial.

More than anywhere else in America (with the possible exception of Chicago) Detroit has been a one-party union city. Democratic politicians backed by the United Auto Workers and public employees unions have ruled virtually as they pleased. Along the way, many of the politicians ended up in jail on corruption charges and the bureaucrats made out with sweetheart deals on pensions and health benefits. Those sweetheart deals now account for most of the $20 billion in debt that put the city into bankruptcy. There are too many disturbing parallels between Detroit and America. The national debt of $17 trillion gets a lot of attention, but the reality is the government’s actual debt, counting the unfunded liabilities of Social Security, Medicare and federal employee and retiree benefits, exceeds $86 trillion, according to former congressmen Chris Cox and Bill Archer. As they say, things that can’t go on forever, won’t.

I used to warn that America was on a path to becoming Greece, but maybe now I should use Detroit as an example.

Some of America’s best political cartoonists already are using this theme.

Here’s one from Glenn McCoy. Since I’m not overly optimist about either Illinois or California, I also think it’s just a matter of time before this happens.

Detroit Cartoon 1

Keep in mind, however, that there was plenty of wasteful spending in both Illinois and California under Republican governors, so this is a bipartisan problem.

Speaking of California, here’s a good cartoon by Lisa Benson.

Detroit Cartoon 2

Amazingly, some people think California’s no longer in trouble because a retroactive tax hike collected more tax revenue. Yeah, good luck with that.

Next we have a cartoon by Rob Rogers of the Pittsburgh Post-Gazette.

Detroit Cartoon 3

And last but not least, Eric Allie weighs in with a cartoon comparing Texas and Detroit.

Detroit Cartoon 4

On a serious note, it would be interesting to see how Detroit looks compared to cities in Texas, such as Dallas and Houston.

But let’s end with something that’s really hilarious, albeit by accident rather than on purpose.

A few people want to enable Detroit’s profligacy. Here are some excerpts from a story in The Hill about union bosses wanting a federal-state bailout of Detroit.

Union leaders are calling on Congress and President Obama to provide a federal bailout to the city of Detroit. The executive council of the AFL-CIO, the nation’s largest labor federation, called for an “immediate infusion of federal assistance for Detroit” to be matched by Michigan, which they say has not done enough to keep the city from going through bankruptcy. …“It appears that Governor [Rick] Snyder and [Emergency Financial Manager] Kevyn Orr are pushing Detroit into bankruptcy to gut the modest benefits received by Detroit’s retired public service employees,” the AFL-CIO’s statement reads.

I suppose I could make some snarky comments, but I’ll close with two vaguely sympathetic responses.

First, there’s no way a bailout of Detroit goes through the House of Representatives. Heck, I don’t even think it could make it through the Senate. So some folks on the left would be justified if they asked why the high rollers on Wall Street supposedly deserved a bailout a few years ago but they don’t get one today.

The answer, of course, is discrimination by color. But I’m not talking black vs white. The color that matters in politics is green. The financial industry dispenses huge campaign contributions to both sides of the aisle, and the bailout was their payoff. Public employee unions, by contrast, give almost every penny of their money to Democrats, so there’s no incentive for GOPers to do the wrong thing.

Second, I have no idea whether retired bureaucrats in Detroit get “modest benefits.” I’m skeptical for very obvious reasons, but the real problem is that the city screwed up by having too many people riding in the wagon without paying attention to whether there were enough people producing in the private sector to pull the wagon.

Is that the fault of the garbage men, clerks, secretaries, and other municipal employees? That’s a hard question to answer. They obviously weren’t calling the shots, but they were happy to go along for the ride.

At some point, they should have paid attention to the message in this Chuck Asay cartoon.

P.S. For readers in New Jersey (and also New York City), I’ll be speaking this Wednesday, July 31, at the Friedman Day luncheon sponsored by Americans for Prosperity.

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There are lots of despicable people in Washington engaged in a lot of unsavory behavior, so it would be very difficult to get agreement if you asked regular people to select the most odious feature of the political class.

HypocrisyMany people would probably choose corruption as the defining characteristic of Washington, and it would be hard to argue with that choice, but I think hypocrisy is an even better choice.

There’s something fundamentally wrong when people push for policies while making sure they don’t have to abide by the results. Yet it happens all the time in government.

1. It galls me that the pro-tax bureaucrats at the OECD get tax-free salaries while pushing for higher taxes on everyone else.

2. Or how about rich left wingers who bleat about compassion but who are stingy with their own money.

3. And the wealthy leftists who use tax havens while trying to deny others from protecting their money.

4. There are members of the Washington elite who don’t have to live under the gun control laws they impose on others.

5. What about the politically connected business types who endorse higher taxes in exchange for favors from Washington.

6. Or the politicians who evade the taxes they impose on ordinary citizens.

7. How about Canadian politicians who support government-run healthcare but then come to America when they need treatment.

8. To close this list on a humorous note, we also have Occupy Wall Street protesters who fight “The Man” while wanting to make “The Man” more powerful.

But if you want a really powerful example of hypocrisy, nothing stands out more than politicians trying to exempt themselves from Obamacare.

Crocodile TearsThey’ve even been complaining that the law is so bad that they may quit their jobs. And they’re so disconnected from reality that they think we’ll be upset at the loss of their “seniority” and “experience” – as if taxpayers value their ability to squander money.

But it’s not just politicians who are being hypocritical. The bureaucrats at the IRS also don’t want to live under Obamacare – even though they’re the ones who will be forcing us to live under that misguided law!

Here are some excerpts from a report in the Washington Examiner.

IRS employees have a prominent role in Obamacare, but their union wants no part of the law. National Treasury Employees Union officials are urging members to write their congressional representatives in opposition to receiving coverage through President Obama’s health care law. …Like most other federal workers, IRS employees currently get their health insurance through the Federal Employees Health Benefits Program, which also covers members of Congress. House Ways and Means Committee Chairman Dave Camp offered the bill in response to reports of congressional negotiations that would exempt lawmakers and their staff from Obamacare. …Camp spokeswoman Allie Walker said. “If the Obamacare exchanges are good enough for the hardworking Americans and small businesses the law claims to help, then they should be good enough for the president, vice president, Congress and federal employees,” she also said.

To augment the remarks of Rep. Camp’s spokeswoman, it also would be good to somehow figure out a way to make the lobbyists and other Washington insiders participate in the Obamacare exchanges.

There aren’t many “sure things” in life, but one of them is that Obamacare would be repealed almost instantaneously if the bigwigs in Washington actually had to live under the law designed for peasants like you and me.

Unfortunately, that’s why Congressman Camp’s legislation will never get approved.

So let’s end this post with a bit of dark humor from Bob Gorrell.

Obamacare Cartoon July 2013 6

You can enjoy more Obamacare cartoons by clicking here, herehereherehere, and here.

P.S. For readers in New Jersey (and also New York City), I’ll be speaking this upcoming Wednesday, July 31, at the Friedman Day luncheon sponsored by Americans for Prosperity.

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I suggested last year that President Obama adopt “my work here is done” as a campaign slogan.

Admittedly, that was merely an excuse to share this rather amusing poster (and you can see the same hands-on-hips pose, by the way, in this clever Michael Ramirez cartoon).

But I want to make a serious point.

For those of us who want the prosperity and liberty made possible by smaller government and free markets, it would be ideal if the President actually did think his work was done. If that was the case, presumably he wouldn’t propose new schemes to expand the size and scope of the public sector.

Unfortunately, that’s not the case. Indeed, he bragged about providing handouts, subsidies, and bailouts for housing in his recent pivot-to-the-economy speech and he specifically stated “We’re not done yet.”

As I said in this interview on FBN, that phrase could replace “I’m from Washington and I’m here to help you” as the most frightening sentence in the English language.

Obama’s phrase is particularly distressing since he wants more intervention in housing markets – yet it was misguided government intervention that caused the housing bubble and financial crisis in the first place!

Simply stated, you don’t solve the problems caused by the Fed’s easy-money policy with more government. And you don’t solve the problems caused by corrupt Fannie Mae-Freddie Mac subsidies with more government.

The right approach is to get government out of housing altogether. That means getting rid of the Department of Housing and Urban Development. It means privatizing Fannie Mae and Freddie Mac. It even means eliminating preferences for housing in the tax code as part of a shift to a simple and fair system like the flat tax.

Once we achieve all these goals, then we can say “we’re done”…and move on to our other objectives, like dealing with the damage caused by government in the health sector, the education sector, the financial markets sector, etc, etc…

P.S. Some people doubtlessly will complain that bad things will happen if the government no longer is involved in housing, but I think we’ll survive just fine without bureaucrats screwing over poor people and mandating “emotional support” animals in college dorms.

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There are all sorts of ways to measure the burden of government spending.

The most obvious approach is to look at the share of economic output consumed by the public sector. That’s what I did, for instance, when comparing fiscal policy in France and Switzerland. And it goes without saying (but I’ll say it anyhow) that Switzerland’s comparative frugality helps to explain why its economy is much stronger than the French economy.

It’s also good to know whether a country is heading in the wrong direction or right direction. If one country has a bigger government but has implemented reforms that slow the growth of the public sector, it may have a better future than another country where government currently is a smaller burden but the long-term fiscal outlook is grim.

For this reason, I was very interested in the data showing that most European nations actually increased the size of government in recent years – notwithstanding all the hyperbole about “savage” and “draconian” austerity.

That’s why the “exceptions to the rule” in Europe – such as Estonia and Germany – are so noteworthy. While their neighbors are doing the wrong thing, these countries are being at least semi-responsible and trying to rein in the burden of government spending.

The same thing is true for state governments, which is why this new map from the Tax Foundation is worth sharing. It shows how fast spending has increased in each state over the past 10 years.

Louisiana gets the worst grade for profligacy, followed by Wyoming and New Jersey, while Alaska has been the most frugal, followed by West Virginia and South Carolina.

State Spending Map

It would be interesting to see annual numbers. Is Louisiana’s poor performance due to Governor Jindal, for instance, or in spite of him? Likewise, has Chris Christie made any difference in New Jersey?

Looking at states that have done well, did Governor Palin make a difference in Alaska? And did Governor Sanford make a difference in South Carolina? Again, without seeing the annual data, there’s no way of answering these questions.

Moreover, it might be interesting to also know what has happened to local government spending, particularly since some states may have artificially low or high numbers depending on whether there have been changes in how overall spending is allocated.

Last but not least, we should remember that the key goal of fiscal policy is – or should be – to have government grow slower than the private sector. To determine whether states are satisfying my Golden Rule, you need the Tax Foundation data on spending, but it needs to be augmented by similar data for economic output.

And if you look at personal income growth on a state-by-state basis, adjust it for inflation, and then compare it to spending growth, you get some interesting results.

It turns out that North Dakota is the state that most satisfies Mitchell’s Golden Rule, followed by South Dakota and Alaska. West Virginia and South Carolina stay in the top 10, but they drop to 4 and 9, respectively.

New Jersey, meanwhile, takes over as the worst state, followed by Arizona and Louisiana.

Not only has New Jersey been the biggest failure based on my Golden Rule, it also doesn’t have a lot of breathing room. If you look at this info-graph on state debt, you can see that it has the nation’s 7th biggest debt load. In other words, the Garden State’s politicians have been making a bad situation even worse.

And since New Jersey also has a punitive death tax, the obvious message is that productive people should flee the state. Which is exactly what’s been happening. Thanks to migration, about $70 billion of wealth escaped between 2004 and 2008 alone.

But be careful where you move. Other states that get black marks on both spending and debt are Ohio, Illinois (gee, what a surprise), and New Mexico.

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About two weeks ago, while making an important point about the Laffer Curve, here’s what I wrote about the fiscal disaster in Detroit.

Detroit’s problems are the completely predictable result of excessive government. Just as statism explains the problems of Greece. And the problems of California. And the problems of Cyprus. And the problems of Illinois. …Simply stated, as the size and scope of the public sector increased, that created very destructive economic and political dynamics. More and more people got lured into the wagon of government dependency, which puts an ever-increasing burden on a shrinking pool of producers. Meanwhile, organized interest groups such as government bureaucrats used their political muscle to extract absurdly excessive compensation packages, putting an even larger burden of the dwindling supply of taxpayers.

And in this Fox News interview, I elaborate on these arguments and warned that federal government profligacy – if unchecked – will lead to similarly dismal results for the entire United States.

I want to augment on a couple of my points.

First, I explained that Detroit’s bankruptcy won’t have any major and long-lasting ripple effects – assuming politicians on the state or national level don’t encourage more bad policy with bailouts. If you’re a creditor, it’s not good news that the city owes you money, and it’s also not a cheerful time if you’re a retired bureaucrat hoping for years and years of pension payments and healthcare subsidies, but there’s no reason to expect that Detroit’s problems will impose significant damage on Michigan – particularly compared to the harm that would be caused if Detroit was allowed to continue with business as usual.

Similarly, the United States wouldn’t suffer major consequences if (probably when) California no longer can pay its bills. On the other hand, the European Union and the euro currency are being weakened by the mess in Greece, though that’s because they’ve been subsidizing bad fiscal policy with bailouts.

Second, I made the argument for entitlement reform, specifically the “pre-funding” version of Social Security reform that’s been adopted in nations as diverse as Australia and Chile.

Incidentally, this approach is even bolder than the Medicaid and Medicare reforms in the GOP budgets.

Third, I expressed some optimism that the United States has a chance to implement these much-needed reforms, in part because countries such as France and Japan will blow up before America.

And each time another nation, state, or city gets into trouble, it will strengthen our arguments to put the federal government on a long-overdue diet.

Big problems for America if politicians leave government on auto-pilot

Having a strong argument, though, is not the same as having an argument that will prevail. So even though America still has some breathing room, and even though the economic and moral case for spending restraint is very powerful, we’re in the unfortunate situation of having to rely on politicians in Washington.

So keep places such as Australia in mind just in case you need to escape when America’s fiscal chickens come home to roost.

In conclusion, I can’t resist drawing your attention to something I wrote back in 2011, when I showed the eerie similarity of Detroit’s collapse with the “blighted areas” in Ayn Rand’s classic novel, Atlas Shrugged.

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Back in 2010, I put together a “Moocher Index” as a rough measure of which states had the highest levels of welfare dependency after adjusting for poverty rates.

My goal was to answer this question.

Is there a greater willingness to sign up for income redistribution programs, all other things being equal, from one state to another?

It turned out that there were huge differences among states. Nearly 18 percent of non-poor Vermont residents were utilizing one or more welfare programs, putting them at the top of the Moocher Index.

In Nevada, by contrast, less the 4 percent of non-poor residents had their snouts in the public trough.

Does this mean Nevada residents are more self-reliant and Vermont residents are culturally statist?

To be perfectly frank, I don’t know, in part because the Moocher Index was an indirect measure of attitudes about dependency.

So I was very interested when I came across some state-by-state numbers from the Department of Agriculture showing food stamp participation compared to food stamp eligibility.

Food Stamp Participation Rate

There are some clear similarities between these food stamp numbers and the Moocher Index. Maine and Vermont are in the top 3 of both lists, which doesn’t reflect well on people from that part of the country.

And Nevada and Colorado are in the bottom 10 of both lists.

But there’s no consistent pattern. Mississippi and Hawaii are in the top 10 of the Moocher Index but bottom 10 for food stamp utilization.

What really stands out, though, is that the people of California win the prize for self reliance, at least with regard to food stamps. Only 55 percent of eligible people from the Golden State have signed up for the program. Doesn’t make sense when you look at some of the crazy things that are approved by California voters, but I assume the numbers are accurate.

I’m also surprised that folks from New Jersey are relatively unlikely to utilize food stamps.

On the other hand, why are Tennessee residents so willing to use my wallet to buy food?

As you can see from the map, they not only have a very high participation/eligibility rate, but also have one of the highest overall levels of food stamp dependency.

Oregon, not surprisingly, always does poorly, whether we’re looking at a map or a list.

Let’s close with a few real-world examples of what we’re getting in exchange for the tens of billions of dollars that are being spent each year for food stamps.

With stories like this, I’m surprised my head didn’t explode during this debate I did on Larry Kudlow’s show.

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What’s the biggest fiscal problem facing the developed world?

To an objective observer, the answer is a rising burden of government spending, caused by poorly designed entitlement programs, growing levels of dependency, and unfavorable demographics. The combination of these factors helps to explain why almost all industrialized nations – as confirmed by BIS, OECD, and IMF data – face a very grim fiscal future.

If lawmakers want to avert widespread Greek-style fiscal chaos and economic suffering, this suggests genuine entitlement reform and other steps to control the growth of the public sector.

But you probably won’t be surprised to learn that politicians instead are concocting new ways of extracting more money from the economy’s productive sector.

They’ve already been busy raising personal income tax rates and increasing value-added tax burdens, but that’s apparently not sufficient for our greedy overlords.

Now they want higher taxes on business. The Organization for Economic Cooperation and Development, for instance, put together a “base erosion and profit shifting” plan at the behest of the high-tax governments that dominate and control the Paris-based bureaucracy.

What is this BEPS plan? The Wall Street Journal explains that it’s a scheme to raise tax burdens on the business community.

After five years of failing to spur a robust economic recovery through spending and tax hikes, the world’s richest countries have hit upon a new idea that looks a lot like the old: International coordination to raise taxes on business. The Organization for Economic Cooperation and Development on Friday presented its action plan to combat what it calls “base erosion and profit shifting,” or BEPS. This is bureaucratese for not paying as much tax as government wishes you did. The plan bemoans the danger of “double non-taxation,” whatever that is, and even raises the specter of “global tax chaos” if this bogeyman called BEPS isn’t tamed. Don’t be fooled, because this is an attempt to limit corporate global tax competition and take more cash out of the private economy.

The WSJ is spot on. This is merely the latest chapter in the OECD’s anti-tax competition crusade. The bureaucracy represents the interests of WSJ Global Tax Grab Editorialhigh-tax governments that are seeking to impose higher tax burdens – a goal that will be easier to achieve if they can restrict the ability of taxpayers to benefit from better tax policy in other jurisdictions.

More specifically, the OECD basically wants a radical shift in international tax rules so that multinational companies are forced to declare more income in high-tax nations even though those firms have wisely structured their operations so that much of their income is earned in low-tax jurisdictions.

So does this mean that governments are being starved of revenue? Not surprisingly, there’s no truth to the argument that corporate tax revenue is disappearing.

Across the OECD, corporate-tax revenue has fluctuated between 2% and 3% of GDP and was 2.7% in 2011, the most recent year for published OECD data. In other words, for all the huffing and puffing, there is no crisis of corporate tax collection. The deficits across the developed world are the product of slow economic growth and overspending, not tax evasion. But none of this has stopped the OECD from offering its 15-point plan to increase the cost and complexity of complying with corporate-tax rules. …this will be another full employment opportunity for lawyers and accountants.

I made similar points, incidentally, when debunking Jeffrey Sachs’ assertion that tax competition has caused a “race to the bottom.”

The WSJ editorial makes the logical argument that governments with uncompetitive tax regimes should lower tax rates and reform punitive tax systems.

…the OECD plan also envisions a possible multinational treaty to combat the fictional plague of tax avoidance. This would merely be an opportunity for big countries with uncompetitive tax rates (the U.S., France and Japan) to squeeze smaller countries that use low rates to attract investment and jobs. Here’s an alternative: What if everyone moved toward lower rates and simpler tax codes, with fewer opportunities for gamesmanship and smaller rate disparities among countries?

The column also makes the obvious – but often overlooked – point that any taxes imposed on companies are actually paid by workers, consumers, and shareholders.

…corporations don’t pay taxes anyway. They merely collect taxes—from customers via higher prices, shareholders in lower returns, or employees in lower wages and benefits.

Last but not least, the WSJ correctly frets that politicians will now try to implement this misguided blueprint.

The G-20 finance ministers endorsed the OECD scheme on the weekend, and heads of government are due to take it up in St. Petersburg in early September. But if growth is their priority, as they keep saying it is, they’ll toss out this complex global revenue grab in favor of low rates, territorial taxes and simplicity. Every page of the OECD’s plan points in the opposite direction.

The folks at the Wall Street Journal are correct to worry, but they’re actually understating the problem. Yes, the BEPS plan is bad, but it’s actually much less onerous that what the OECD was contemplating earlier this year when the bureaucracy published a report suggesting a “global apportionment” system for business taxation.

Fortunately, the bureaucrats had to scale back their ambitions. Multinational companies objected to the OECD plan, as did the governments of nations with better (or at least less onerous) business tax structures.

It makes no sense, after all, for places such as the Netherlands, Ireland, Singapore, Estonia, Hong Kong, Bermuda, Switzerland, and the Cayman Islands to go along with a scheme that would enable high-tax governments to tax corporate income that is earned in these lower-tax jurisdictions.

But the fact that high-tax governments (and their lackeys at the OECD) scaled back their demands is hardly reassuring when one realizes that the current set of demands will be the stepping stone for the next set of demands.

That’s why it’s important to resist this misguided BEPS plan. It’s not just that it’s a bad idea. It’s also the precursor to even worse policy.

As I often say when speaking to audiences in low-tax jurisdictions, an appeasement strategy doesn’t make sense when dealing with politicians and bureaucrats from high-tax nations.

Simply stated, you don’t feed your arm to an alligator and expect him to become a vegetarian. It’s far more likely that he’ll show up the next day looking for another meal.

P.S. The OECD also is involved in a new “multilateral convention” that would give it the power to dictate national tax laws, and it has the support of the Obama Administration even though this new scheme would undermine America’s fiscal sovereignty!

P.P.S. Maybe the OECD wouldn’t be so quick to endorse higher taxes if the bureaucrats – who receive tax-free salaries – had to live under the rules they want to impose on others.

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Remember when you got your first paycheck, presumably when you were a teenager? If you’re like most people, you worked a bunch of hours and calculated how much money you expected to receive, only to then be disappointed when the check you received was for a much smaller amount.

That was your rude welcome to the government-created gap between how much a business spends to employ you and how much money you actually receive. You probably looked at your check and tried to figure out why there was such a big difference between “gross pay” and “net pay.” If you’re like me, you had no idea about the workings of the Social Security system, but you were irked that you lost a bunch of your pay to “F.I.C.A.”

The only “good” news is that you probably had no idea that there were a bunch of taxes and costs that your employer incurred to employ you. So you were spared the anguish of knowing that your pay would be even higher than your gross pay if government wasn’t such a heavy burden.

This was one of the issues I raised in a recent appearance on CNBC. The debate supposedly was about whether workers are getting ripped off when they are paid with debit cards, but I think that’s a minor problem compared to the cost of big government.

I made the rather obvious point that there should be full disclosure of any fees and charges for the use of these cards, but I was much more concerned that the debate was overlooking a much bigger problem. The biggest threat to workers is a rapacious government that takes more and more of their paychecks.

I also explained that low-income workers wouldn’t be so vulnerable to fees if they had easier access to banking services. Unfortunately, government regulations such as money-laundering laws make it very expensive for banks to provide accounts – particularly for folks with modest incomes.

In other words, we’re looking at another example of Mitchell’s Law. Governments impose policies that cause problems. And then the politicians say we need even more intervention to deal withe the problems caused by previous interventions.

Which is why this poster is a very accurate description of how Washington really works.

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The budget deficit this year is projected to be significantly smaller than it has been in recent years and some of our statist friends claim that this shows the desirability and effectiveness of higher taxes.

I’m not persuaded, mostly because our big long-run fiscal challenge is a rising burden of government spending. And the fact that federal tax revenue is gradually climbing back to the historical norm of about 18 percent of GDP doesn’t change the fact that we have a looming entitlement crisis – as illustrated by very sobering estimates from the BIS, OECD, and IMF.

I discuss the implications of tax revenue in this interview Charles Payne of Fox News.

There was no opponent to debate, so here are some additional details on issues that were discussed in the interview.

Taxes debt europeHigher taxes lead to higher spending – The evidence from Europe is very compelling about the tendency of politicians to spend more money whenever more revenue is an option. Heck, even the New York Times accidentally admitted that tax hikes encourage bigger budgets rather than less red ink. It’s theoretically possible, of course, for politicians to raise revenue without raising spending, but the starve-the-beast research suggests it’s quite unlikely.

Retroactive tax hikes can raise revenue…in the short run – I think California voters made a big mistake last November when they voted to impose a top state income tax rate of 13.3 percent. And that punitive regime almost surely won’t raise much if any revenue in the long run as high-income people flee the state. But that’s a long-run effect. In the short run, the Prop 30 tax hike will generate revenue – particularly since the tax hike was retroactive. As I said in the interview, there aren’t supply-side effects when higher tax rates are imposed on income that was earned in the past. But it’s just a matter of time until the Laffer Curve bites politicians in the butt.

Nothing else matters if government spending grows faster than the private sector – Okay, that’s an exaggeration, but regular readers know that I hope “Mitchell’s Golden Rule” will be my legacy to fiscal policy. To be more specific, good things happen in the long run if government spending grows by, say, 2 percent each year and the private sector expands faster, perhaps 5 percent annually. Click here to see a video that shows how nations such as Canada and New Zealand made big progress by fulfilling the rule. Unfortunately, the United States has headed in the opposite direction during the Bush-Obama years.

P.S. If the United States had implemented something similar to Switzerland’s successful spending cap, we would be in a far stronger fiscal policy position today.

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I’ve already speculated that Jay Leno is a closet libertarian.

If nothing else, the latest batch of jokes, courtesy of News-max, shows that he’s willing to go after Obama. Which is more than can be said for some of his competitors.

Jay Leno

  • Al-Qaida’s No. 2 man in Yemen was killed this week by a drone strike. He was doing a cover shoot for Rolling Stone and they were able to pinpoint him.
  • President Obama told a group of school children that broccoli was his favorite food, and they believed him. Then he told them Obamacare would reduce the deficit and the kids all busted out laughing.
  • According to a new study, inactivity can kill you. You can die from doing nothing. Believe me. These findings scare the hell out of the Congress.
  • President Obama told a group of school children that broccoli is his favorite food. You know, it’s one thing to lie to the voters, but when you’re lying to kids, come on.
  • NSA leaker Edward Snowden says he may seek asylum in Russia. Well, he should really love the freedom and openness of that society.
  • According to The Washington Post, the NSA has been monitoring phone calls and emails of people in Mexico. So apparently it’s not enough to spy on American citizens, they feel they have to spy on FUTURE American citizens as well.
  • Now that marijuana is legal in the state of Colorado, in Denver they’re talking about taxing it up to 35 percent. Suddenly those drug cartels don’t seem so greedy anymore, do they?
  • President Obama is currently on a week-long trip to Africa, where he will promote freedom, democracy, and economic opportunity. I guess he figured it hasn’t worked here — so try it somewhere else.
  • The Girl Scouts announced that their pension plan has a $347 million deficit. The Girl Scouts are $347 million in debt, so in addition to teaching girls about camping it also is preparing them for careers in government.
  • President Obama gave a big speech on climate change. He believes global warming is getting worse because apparently he’s sweating a lot more during his second term.
  • In the middle of all these scandals, President Obama got some good news today. The IRS ruled that he can write off the first half of his second term as a total loss.

As you can imagine, the joke about Obamacare and the deficit resonated with me.

And the joke about taxing marijuana reminds me of what I wrote about the downside to legalization.

David Letterman

  • It turns out the Pakistani police pulled Osama bin Laden over for speeding. Pulled him over and wrote the guy a ticket. So listen. I don’t want to hear any more of this nonsense about Pakistan being lenient on Osama bin Laden, OK?

Conan

  • In an interview about the New York elections, Eliot Spitzer, who you remember was caught frequenting prostitutes, described himself as a feminist. And Anthony Weiner described himself as a photographer.
  • President Obama’s approval rating is down to 44 percent. You can tell Obama’s getting desperate because today he gave a speech entitled “Hey, guys, the Twinkie is coming back next week.”
  • Detroit quarterback Matthew Stafford signed a new contract paying him $76 million. They’re paying him $62 million just to live in Detroit.
  • Pakistan now says Osama bin Laden was able to hide by wearing a cowboy hat. A Pakistani authority said, “I guess he just got lost in a sea of other Muslims wearing a cowboy hat.”
  • Republicans are already trying to paint Hillary Clinton as too old to be president. In fact, a new ad claims she’s so old that she could be a Republican.
  • In New York, the new front-runner in the New York City mayor’s race is Anthony Weiner. Some analysts say it’s due to name recognition. Actually, I think a few people recognize more than just his name.

Jimmy Fallon

  • Political experts say that Eliot Spitzer’s decision to return to politics could hurt Anthony Weiner’s chances of becoming mayor. Or as Spitzer put it, “See? I’m making things better already.”
  • Political experts are saying Joe Biden needs to start doing more fundraising if he wants to run for president in 2016. A lot of people are saying they’d definitely donate to a Biden campaign. Most of them are Republicans, but still.

If you want more Weiner jokes, click here.

Last but not least, we have a PG-13 joke. Per my usual procedure with humor that’s a bit off color, it’s minimized so you can choose not to be exposed.

Postal Job

Sort of reminds me of a mix between this joke and this joke.

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Fifty years from now (assuming we haven’t suffered a Greek-style fiscal collapse), will we still enjoy our constitutional freedom of private gun ownership?

Sometimes I’m pessimistic about what will happen because politically correct educators are brainwashing our kids. We’ve even gotten to the point where a deaf kid can’t use sign language if his fingers somehow resemble a gun! And if you think that’s bizarre, check out these other horror stories of anti-gun hysteria in government schools.

And even though there’s currently a majority on the Supreme Court in favor of the Second Amendment, it’s only a one-vote margin. That doesn’t give me much comfort, particularly since we’ve seen examples of Justices ignoring their oath when subjected to political pressure.

Moreover, it’s difficult to be optimistic when a local government imposes a $1,000 fine on a man who uses an unregistered gun (gasp!) to save a child’s life.

On the other hand, I’m somewhat optimistic because gun owners and defenders of the Constitution have done a remarkable job in expanding and extending our Second Amendment rights at the state level.

For instance, check out this map of concealed-carry laws in the United States. The first thing to notice is that every single state allows citizens to carry, with the only real difference being whether the law is “shall issue” or “may issue.”

Concealed Carry Laws of US

I’m a bit mystified, for what it’s worth, that Alabama has a relatively weak “may issue” law. Do they really want to be in the same anemic category as California?!?

Now let’s look at this map of stand-your-ground laws. The right of self-defense is not as ubiquitous as the right of concealed-carry, but the trend is very positive with more states moving from blue to red over time.

Stand your ground laws US

I’m puzzled why Nebraska and Missouri have weak New York-style laws, but I imagine those colors will change in a couple of years.

By the way, state legislatures are not the only place where we’re making progress. Thanks to scholars such as John Lott, it’s increasingly clear that social science research leans in favor of private gun ownership.

And I challenge anyone to defend gun control after reading this Larry Correia article.

But the biggest sign of progress may be that honest leftists are beginning to acknowledge the benefits of the Second Amendment. If you have squeamish friends and colleagues who favor gun control, show them this article from The Atlantic and this column from the New York Times.

I’m also encouraged by polling data that shows cops overwhelmingly reject the gun control agenda.

So what does all this mean? To be perfectly honest, I’m not sure. It does appear, however, that the political elite is moving in the wrong direction on the Second Amendment and the American people are moving in the right direction.

I don’t know what side will win, but it’s a safe bet that we’ll have some major political battles in the future.

P.S. If you enjoy anti-gun control humor, here are some amusing videos.

And you can find lots of additional anti-gun control humor at this link.

P.P.S. If you outlaw tanks, only outlaws will have tanks.

P.P.P.S. Feel free to add your vote to my poll on the most important reason to defend the Second Amendment.

P.P.P.P.S. Last but not least, here are some serious videos on the folly of gun control

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I want government to successfully and rationally fight crime and stop terrorism. That’s a perfectly appropriate libertarian sentiment since protecting life, liberty, and property are among the few legitimate roles for government.

But I don’t want to give bureaucrats carte blanche to monitor our lives and I don’t want to waste money in those cases where it is proper for the government to snoop on bad guys.

And those are some of the sentiments I expressed in this panel for Forbes on Fox.

My wonkish concern for cost-benefit analysis and corporate welfare is not empty posturing. There’s real money involved.

Here’s some of what CBS News reported on the issue.

How much are your private conversations worth to the U.S. government? Turns out, it can be a lot, depending on the technology. …AT&T, for example, imposes a $325 “activation fee” for each wiretap and $10 a day to maintain it. Smaller carriers Cricket and U.S. Cellular charge only about $250 per wiretap. But snoop on a Verizon customer? That costs the government $775 for the first month and $500 each month after that… Industry says it doesn’t profit from the hundreds of thousands of government eavesdropping requests it receives each year… “What we don’t want is surveillance to become a profit center,” said Christopher Soghoian, the ACLU’s principal technologist. But “it’s always better to charge $1. It creates friction, and it creates transparency” because it generates a paper trail that can be tracked. …The FBI said it could not say how much it spends on industry reimbursements because payments are made through a variety of programs, field offices and case funds.

I confess that I’m not an expert – or even a novice – on the details of law enforcement, but I’m glad that my speculation on the low cost of setting up a wiretap seems to have been accurate. At least based on this excerpt from the article.

In 2009, then-New York criminal prosecutor John Prather sued several major telecommunications carriers in federal court in Northern California in 2009, including AT&T, Verizon and Sprint, for overcharging federal and state police agencies. In his complaint, Prather said phone companies have the technical ability to turn on a switch, duplicate call information and pass it along to law enforcement with little effort. Instead, Prather says his staff, while he was working as a city prosecutor, would receive convoluted bills with extraneous fees. The case is pending.

This article, as well as the Forbes on Fox debate, deal with general law enforcement, not the controversy about NSA data collection and monitoring.

But I can’t resist sharing this excellent bit of NSA-related humor that arrived in my inbox.

NSA Obama Humor

Very similar in quality and theme to this great set of images.

And if you appreciate political cartoons on this topic, here are some of my favorites. I think the one featuring Nixon and Bush is the best of the bunch.

Last but not least, here are my thoughts on the NSA/Snowden controversy if you want some non-humorous analysis.

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I’ve conducted a handful of polls in the past four-plus years of writing this blog.

* Michael Ramirez won the contest for best political cartoonist.

* In the government-thuggery contest, readers overwhelmingly selected the organic farmer being harassed by local bureaucrats.

* I was surprised that Romney easily won the 2012 election poll, but even more surprised that Obama wasn’t that far behind Gary Johnson.

* For my poll on why (or if) people support the Second Amendment, my choice came in fourth place.

 * We got a wide range of responses in the poll about the guy who took revenge in a very unique way against local law enforcement.

Now let’s do another poll. Our contest today will be to select the worst example of the regulatory state running amok.

1. Our first option deals with the Orwellian Foreign Account Tax Compliance Act (FATCA), which seeks to impose bad American tax law on things that happen outside America’s borders.

The good news is that Obama has unified the world, just like he promised in his campaign. The bad news – from the U.S. perspective – is that the world is now united against this horrible piece of legislation.

Here’s some of what a law professor just wrote about FATCA for the Wall Street Journal Europe.

Beware the sledgehammer used to crack the nut. In this case, the nut is the U.S. government’s laudable goal of catching tax evaders. The sledgehammer is the overreaching effect of legislation that is alienating other countries and resulting in millions of U.S. citizens abroad being forced to either painfully reconsider their nationality, or face a lifetime of onerous bureaucracy, expense and privacy invasion. The legislation is Fatca, the Foreign Account Tax Compliance Act.

Ms. Graffy provides a very powerful example of why FATCA is an absurd extraterritorial application of bad U.S. law.

To appreciate its breathtaking scope along with America’s unique “citizen-based” tax practices, imagine this: You were born in California, moved to New York for education or work, fell in love, married and had children.IRS Thuggery Even though you have faithfully paid taxes in New York and haven’t lived in California for 25 years, suppose California law required that you also file your taxes there because you were born there. Though you may never have held a bank account in California, you must report all of your financial holdings to the State of California. Are you a signatory on your spouse’s account? Then you must declare his bank accounts too. Your children, now adults, have never been west of the Mississippi but they too must file their taxes in both California and New York and report any bank accounts they or their spouses may have because they are considered Californians by virtue of one parent’s birthplace.

Sounds utterly ridiculous, but FATCA applies these rules to American citizens in other nations – with predictably awful results.

Extrapolate that example to the six million U.S. citizens living around the globe. Many, if not most, don’t know about these requirements. Yet they face fines, penalties and interest for not complying—even if they owe no U.S. taxes, own no U.S. property, have no U.S. bank account and haven’t lived there in years—if ever. …Foreign financial institutions trying to avoid these new requirements have two alternatives: to drop American clients, or don’t invest in the U.S. Neither scenario benefits America.  …This infringement on the sovereignty of other nations has not gone down well abroad and has only served to reinforce the most negative stereotypes of America. …It forces honest people with affection for their ties to America to either keep quiet about their heritage, or spend potentially thousands of dollars a year to prove that they owe no U.S. taxes. Or, as is increasingly occurring, it forces them to give up their U.S. citizenship. The result is that the U.S. is turning millions of “good will” ambassadors into “bad will” ambassadors. Can any of this be good for America?

Of course it’s not good for America, but greedy politicians are perfectly happy to impose enormous costs on the private sector in exchange for trivially small amounts of additional revenue. And those projections of additional revenue almost surely won’t materialize because of Laffer-Curve effects on investment in the American economy, so even the politicians won’t come out ahead when the dust settles.

Maybe the crowd in Washington will even learn the right lesson and support Senator Rand Paul’s legislation to undo some of the worst parts of FATCA, but don’t hold your breath.

2. Here’s the second choice. I thought I had learned never to be surprised by examples of foolish government intervention, but even I did a double take when I learned that the federal bureaucracy was regulating rabbits in magic shows.

Not just regulating them, but even requiring disaster plans in case of calamities such as “Fire. Flood. Tornado. Air conditioning going out. Ice storm. Power failures”. I’m not joking. Here are some excerpts from a Washington Post report.

This summer, Marty the Magician got a letter from the U.S. government. It began with six ominous words: “Dear Members of Our Regulated Community . . .” Washington had questions about his rabbit. Again. …Hahne has an official U.S. government license. Not for the magic. For the rabbit. The Agriculture Department requires it, citing a decades-old law that was intended to regulate zoos and circuses. Today, the USDA also uses it to regulate much smaller “animal exhibitors,” even the humble one-bunny magician. That was what the letter was about. The government had a new rule. To keep his rabbit license, Hahne needed to write a rabbit disaster plan. …For Hahne, the saga has provided a lesson in one of Washington’s bad old habits — the tendency to pile new rules on top of old ones, with officials using good intentions and vague laws to expand the reach of the federal bureaucracy. …“Our country’s broke,” Hahne said. “And yet they have money and time to harass somebody about a rabbit.”

What if regulators are committing crimes against common sense?

Just in case you think this is merely a case of bureaucrats concocting silly rules from their comfortable perches in Washington, I’m sure you’ll be delighted to learn that our fearless public servants are venturing outside the beltway.

Hahne…has been doing magic shows full time for 27 years, on cruise ships and on land. That means he has experienced most of the troubles a magician can expect… But he did not expect the U.S. Department of Agriculture. “She said, ‘Show me your license.’ And I said, ‘License for . . .?’ ” Hahne recounted. This was after a 2005 show at a library in Monett, Mo. Among the crowd of parents and kids, there was a woman with a badge. A USDA inspector. “She said, ‘For your rabbit.’ ” Hahne was busted. He had to get a license or lose the rabbit. …Hahne has an official USDA license, No. 43-C-0269, for Casey — a three-pound Netherland dwarf rabbit with a look of near-fatal boredom. The rules require Hahne to pay $40 a year, take Casey to the vet and submit to surprise inspections of his home. Also, if Hahne plans to take the rabbit out of town for an extended period, he must submit an itinerary to the USDA. The 1966 law that started all of this was four pages long. Now, the USDA has 14 pages of regulations just for rabbits. …the law applies only to warmblooded animals. If Hahne were pulling an iguana out of his hat — no license required. Now, he needs both a license and a disaster plan.

I’ve complained about a bloated and overpaid government workforce, but I’ll redouble my efforts now that I know we have bureaucrats going to one-man magic shows to check people for licenses.

On the other hand, I’m surprised that rabbit rules only 14 pages of regulations? That’s pretty spartan compared to the 74,000 pages of rules for the tax code.

The good news – relatively speaking – is that rabbit regulations don’t threaten to drive investment and jobs from the U.S. economy. But for sheer stupidity on the part of government, can you think of a more pointless set of regulations?

3. Now let’s consider our final example, which manages to combine the nanny state with domestic protectionism with an attack on the First Amendment.

This trifecta of red tape insanity comes from Kentucky, where the local state-protected cartel of psychologists wants to stop a newspaper columnist from giving free advice.

Here are some of the details from the Associated Press.

John Rosemond has been dispensing parenting advice in his newspaper column since 1976, making him one of the longest-running syndicated columnists in the country. But some Kentucky authorities want to put him in a time out. In May, Kentucky’s attorney general and its Board of Examiners of Psychology told Rosemond his parenting column — which regularly offers old-school advice and shows little tolerance for any kind of parental coddling — amounts to the illegal practice of psychology. They want him to agree to a cease-and-desist order. In particular, they want Rosemond to stop identifying himself as a psychologist, because he is not a licensed psychologist in Kentucky.

To his credit, Mr. Rosemond is fighting back.

Rosemond, an author of 11 parenting books who has a master’s degree in psychology from Western Illinois and is a licensed psychologist in his home state of North Carolina, sees the board’s letter as an effort at censorship and is filing a lawsuit Tuesday in federal court seeking to bar the state from taking any action against him. …He is represented by the Arlington, Va.-based Institute for Justice, which has filed multiple lawsuits challenging what they see as overreach by government licensing boards. Institute for Justice lawyer Paul Sherman says that under Kentucky’s logic, columnists like Dear Abby and television personalities like Dr. Phil and Dr. Oz are breaking the law any time they offer advice, because the content is aired in Kentucky and meets the state’s broad definition of psychological advice.

And the newspaper that publishes his column also is standing up for the First Amendment.

Peter Baniak, editor of the Lexington Herald-Leader, which ran the column that prompted the psychology board’s cease-and-desist letter, said Monday that his paper has not been contacted by the board or the Kentucky attorney general, and that the paper intends to continue publishing the column. “I would find it troubling for a state board to suggest or think it has the ability to say what should or shouldn’t run in an advice column,” Baniak said.

By the way, if you watch this video, you’ll see that Rosemond’s home state of North Carolina also is guilty of trying to undermine the First Amendment as part of efforts to protect certain professions from competition.

Now it’s your turn to pick the most foolish example of regulation from this list.

By the way, just in case there are skeptics who think I’ve shared isolated examples and that regulation is generally beneficial, check out these staggering numbers.

So whether we’re looking at anecdotes or big-picture data, the message is the same. Red tape is strangling the productive sector of the economy.

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I sometimes make fun of Republicans for being the “Stupid Party,” but I get genuinely agitated when they’re the “Statist Party.”

You can forgive someone for not being intelligent, after all, but it’s much harder to look the other way when they deliberately and knowingly do the wrong thing.

And that seems to be a good description of how the GOP handled the recent farm bill.

Farm subsidiesFirst, some background. The farm bill traditionally has also been the legislation that funded food stamps. The special interests adopted this approach because it created an unholy alliance of big-city Democrats and farm-state Republicans, with both groups agreeing to support each other’s wasteful spending.

Advocates of smaller government have long objected to this arrangement for the simple reason that neither agriculture subsidies nor food subsidies are proper functions of the federal government.

So it seemed like good news when the House of Representatives defeated a $1 trillion farm bill last month. And it seemed like even better news when House GOP leaders announced that they would separate the farm subsidies and food stamps into separate pieces of legislation.

But here’s where we run into problems. The insiders and special interests who are cozy with the GOP used this new approach as an excuse to increase the role of the federal government!

I’m not joking. Darren Bakst of the Heritage Foundation explains what happened.

When the House leadership first announced it would separately consider the food stamp and farm components of the “farm” bill, it looked like they got the message that current farm policy was in dire need of reform. With separation, real reform to rein in market-distorting programs and special interest handouts could finally happen. But now that separation has occurred, they’ve forgotten the very reason why separation was needed in the first place. …With the passage of this bill, the House has gone even further to the left than the Senate bill. It would spend more money than Obama on the largest farm program, crop insurance. …In fact, they made this new bill even worse—by making sneaky changes to the bill text so that some of the costliest and most indefensible programs no longer expire after five years, but live on indefinitely. This means the sugar program that drives up food prices will be harder to change, because it doesn’t automatically expire. It also means the new and radical shallow loss program that covers even minor losses for farmers will indefinitely be a part of the law.

To be fair, there were a few changes that arguably moved the ball in the right direction.

Here’s what the Wall Street Journal opined.

The new farm bill still has more subsidies than is desirable, especially amid a booming agriculture economy and record land prices. The supports for prospering sugar and dairy farmers are especially dreary. Republicans defeated a proposal by Budget Chairman Paul Ryan to put income limits for receiving subsidies, so “farmers” with non-farm incomes of nearly $1 million a year can still dun taxpayers. But at least the bill spends $20 billion less over 10 years than current law. One major reform is the repeal of a 1949 law that reinstates New Deal-era production controls and price supports if Congress failed to pass a new bill.

I’m not an expert on agriculture subsidies, but I think the Heritage Foundation has a stronger argument. In any event, it’s unambiguously true that House Republicans didn’t use this opportunity to approve big, pro-market reforms.

Moreover, the Republicans have left themselves wide open to the charge that they’re perfectly happy to subsidize rich contributors while not subsidizing those with modest incomes.

Ross Douthat was very critical of the GOP ploy in his New York Times column.

It should go without saying that America’s agriculture policy has always been a terrible, stupid, counterproductive exercise in self-dealing cronyism. But when House Republicans severed the traditional connection, arbitrary but politically effective, between farm subsidies and food stamps, it briefly seemed like they were looking for an opportunity to put libertarian populist principle into practice, by separating both outlays in order to trim or reform both separately. But no — instead they were just making it easier for the party’s congressmen to vote for a bloated, awful big government program that benefits mostly-Republican states and interest groups, knowing that they weren’t also voting for something that pays out to the (mostly-Democratic) poor as well. This is egregious whatever you think of the food stamp program… Practically any conception of the common good, libertarian or communitarian or anywhere in between, would produce better policy than a factionally-driven approach of further subsidizing the rich.

Sort of confirms my argument that the worst people in Washington are GOP insiders.

Needless to say, this approach creates a big opening for the left, as illustrated by this cartoon.

Big Ag GOP

But the reason this cartoon is effective is that it is based on reality. Republicans did push through a wasteful farm bill. And they don’t have any plans to deal with the food stamp component.

And even though there will be some agreement on food stamps, the GOP has left itself open to the charge that they want handouts for their rich friends and nothing for the poor.

From a libertarian perspective, I don’t care if Republicans open themselves up to unflattering stereotypes.

But I do want to abolish the Department of Agriculture at some point. And I also want to clean up the cesspool of corruption in Washington by shrinking the size and scope of the federal government.

Unfortunately, we seem to be moving in the wrong direction and the farm bill is merely the latest example of a very bad trend.

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I damned Obama with faint praise last year by asserting that he would never be able to make America as statist as France.

My main point was to explain that the French people, notwithstanding their many positive attributes, seem hopelessly statist. At least that’s how they vote, even though they supposedly support spending cuts according to public opinion polls.

More specifically, they have a bad habit of electing politicians – such as Sarkozy and Hollande – who think the answer to every question is bigger government.

As such, it’s almost surely just a matter of time before France suffers Greek-style fiscal chaos.

But perhaps I should have taken some time in that post to explain that the Obama Administration – despite its many flaws – is genuinely more market-oriented that its French counterpart.

Or perhaps less statist would be a more accurate description.

However you want to describe it, there is a genuine difference and it’s manifesting itself as France and the United States are fighting over the degree to which governments should impose international tax rules designed to seize more tax revenue from multinational companies.

Guardian Tax HeadlineHere’s some of what the UK-based Guardian is reporting.

France has failed to secure backing for tough new international tax rules specifically targeting digital companies, such as Google and Amazon, after opposition from the US forced the watering down of proposals that will be presented at this week’s G20 summit. Senior officials in Washington have made it known they will not stand for rule changes that narrowly target the activities of some of the nation’s fastest growing multinationals, according to sources with knowledge of the situation.

This is very welcome news. The United States has the highest corporate tax rate in the developed world and the overall tax system for companies ranks a lowly 94 out of 100 nations in a survey of “tax attractiveness” by German economists.

So it’s good that U.S. government representatives are resisting schemes that would further undermine the competitiveness of American multinationals.

Particularly since the French proposal also would enable governments to collect lots of sensitive personal information in order to enforce the more onerous tax regime.

…the US and French governments have been at loggerheads over how far the proposals should go. …Despite opposition from the US, the French position – which also includes a proposal to link tax to the collection of personal data – continues to be championed by the French finance minister, Pierre Moscovici.

It’s worth noting, by the way, that the Paris-based Organization for Economic Cooperation and Development (OECD) has been playing a role in this effort to increase business tax burdens.

The OECD plan has been billed as the biggest opportunity to overhaul international tax rules, closing loopholes increasingly exploited by multinational corporations in the decades since a framework for bilateral tax treaties was first established after the first world war. The OECD is expected to detail up to 15 areas on which it believes action can be taken, setting up a timetable for reform on each of between 12 months and two and a half years.

Just in case you don’t have your bureaucrat-English dictionary handy, when the OECD says “reform,” it’s safe to assume that it means “higher taxes.”

Maybe it’s because the OECD is based in France, where taxation is the national sport.

France has been among the most aggressive in responding to online businesses that target French customers but pay little or no French tax. Tax authorities have raided the Paris offices of several firms including Google, Microsoft and LinkedIn, challenging the companies’ tax structures.

But British politicians are equally hostile to the private sector. One of the senior politicians in the United Kingdom actually called a company “evil” for legally minimizing its tax burden!

In the UK, outcry at internet companies routing British sales through other countries reached a peak in May after a string of investigations by journalists and politicians laid bare the kinds of tax structures used by the likes of Google and Amazon. …Margaret Hodge, the chair of the public accounts committee, called Google’s northern Europe boss, Matt Brittin, before parliament after amassing evidence on the group’s tax arrangements from several whistleblowers. After hearing his answers, she told him: “You are a company that says you do no evil. And I think that you do do evil” – a reference to Google’s corporate motto, “Don’t be evil”.

Needless to say, Google should be applauded for protecting shareholders, consumers, and workers, all of whom would be disadvantaged if government seized a larger share of the company’s earnings.

And if Ms. Hodge really wants to criticize something evil, she should direct her ire against herself and her colleagues. They’re the ones who have put the United Kingdom on a path of bigger government and less hope.

Let’s return to the main topic, which is the squabble between France and the United States.

Does this fight show that President Obama can be reasonable in some areas?

The answer is yes…and no.

Yes, because he is resisting French demands for tax rules that would create an even more onerous system for U.S. multinationals. And it’s worth noting that the Obama Administration also opposed European demands for higher taxes on the financial sector back in 2010.

But no, because there’s little if any evidence that he’s motivated by a genuine belief in markets or small government.* Moreover, he only does the right thing when there are proposals that unambiguously would impose disproportionate damage on American firms compared to foreign companies. And it’s probably not a coincidence that the high-tech sector and financial sector have dumped lots of money into Obama’s campaigns.

Let’s close, however, on an optimistic note. Whatever his motive, President Obama is doing the right thing.

This is not a trivial matter. When the OECD started pushing for changes to the tax treatment of multinationals earlier this year, I was very worried that the President would join forces with France and other uncompetitive nations and support a “global apportionment” system for determining corporate tax burdens.

Based on the Guardian’s report, as well as some draft language I’ve seen from the soon-to-be-released report, it appears that we have dodged that bullet.

At the very least, this suggests that the White House was unwilling to embrace the more extreme components of the OECD’s radical agenda. And since you can’t impose a global tax cartel without U.S. participation (just as OPEC wouldn’t succeed without Saudi Arabia), the statists are stymied.

So two cheers for Obama. I’m not under any illusions that the President is turning into a genuine centrist like Bill Clinton, but I’ll take this small victory.

* Obama did say a few years ago that “no business wants to invest in a place where the government skims 20 percent off the top,” so maybe he does understand the danger of high tax rates. And the President also said last year that we should “let the market work on its own,” which may signal an awareness that there are limits to interventionism. But don’t get your hopes up. There’s some significant fine print and unusual context with regard to both of those statements.

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We have a very interesting question from a reader in Nebraska. Is Obamacare such a cluster-you-know-what that the law will self-destruct?

Well, I’ve already explained why I’m optimistic about the possibility of turning Obamacare lemons into free-market lemonade.

Simply stated, the law took a healthcare system that already was a mess because of government intervention and subsidies and it doubled down on that misguided approach!

And since it’s highly unlikely that more government is the solution to problems created by government in the first place, I think we’ll have great fun being able to highlight all the bad consequences of Obamacare and make a principled case for pro-market reform (meaning not only Medicaid reform and Medicare reform, but also tax reform to help deal with the third-party payer crisis).

That being said, I don’t think Obamacare will collapse on its own. We’re going to have to give it a push. A big push.

This is because legislation will be required to undo all the taxes and subsidies in the law. And even though we have the bizarre situation of the Obama Administration deciding to deliberately ignore a legal requirement to impose an employer mandate beginning in 2014, we’ll also need legislation to undo both the individual and the employer mandate.

In other words, the fact that the law won’t achieve any of its goals (such as lower costs and universal insurance coverage) won’t cause the bad policy to disappear.

But it will make the law even more unpopular – particularly if we do our job.

That’s why we should relentlessly highlight examples of wasteful Obamacare spending. The Washington Post, for instance, is reporting on “the extreme measures states are taking to get young people signed up for Obamacare programs.”

And when even the Washington Post thinks politicians and bureaucrats are going above and beyond in their efforts to waste money, you know it’s something especially foolish. But when you’re trying to trick young people into signing up for insurance policies designed to subsidize richer seniors, you don’t really have much choice.

Oregon might do branded coffee cups, for example, whereas Seattle is looking at doing outreach at music festivals. It only makes sense, then, that Kentucky would be doing outreach at multiple bourbon festivals across the state.

From a big picture perspective, this type of waste in just a penny or two on the dollar, but it’s very symbolic of a law that is poorly designed and unworkable.

I also think political cartoonists are very helpful allies since they’re so effective at illustrating some of the worst parts of Obamacare. So let’s wrap up this post with a new batch of cartoons.

We’ll start with a couple that skirt the edge of appropriateness by playing off the recent airline crash in San Francisco. The first one is by Steve Breen.

Obamacare Cartoon July 15 1

And the second one is by Eric Allie.

Obamacare Cartoon July 15 2

The donkey pilot blaming the elephant passenger is a good touch, and you find that theme in this Gary Varvel gem.

Obamacare Cartoon July 15 3

Let’s close with a great Rick McKee cartoon that focuses on exploding costs, a message near and dear to my heart.

Obamacare Cartoon July 15 4

One final warning. We’re not guaranteed of victory simply because Obamacare is leading to bad results. The statists are going to try and seize control of the narrative by asserting that the higher costs and greater inefficiencies could be fixed by squandering more money in the short run and imposing a single-payer system in the long run.

That’s a very perverse example of Mitchell’s Law and it surely doesn’t make sense to normal people. But it’s an approach that plays to the worst instincts of politicians, many of who will grab any excuse to increase the size and scope of Washington.

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I never thought I would wind up in Costco’s monthly magazine, but I was asked to take part in a pro-con debate on “Should offshore tax havens be illegal?”

Given my fervent (and sometimes risky) support of tax competition, financial privacy, and fiscal sovereignty, regular readers won’t be surprised to learn that I jumped at the opportunity.

After all, if I’m willing to take part in a debate on tax havens for the upper-income folks who read the New York Times, I should do the same thing for the middle-class folks who patronize big-box stores.

My main argument was that we need tax havens to help control the greed of the political elite. Simply stated, politicians rarely think past the next election, so they’ll tax and spend until we suffer a catastrophic Greek-style fiscal collapse unless there’s some sort of external check and balance.

…politicians have an unfortunate tendency to over-spend and over-tax. …And if they over-tax and over-spend for a long period, then you suffer the kind of fiscal crisis that we now see in so many European nations.  That’s not what any of us want, but how can we restrain politicians? There’s no single answer, but “tax competition” is one of the most effective ways of controlling the greed of the political elite. …Nations with pro-growth tax systems, such as Switzerland and Singapore, attract jobs and investment from uncompetitive countries such as France and Germany. These “tax havens” force the politicians in Paris and Berlin to restrain their greed.  Some complain that these low-tax jurisdictions make it hard for high-tax nations to enforce their punitive tax laws. But why should the jurisdictions with good policy, such as the Cayman Islands, be responsible for enforcing the tax law of governments that impose bad policy?

Costco MitchellI also made the point that the best way to undermine tax havens is to make our tax system fair and reasonable with something like a flat tax.

…the best way to reduce tax evasion is lower tax rates and tax reform. If the United States had a flat tax, for instance, we would enjoy much faster growth and we would attract trillions of dollars of new investment.

And I concluded by pointing out that there are other very important moral reasons why people need financial privacy.

In addition to promoting good fiscal policy, tax havens also help protect human rights. …To cite just a few examples, tax havens offer secure financial services to political dissidents in Russia, ethnic Chinese in Indonesia and the Philippines, Jews in North Africa, gays in Iran, and farmers in Zimbabwe. The moral of the story is that tax havens should be celebrated, not persecuted.

And what did my opponent, Chye-Ching Huang from the Center for Budget and Policy Priorities, have to say about the issue? To her credit, she was open and honest about wanting to finance bigger government. And she recognizes that tax competition is an obstacle to the statist agenda.

It drains the United States of tax revenues that could be used to reduce deficits or invested in critical needs, including education, healthcare, and infrastructure.

Costco HuangShe also didn’t shy away from wanting to give the scandal-plagued IRS more power and money.

U.S. policymakers could and should act… Policymakers could provide the Internal Revenue Service (IRS) with the funding it needs to ensure that people pay the taxes they owe, including sufficient funds to detect filers who are using offshore accounts to avoid paying their taxes.

Her other big point was to argue against corporate tax reforms.

…a “territorial” tax system…would further drain revenues, and domestic businesses and individual taxpayers could end up shouldering the burden of making up the difference.

Given that the United States has the highest statutory tax rate for companies in the industrialized world and ranks only 94 out of 100 nations for business “tax attractiveness,” I obviously disagree with her views.

And I think she’s wildly wrong to think that tax havens lead to higher taxes for ordinary citizens. Heck, even the New York Times inadvertently admitted that’s not true.

In any event, I think both of us had a good opportunity to make our points, so kudos to Costco for exposing shoppers to the type of public finance discussion that normally is limited to pointy-headed policy wonks in sparsely attended Washington conferences.

That’s the good news.

The bad news is that I don’t think I’m going to prevail in Costco’s online poll. It’s not that I made weak arguments, but the question wound up being altered from “Should offshore tax havens be illegal?” to “Should offshore bank accounts be taxable?”

Costco Debate QuestionSo I imagine the average reader will think this is a debate on whether they should be taxed on their account at the bank down the street while some rich guy isn’t taxed on his account at a bank in Switzerland.

Heck, even I would be sorely tempted to click “Yes” if that was the issue.

In reality, I don’t think any of our bank accounts should be taxable (whether they’re in Geneva, Switzerland or Geneva, Illinois) for the simple reason that there shouldn’t be any double taxation of income that is saved and invested.

The folks at Costco should have stuck with the original question (at least the way it was phrased to me in the email they sent), or come up with something such as “Are tax havens good for the global economy?”

But just as you can’t un-ring a bell, I can’t change Costco’s question, so I’m not holding my breath expecting to win this debate.

P.S. I’m at FreedomFest in Las Vegas, where I just debated Jim Henry of the Tax Justice Network on the same topic. I should have asked him what he though of all the politically connected leftists who utilize tax havens.

P.P.S. If you like tax haven debates, here are Part I and Part II of a very civilized debate I had with a young lady from the Task Force on Financial Integrity and Economic Development.

P.P.P.S. Maybe I haven’t looked hard enough, but I don’t have any tax haven-oriented cartoons to share other than one that compares where Romney put his money to where Obama puts our money.

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I’m thinking of inventing a game, sort of a fiscal version of Pin the Tail on the Donkey.

Only the way it will work is that there will be a map of the world and the winner will be the blindfolded person who puts their pin closest to a nation such as Australia or Switzerland that has a relatively low risk of long-run fiscal collapse.

That won’t be an easy game to win since we have data from the BIS, OECD, and IMF showing that government is growing far too fast in the vast majority of nations.

We also know that many states and cities suffer from the same problems.

A handful of local governments already have hit the fiscal brick wall, with many of them (gee, what a surprise) from California.

The most spectacular mess, though, is about to happen in Michigan.

The Washington Post reports that Detroit is on the verge of fiscal collapse.

After decades of sad and spectacular decline, it has come to this for Detroit: The city is $19 billion in debt and on the edge of becoming the nation’s largest municipal bankruptcy. An emergency manager says the city can make good on only a sliver of what it owes — in many cases just pennies on the dollar.

This is a dog-bites-man story. Detroit’s problems are the completely predictable result of excessive government. Just as statism explains the problems of Greece. And the problems of California. And the problems of Cyprus. And the problems of Illinois.

I could continue with a long list of profligate governments, but you get the idea. Some of these governments are collapsing at a quicker pace and some at a slower pace. But all of them are in deep trouble because they don’t follow my Golden Rule about restraining the burden of government spending so that it grows slower than the private sector.

Detroit obviously is an example of a government that is collapsing sooner rather than later.

Why? Simply stated, as the size and scope of the public sector increased, that created very destructive economic and political dynamics.

More and more people got lured into the wagon of government dependency, which puts an ever-increasing burden on a shrinking pool of producers.

Meanwhile, organized interest groups such as government bureaucrats used their political muscle to extract absurdly excessive compensation packages, putting an even larger burden of the dwindling supply of taxpayers.

But that’s not the main focus of this post. Instead, I want to highlight a particular excerpt from the article and make a point about how too many people are blindly – perhaps willfully – ignorant of the Laffer Curve.

Check out this sentence.

Property tax collections are down 20 percent and income tax collections are down by more than a third in just the past five years — despite some of the highest tax rates in the state.

This is a classic “Fox Butterfield mistake,” which occurs when someone fails to recognize a cause-effect relationship. In this case, the reporter should have recognized that tax collections are down because Detroit has very high tax rates.

The city has a lot more problems than just high tax rates, of course, but can there be any doubt that productive people have very little incentive to earn and report taxable income in Detroit?

And that’s the essential insight of the Laffer Curve. Politicians can’t – or at least shouldn’t – assume that a 20 percent increase in tax rates will lead to a 20 percent increase in tax revenue. They also have to consider the degree to which a higher tax rate will cause a change in taxable income.

In some cases, higher tax rates will discourage people from earning more taxable income.

In some cases, higher tax rates will discourage people from reporting all the income they earn.

In some cases, higher tax rates will encourage people to utilize tax loopholes to shrink their taxable income.

In some cases, higher tax rates will encourage migration, thus causing taxable income to disappear.

Here’s my three-part video series on the Laffer Curve. Much of this is common sense, though it needs to be mandatory viewing for elected officials (as well as the bureaucrats at the Joint Committee on Taxation).

P.S. Just in case it’s not clear from the videos, we don’t want to be at the revenue-maximizing point on the Laffer Curve.

P.P.S. Amazingly, even the bureaucrats at the IMF recognize that there’s a point when taxes are so onerous that further increases don’t generate revenue.

P.P.P.S. At least CPAs understand the Laffer Curve, probably because they help their clients reduce their tax exposure to greedy governments.

P.P.P.P.S. I offered a Laffer Curve lesson to President Obama, but I doubt it had any impact.

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I’ve relentlessly complained that the United States has the highest corporate tax rate among all developed nations.

And if you look at all the world’s countries, our status is still very dismal. According to the the Economist, we have the second highest corporate tax rate, exceeded only by the United Arab Emirates.

But some people argue that the statutory tax rate can be very misleading because of all the other policies that impact the actual tax burden on companies.

That’s a very fair point, so I was very interested to see that a couple of economists at a German think tank put together a “tax attractiveness” ranking based on 16 different variables. The statutory tax rate is one of the measures, of course, but they also look at policies such as “the taxation of dividends and capital gains, withholding taxes, the existence of a group taxation regime, loss offet provision, the double tax treaty network, thin capitalization rules, and controlled foreign company (CFC) rules.”

It turns out that these additional variables can make a big difference in the overall attractiveness of a nation’s corporate tax regime. As you can see from this list of top-10 and bottom-10 nations, the United Arab Emirates has one of the world’s most attractive corporate tax systems, notwithstanding  having the highest corporate tax rate.

Unfortunately, the United States remains mired near the bottom.

Tax Attractiveness Top-Bottom 10

The “good news” is that we beat out Argentina and Venezuela, two of the world’s most corrupt and despotic nations.

Not surprisingly, so-called tax havens dominate the top spots in the ranking. And that’s the case even though financial privacy laws are not part of the equation.

Here are all the scores from the report. They listed nations in alphabetical order, so it’s not very user-friendly if you want to make comparisons. But a simple rule-of-thumb is that any score about .6000 is relatively good and any score below .4000 suggests a country is shooting itself in the foot.

Tax Attractiveness Ranking

For what it’s worth, Switzerland and Estonia exceed the .6000 threshold, as one might expect, but I was surprised that both Hong Kong and Liechtenstein were in the middle of the pack. Heck, both nations scored worse than France!

But that gives me an opportunity to issue a very important caveat. It’s good to have an attractive corporate tax system, but there are dozens of other factors that help determine a nation’s prosperity and competitiveness. Indeed, fiscal policy is only 20 percent of a country’s score in the Economic Freedom of the World rankings. So not only is it important to also look at other tax policies and the overall burden of government spending to gauge a nation’s fiscal policy, you also need to look at other big factors such as monetary policy, trade policy, and regulatory policy.

As such, even though it’s galling that the American corporate tax system ranks below France (and Italy, Greece, Ukraine, Nigeria, etc), the United States fortunately does better in most other areas. That being said, I’m quite worried that we’ve dropped from 3rd place in the overall Economic Freedom of the World rankings when Bill Clinton left office to 18th place in the most recent rankings, so the trend obviously isn’t very encouraging.

Another caveat to keep in mind that the rankings are for 2005-2009, so some nations will have moved up or down since then. I would be very surprised, for instance, if Cyprus was still in the top 10. And it’s quite like that the U.S. score dropped as well, thanks to the tax increases in Obamacare and the “fiscal cliff” deal.

P.S. I’ve never seen a ranking of nations based solely on personal income taxes, but the Liberales Institut in Switzerland put together a “Tax Oppression Index” for industrialized nations and the United States scored 19th out of 30 nations in that measure of how individual taxpayers are treated.

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Whether we’re talking about NSA spying, cross-border collection and sharing of private financial data by tax-hungry governments, pointlessly intrusive money-laundering laws, or other schemes to give the state more power and authority, we’re often told that “if you’re a law-abiding person, you have nothing to fear.”

But that assumes government is both competent and trustworthy.

You don’t have to be a crazed libertarian like me to realize that those two words are not a good description of Washington.

The IRS scandal is just one recent example of politicians and bureaucrats behaving badly. Heck, this blog is basically just a collection of examples illustrating the incompetence and venality of the public sector, augmented by my snarky comments and economic evangelizing.

That being said, while we may get irritated by government waste, senseless snooping,  and onerous taxes, we’re actually lucky.

The people who really suffer are the law-abiding folks (like Martha Boneta) who wind up in the crosshairs of less-than-savory folks in government, which includes not just politicians, but also some law enforcement officials and oftentimes ambitious prosecutors.

And you could be next, even if you’re a goody-two-shoes type who actually obeys speed limits. Simply stated, government is so big and has so many laws that every one of us is probably guilty of something.

And if we cross the wrong bureaucrat, our lives may be ruined – particularly since there are very few checks and balances to restrain these petty tyrants.

Professor Glenn Reynolds (a good guy despite teaching at the University of Tennessee Law School) addresses this issue in a very good article for the Columbia Law Review.

Here’s some of what Professor Reynolds wrote, starting with a brief explanation of the underlying problem.

Prosecutorial discretion poses an increasing threat to justice. The threat has in fact grown more severe to the point of becoming a due process issue. …prosecutors’ discretion to charge—or not to charge—individuals with crimes is a tremendous power, amplified by the large number of laws on the books. …If prosecutors were not motivated by politics, revenge, or other improper motives, the risk of improper prosecution would not be particularly severe. However, such motivations do, in fact, encourage prosecutors to pursue certain individuals, like the gadfly Aaron Swartz, while letting others off the hook—as in the case of Gregory, a popular newscaster generally supportive of the current administration. This problem has been discussed at length in Gene Healy’s Go Directly to Jail: The Criminalization of Almost Everything and Harvey Silverglate’s Three Felonies a Day. The upshot of both books is that the proliferation of federal criminal statutes and regulations has reached the point where virtually every citizen, knowingly or not (usually not) is potentially at risk for prosecution.

I’ve already written about the unfairness of giving David Gregory a free pass when ordinary citizens are punished for similar offenses, so I’m in full agreement that this is a problem.

More specifically, we can’t trust that prosecutors are motivated by justice.

In many cases, we’re talking about deeply flawed individuals motivated by a lust for political power (such as my former debating opponent Elliot Spitzer).

Self-aggrandizing  prosecutors seem more than willing to deliberately target certain individuals for unfair persecution, so we need some way of clipping their wings.

Glenn mentions the approach that you might find in a Civics 101 textbook, but he also notes that it’s not an effective check on government abuse.

Traditionally, of course, the grand jury was seen as the major bar to prosecutorial overreaching. The effectiveness of this approach may be seen in the longstanding aphorism that a good prosecutor can persuade a grand jury to indict a ham sandwich. Grand jury reforms—where grand juries still exist—might encourage grand jurors to exercise more skepticism and educate them more. But grand juries are not constitutionally guaranteed at the state level, and reforming them at the federal level is likely to prove difficult.

So what, then, are the potential solutions?

Glenn’s first suggestion is that immunity for prosecutors should be relaxed.

Overall, the problem stems from a dynamic in which those charged with crimes have a lot at risk, while those doing the charging have very little “skin in the game.” One source of imbalance is prosecutorial immunity. The absolute immunity of prosecutors—like the absolute immunity of judges—is a judicial invention, a species of judicial activism that gets less attention than many other less egregious examples. Although such immunity no doubt prevents significant mischief, it also enables significant mischief by eliminating one major avenue of accountability. Even a shift to qualified, good faith immunity for prosecutors would change the calculus significantly, making subsequent review something that is at least possible.

In theory, lawyers (such as prosecutors) already can be punished for misconduct. But other lawyers are the ones in charge of determining whether misbehaving colleagues should be disbarred or otherwise penalized.

Needless to say, members of a club generally are reluctant to punish other members of the club.

So reducing immunity would be a good idea.

Glenn’s second option is to impose a variant of “loser pays.”

Perhaps the prosecution could be required to pay a defendant’s legal fees if he or she is not convicted. To further discipline the process, one could implement a pro-rate system: Charge a defendant with twenty offenses, but convict on only one, and the prosecution must bear 95% of the defendant’s legal fees. This would certainly discourage overcharging.

As an economist, I instinctively like this idea. It’s always a good idea to make people bear the costs of their own actions.

But there’s a catch. Prosecutors wouldn’t be bearing the costs. You and me and other taxpayers would have to cough up the money.

However, perhaps “loser pays” could be structured so the money comes out of a predetermined budget for salaries and benefits of prosecutors and staff.

Since they are probably overpaid, like most government bureaucrats, I imagine this idea would have the desired impact on their actions.

The third option – and it’s a big one – is to get rid of plea bargains.

The “nuclear option” of prosecutorial accountability would involve banning plea bargains. An understanding that every criminal charge filed would have to be either backed up in open court or ignominiously dropped would significantly reduce the incentive to overcharge. …Our criminal justice system, as presently practiced, is basically a plea bargain system with actual trials of guilt or innocence a bit of showy froth floating on top.

I don’t know enough to opine on this proposal, but the status quo obviously isn’t any good, so maybe it’s time to think big.

Glenn also adds an additional point about narrowing the definition of a crime, or at least what “offenses” carry criminal sanctions.

It is also worth considering whether mere regulatory violations…should bear criminal sanctions at all. …with the explosion of regulatory law, every citizen is at risk of criminal prosecution for crimes that, as David Gregory’s defenders noted, involve no actual harm or ill intent. Yet any reasonable observer would have to conclude that actual knowledge of all applicable criminal laws and regulations is impossible, especially when those regulations frequently depart from any intuitive sense of what “ought” to be legal or illegal. Perhaps placing citizens at risk in this regard constitutes a due process violation; expecting people to do (or know) the impossible certainly sounds like one.

When you look at the perverse forms of government persecution included in this post from earlier this year, Glenn’s point becomes even more persuasive.

I’ll just add one more way of constraining the legal system, and that’s jury nullification.

Judges and prosecutors hate the concept, which suggests to me that it’s probably a very good idea in certain cases.

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I’m a strong believer in federalism, but not because I think state and local governments are competent. Politicians and interest groups are a toxic combination in all circumstance.

But at least people have considerable ability to cross borders if they want to escape greedy and despotic governments at the state and local level. And when the geese with the golden eggs can fly away, this facilitates competition between governments and forces politicians to restrain their appetites.

So when California screws up, people can move to Texas. And when Detroit screws up, people can move just about anyplace.

But it’s not just stereotypically left-wing places where you find stupid and oppressive government. Here are three examples of bad government, and you get to pick the one that most exemplifies statism in action!

Option #1: The “Prove Your Gender” Requirement in Georgia

I realize that gender can be a somewhat fuzzy concept in modern society, and things can get even more complicated with modern technology, but you would think that certain things are…um…well, self evident.

But that wasn’t good enough for one bureaucrat in Georgia, as reported by the New York Daily News. Here are some relevant excerpts

A Georgia mom was ordered by state workers to prove she was a woman after she found her birth certificate mistakenly listed her as a man. Nakia Grimes, 36, said she was left “in shock” after officials told her she must undergo an invasive Pap smear exam if she ever wanted the error corrected. …Grimes said the offensive proposition came about when she spotted her birth certificate had an “X” listed next to male while getting her driver’s license renewed. …a state worker said the only way for the Clayton County resident to get her gender changed would be to prove it properly. “She said I needed to go have the exam, have a doctor write a note verifying you’re a woman, and bring it back – notarized,” she added.

Shockingly, this story actually has a happy ending. According to the story, the government eventually “…altered her gender status after checking her son Zion’s birth certificate, where she is legally listed as the birth mother.”

Option #2: Squandering Money to Rip Up Flowers in Washington, DC

When government fails to fulfill one of its supposed obligations, there’s a natural tendency among some people to volunteer their time and energy to improve their communities.

But bureaucrats don’t like private initiative, particularly since it makes it rather obvious that government is a costly and inefficient way of doing things. And that’s why good Samaritans who clean parks and rescue people open themselves up to harassment and persecution.

In other cases, the bureaucrats undo the good work of private citizens. Here’s some of what was reported in the Washington Post about one episode of spiteful bureaucracy.

…the transit system would look silly if it let perish 1,000 flowers planted secretly at the Dupont Circle station by local garden artist Henry Docter, the self-described Phantom Planter. I feared that Metro would merely neglect the flowers. Instead, last Sunday, it sent workmen to yank them out.The transit system regularly pleads poverty, yet employees devoted supposedly valuable time to remove more than 1,000 morning glories, cardinal flowers and cypress vines that Docter donated to the city — albeit without permission. The plants would have bloomed from August to October in a patriotic display of red, white and blue.Instead of greenery today and colors to come, the 176 flower boxes along the top stretch of the escalators at the station’s north entrance now feature dirt, a few straggling stems and the occasional discarded soda can. …“They paid people to tear out plants that everyone loves? Well, this is cause for insurrection. Talk about fixing something that’s not broken,” said Robin Diener, a member of the Dupont Circle Citizens Association board of directors.

Amazing. The bureaucracy claims there’s no money to plant flowers, but there’s somehow money to dig up flowers someone else has planted. That’s government in action!

Option #3: Thugs from Local Government Harass Organic Farmer

One of the most unpleasant features of big government is that bureaucrats have immense power to engage in vindictive attacks.

I’ve already shared some horror stories, such as this instance of vicious IRS persecution, a story of a woman jailed overnight because she let her kids play outside, an example of cops “legally” stealing $17,000 from a man who committed no crime, a video about how the EPA tried – and fortunately failed – to destroy a family, and a disturbing report about the Justice Department’s discriminatory attack on a hapless homeowner.

We have another example of government thuggery. Here are some passages from a disturbing Washington Examiner story, though you really should read the whole thing.

Since purchasing Liberty Farm in Fauquier County, Virginia, where she grows organic vegetables and has over 160 rescued livestock…, her life has been a series of harassment and bullying by people in power. The latest trouble is that her house…was vandalized. The same day, she was harassed at her farm by strangers in a Georgetown-registered car. Ten days earlier Martha had gone public about an IRS audit. Journalist Kevin Mooney broke the story that Boneta was audited by the IRS last year after a series of disputes with the Piedmont Environmental Council and the Fauquier County government. It was later shown that the audit was disclosed to at least one Fauquier County official, perhaps feloniously. Martha’s disputes brought her national attention because of her willingness to stand up to ridiculousness. She was cited and threatened with $5,000 fines for hosting a birthday party for eight 10-year-old girls without an “events” permit from the county. …Asked about the IRS audit of Boneta coming on the heels of legal disputes between the farmer and the PEC, [former IRS Commissioner] Richardson said, “Coincidences do happen.” But this audit has shown to be no coincidence. A Fauquier County supervisor blabbed about the audit two days after the notice was signed at the IRS and six days before Boneta received it. That shows collusion. The supervisor is Richardson’s friend and neighbor, and a former PEC board member.

This is such a disturbing story that I’m incapable of making a snarky or sarcastic comment. But at least this is a good example to illustrate my point that politicians and bureaucrats at the state and local level can be just as evil as those from Washington.

Anyhow, not it’s time for you to throw in your two cents. Which story best symbolizes government?

P.S. If you were inspired by these stories and want to engage in petty harassment of people who produce, here’s one way of training for government employment.

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As I explained back in April, I’m cautiously optimistic that Obamacare will fall apart for the simple reason that it’s impossible to have a workable government-run healthcare system without the type of brutal rationing and sub-standard care found in places like the United Kingdom.

So part of me is happy that the White House has bumped into reality and now admits that it hasn’t been able to come up with a workable plan for the employer mandate.

But another part of me is unhappy.

One of the defining characteristics of a civilized government is adherence to the rule of law. Clearly written laws, applied equally and enforced fairly, are a big reason why nations such as Denmark can endure a big welfare state while countries like Argentina suffer from long-term relative decline even though it appears they have a smaller burden of government.

With this in mind, I’m rather troubled that the Obama Administration thinks it has carte blanche to arbitrarily disregard a legal requirement to implement the employer mandate beginning January 1, 2014. Even though it’s a bad law that should be completely repealed!

(This quandary reminds me of the old joke that the definition of mixed emotions is when your mother-in-law drives off a cliff…in your new car.)

My Cato colleague Michael Tanner is an expert on Obamacare, and here’s some of his analysis from The Daily Caller.

The dominoes are falling. The administration’s decision to postpone implementation of the Affordable Care Act’s employer mandate until after the 2014 midterm elections is just the first to fall. More will be falling soon thanks to the administration’s belated recognition that the health care law will be a job-killing burden on business. In fact, this is actually the second major part of Obamacare to be postponed in the past few months. This spring, the administration announced that the ACA Small Business Health Option Program (SHOP) would be postponed until at least 2015. …Or perhaps we should call this the third major part of the law to fall apart. In 2011, the administration was forced to permanently postpone implementation of the CLASS Act, Obamacare’s long-term care program.

So far, so good. Obamacare is imploding, just as many of us predicted.

Oh, it’s worth noting that there’s another shoe ready to drop.

The administration is also struggling to implement Obamacare’s federally run insurance exchanges. HHS Secretary Kathleen Sebelius has insisted that the federal government will be able to set up and run exchanges in some 33 states where state governments have chosen not to, but Sebelius has been unable to provide Congress or the public with a credible plan for doing so. A new report from the Government Accountability Office questions whether the exchanges will really be operational by their October 1 deadline.

Gee, I’m totally shocked to learn that government is incompetent. Knock me over with a feather!

But let’s focus on the part of the law that the White House just decided to ignore. Mike explains the meaning of the delayed employer mandate.

…the administration’s decision to postpone the employer mandate may make a bad situation worse, at least for workers. The postponement affects only the mandate that employers (with 50 or more workers) provide insurance. The individual mandate remains in place, requiring nearly all Americans to have insurance or pay a fine. Individuals who would otherwise have gotten insurance through their employers may now be forced to purchase their own insurance. It increasingly looks as though that insurance will be very expensive, especially for the young and healthy. In fact, as the Wall Street Journal recently reported, some consumers “could see insurance rates double or even triple when they look for individual coverage under the federal health law later this year.”

However, the White House has concocted a “solution” for the problem of providing subsidies to individuals in the absence of information from employers.

They’re going to offer people big piles of free money and rely on the honor system.

I’m not joking. Here’s how the editors at the Wall Street Journal describe the new system.

HHS now says it will no longer attempt to verify individual eligibility for insurance subsidies and instead will rely on self-reporting, with minimal efforts to verify if the information consumers provide is accurate. …People are supposed to receive subsidies only if their employer does not provide federally approved health benefits. Since HHS now won’t require business to report those benefits or enforce the standards until 2015, it says it can’t ask ObamaCare’s “exchange” bureaucracies to certify who qualifies either. …In other words, anyone can receive subsidies tied to income without judging the income they declare against the income data the Internal Revenue Service collects.

Needless to say, this will mean far higher costs for taxpayers, just as many of us warned even before the law was approved.

…that is the system Democrats installed when they passed the law, which is not supposed to be optional due to administrative incompetence. HHS promises to develop “a more robust verification process,” some day, but the result starting in October may be millions of people getting subsidies who don’t legally qualify. This would mean huge increases in ObamaCare spending. Some of these folks could be fraudsters, much as 21% to 25% of Earned Income Tax Credits flow to people who aren’t eligible, according to the Treasury inspector general. The same error rate for ObamaCare would amount to as much as $250 billion in improper payments in its first decade.

Here’s the bottom line.

HHS’s logistical challenges are real. But our bet is that the Administration is also using them as a pretense in a deliberate bid to make it much easier to join the exchanges. That’s because the health planners are terrified that enough healthy, low-cost people won’t sign up and therefore the Affordable Care Act’s strict regulations on underwriting and risk-pooling will blow up insurance markets. As more and more of ObamaCare tumbles, the Administration is resorting to anything that can salvage the goal of permanently expanding the U.S. entitlement state.

In other words, the White House is willing to sacrifice the rule of law (not to mention quality health care) in order to achieve a political goal of expanded dependency.

Let’s close on a humorous note with some great cartoons, starting with this gem from Gary Varvel.

Obamacare Cartoon July 2013 2

If you like the “train wreck” theme, you can see a great Steven Kelley cartoon by clicking here.

Next we have a Nate Beeler cartoon that makes the very obvious connection between the latest White House decision and the 2014 midterm elections.

Obamacare Cartoon July 2013 3

The Democrats lost 25 House seats in 2010 because of Obamacare according to one academic study, so maybe Obama is being clever by postponing part of the law.

Here’s a Lisa Benson cartoon that captures the haphazard and sloppy way the law was put together.

Obamacare Cartoon July 2013 4

I guess Nancy Pelosi was right when she said that the law had to pass before we discovered what was in it (though as Gary Varvel illustrates here, all the surprises are bad).

Let’s conclude with two cartoons that take a big-picture look at Obamacare, beginning with one from Chip Bok that was very appropriate on July 4.

Obamacare Cartoon July 2013 1

Last but not least, we have a great cartoon from Rick McKee.

Obamacare Cartoon July 2013 5

If I haven’t exhausted your interest in Obamacare cartoons, you can enjoy some more by clicking here, here, here, here, and here.

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I feel sorry for the people of California.  They’re in a state that faces a very bleak future.

And why does the Golden State have a not-so-golden outlook?

Because interest groups have effective control of state and local political systems and they use their power to engage in massive rip-offs of taxpayers. One of the main problems is that there’s a bloated government workforce that gets wildly overcompensated. Here are some staggering examples.

A state nurse getting $331,000 of annual compensation.

A county administrator getting $423,000 pensions.

A state psychiatrist getting $822,000 of annual compensation.

Cops that get $188,000 of annual compensation.

A city manager getting $800,000 of annual compensation.

But overpaid bureaucrats are not the only problem. California politicians are experts at wasting money in other ways, such as the supposedly high-speed rail boondoggle that was supposed to cost $33 billion and now has a price tag of $100 billion.

You may be thinking that I’ve merely provided a handful of anecdotes, so let’s recycle some numbers that I first shared back in 2010.

California state spending has outgrown the state’s tax base by 1.3 percentage points annually for 25 years. Simple arithmetic dictates that in lieu of constant tax increases, this perpetuates a deficit. From 1985 to 2009 state GDP in California grew by 5.5 percent per year, on average (not adjusted for inflation). Annual growth in state spending was 6.8 percent, on average.

In other words, California politicians have routinely violated my Golden Rule for good fiscal policy. And when government grows faster than the productive sector of the economy for an extended period of time, bad things are going to happen.

And those bad things can happen even faster when upper-income taxpayers can leave the state.

Walter Williams sarcastically suggested last year that California barricade the state to prevent emigration, reminiscent of the actions of totalitarian regimes such as East Germany.

But since state politicians fortunately don’t have that power, successful taxpayers can escape, and hundred of thousands of them have “voted with their feet” to flee to states such as Texas.

One recent example is NBA superstar, Dwight Howard, who left the Los Angeles Lakers for the Houston Rockets. There are probably several reasons that he decided to make the switch, but the Wall Street Journal opines on a very big reason why he’ll be happier in Texas. The WSJ starts by looking at Mr. Howard’s two options.

NBA labor agreement…allows the Lakers to offer Mr. Howard $117 million over five years, compared to a maximum of $88 million over four years in Houston.

That looks about even when you look at annual pay, with the Lakers offering $23.4 million per year and the Rockets offering $22 million per year, but there’s another very important factor.

…this picture looks a lot different once the tax man cometh: “Howard would pay nearly $12 million in California tax over the four years if he signs with the Lakers, but only $600,000 in state tax should he sign with Houston. This means that a four-year deal with Houston would actually yield an additional $8 million in after-tax income.” California has the highest top rate for personal income in the nation, while Texas has no state income tax.

Some of you may be thinking this is no big deal. After all, the Lakers will sign somebody to take Dwight Howard’s place and that person will also get a huge salary.

That’s true, though Lakers fans probably aren’t happy that they’re destined to be a middle-of-the-pack team. The bigger point, though, is that there are tens of thousands of other high-paid people who can leave the state and there’s no automatic replacement. And many of them already have escaped.

Including very well-paid Chevron workers.

Ramirez California Promised LandNow that California’s moochers and looters have imposed an even higher top tax rate of 13.3 percent, expect that exodus to continue. Other pro athletes are looking to escape, and even famous leftists are thinking about fleeing.

In other words, Governor Jerry Brown can impose high tax rates, but he can’t force people to earn income in California. I don’t know whether to call this “the revenge of the Laffer Curve” or “a real life example of Atlas Shrugs,” but I know that California will be a very bleak place in 20 years.

P.S. Here’s the famous joke about California, Texas, and a coyote. And here’s an amusing picture of the California bureaucracy in (in)action.

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Last year, I showed an image of evolutionary stages that was so accurate that it would earn approval even from many strict creationists.

Here’s a new image of evolutionary stages that sets the stage for today’s discussion. Simply stated, Americans are becoming bigger. In some cases, a lot bigger.

Is this trend toward greater obesity a bad thing? As a reader asks, is it something that requires a government response?

The answer is yes…and no.

Libertarians believe people should be free to make their own decisions so long as they’re not infringing on the rights of others. And that includes the right to eat too much and exercise too little.

But the “yes” part of the answer is that we can think obesity is unfortunate and we can encourage our friends and family members to live healthier lifestyles. And if we’re willing to be pests and to run the risk of being told to mind our own business, we can even encourage strangers to shape up.

The “no” part of the answer refers to whether the government somehow should get involved. I shared a great video from Reason TV several years ago that explained why paternalistic anti-obesity programs don’t work. And just this week, one of my colleagues at the Cato Institute, Michael Tanner, addressed this issue. Here’s some of what he wrote for National Review.

Recently the American Medical Association declared that it will consider obesity a disease. …the AMA’s move is a symptom of a disease that is seriously troubling our society: the abdication of personal responsibility and an invitation to government meddling. …the AMA’s move is actually a way for its members to receive more federal dollars, by getting obesity treatments covered under government health plans. A bipartisan group of congressmen has already seized on the AMA declaration as they push for Medicare coverage of diet drugs. Observers also expect an effort to expand Medicare reimbursement for bariatric surgery, a.k.a. stomach stapling. And there will almost certainly be pressure to mandate coverage for these things by private insurance carriers, under both state laws and the Affordable Care Act. …After the AMA decision, John Morton, treasurer of the American Society for Metabolic and Bariatric Surgery, was almost giddy, calling the AMA decision a “tipping point” and adding that “now coverage policy must catch up to that consensus.” Since a typical bariatric surgery costs as much as $40,000, that could be interpreted as a warning for all of us to get out our wallets. In the end, we will be paying more, through either taxes or higher premiums.

And don’t forget that the price of treatments such as surgery almost surely will climb as there’s more “third-party payer,” so our taxes and premiums will climb by a lot more than what it cost to provide these services today.

But that’s only part of the story. Since government is picking up the tab, that gives politicians a green light (at least in their minds) to pass laws and rules designed to control and influence our behavior.

…expanded Medicare and insurance coverage socialize the cost of treating obesity, thereby inviting all manner of government mischief. After all, if being fat is not our fault, the blame must lie with food companies, advertising, or other things that need to be regulated. And if you and I have to pay for the food and exercise choices of others, we should have a say in those choices. Already, Harold Goldstein, executive director of the California Center for Public Health Advocacy, has cited the AMA declaration to boost his group’s efforts to ban junk food and tax soft drinks. …The nanny state can now claim medical backing.

Mayor Bloomberg doubtlessly thinks this is a wonderful idea. Maybe he can ban snack food as well as 17 oz. sodas.

Heck, why not have a cop in every house to make sure we consume 5 servings of fruits and vegetables every day? Actually, I shouldn’t say that too loud. Given the Supreme Court’s Obamacare decision, there’s apparently no limit to the federal government’s power to control our behavior through the tax code, so I’d hate to give politicians any more crazy ideas.

If you think I’m engaging in a bit of hyperbole, just remember that New York City already has gone after bake sales for peddling sweets.

So what’s the big picture? Mike nails it, explaining that the medicalization of obesity is symptomatic of the effort to undermine individual responsibility.

Much of public policy these days seems designed to eliminate personal responsibility. Take efforts to reduce poverty, for example. How much of poverty is due to poor lifestyle choices? We don’t want to blame the poor, nor should we forget that there are those, especially children, trapped in poverty by circumstances beyond their control. But we also know the keys to getting out of or staying out of poverty: (1) finish school; (2) do not get pregnant outside marriage; and (3) get a job, any job, and stick with it. Unfortunately, much of the welfare state we have constructed is perversely designed in ways that end up encouraging destructive behaviors.

In other words, the welfare state hurts the poor, as Thomas Sowell explained the other day. Though I suppose fairness requires me to admit that there are those who benefit from all the various income-redistribution programs. A vast army of bureaucrats get very comfortable salaries to administer these program, and these poverty pimps, as Walter Williams describes them, enjoy much higher levels of compensation than they could earn in the economy’s productive sector.

But I’m guilty, once again, of digressing. Let’s get to the rest of Mike’s final point.

Big government reduces all of us to the status of children. We have no responsibility for anything in our lives; therefore, government must take care of us. All we have to do, like children, is give up the freedom to make our own choices — good or bad.

Amen. A “good choice” isn’t good if it’s the result of coercion. Paternalists sometime have admirable goals, but they err when they want to turn big government into big daddy and big mommy.

P.S. Several readers have noticed that I’m now writing one post a day instead of two and have asked whether this is a permanent change. The answer is yes. With all the other things I’m trying to juggle – researching and writing, dealing with Capitol Hill, talking to the press, giving speeches, etc – this seems like the best way to allocate my time. Particularly now that my posts tend to be a lot longer and more substantive than when I began blogging.

P.P.S. Since we’re on the topic of obesity, it goes without saying that our real problem is bloated government, not bloated people. Which is why I always enjoy cartoons that portray DC as the true home of gluttony. For good examples, see here, here, hereherehere, here, here, here and here.

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I periodically cite new academic research about tax policy and economic activity. I sometimes even publicize research from international bureaucracies showing the link between taxes and growth.

I’m not naive enough to think that any particular study will change minds, but when the bulk of the research unambiguously tells us that lower tax rates are better for economic performance, I think (or at least hope) that it may have some impact on government officials.

Which is why I’m particularly interested in some new research by Professor Karel Mertens from Cornell University.

Here are some key findings from Professor Mertens’ study, beginning with some observations on existing research.

To what extent do marginal tax rates matter for individual decisions to work and invest? The answer is essential for public policy and its role in shaping economic growth. The strand of the empirical literature that uses tax return data, surveyed in Saez, Slemrod and Giertz (2012), finds that incomes before taxes react only modestly to marginal tax rates and that the response is mostly situated at the very top of the income distribution.

So what does this mean? A lot depends on how one defines “modestly,” though it’s worth noting that even very small changes in growth – if sustained over time – can have big impacts on prosperity. Which, in turn, has a significant effect on government finances.

And I have no objection to the assertion that upper-income taxpayers are most sensitive to changes in tax rates. After all, people like me who rely on wage and salary income don’t have much opportunity to alter our compensation in response to changes in tax rates.

But upper-income taxpayers get most of their compensation in the form of business profits and investment returns, and this gives them substantial control over the timing, level, and composition of their income. So it’s quite understandable that their taxable income is quite sensitive to changes in tax rates.

That being said, Professor Mertens’ research suggests that conventional analysis has underestimated the impact of tax rates on the general population.

This paper adopts a macro-time series approach that addresses the endogeneity of average marginal tax rates in novel ways and permits insight into dynamics. Based on this approach, I find large income responses to marginal tax rates that extend across the income distribution. …The empirical results in this paper are relevant for several important debates. First, they reinforce the findings by a number of recent macro studies of large effects of aggregate tax changes on real GDP both in the US and internationally. The results imply that raising marginal tax rates to resolve budget deficits comes at a high price and that a proportional across-the-board tax cut provides successful stimulus that does not necessarily lead to greater income concentration at the top.

Interestingly, the first part of the last sentence helps to explain the very poor results of tax-heavy “austerity” packages in places such as Greece, Spain, Ireland, the United Kingdom, and Portugal.

Politicians in those countries are squeezing the private sector in hopes of minimizing the restraint imposed on bloated public sectors. But that doesn’t generate good results.

The Baltic nations took a much better approach, imposing genuine spending cuts the moment the crisis hit. Now their finances are in stronger shape and they’re enjoying renewed growth.

But I’m digressing. Let’s return to Professor Mertens’ research. He also produced some interesting results about tax rates and high-income taxpayers.

Many of the postwar tax reforms have made particularly large changes in top marginal tax rates. This variation in top statutory rates may be used to estimate the effects of a hypothetical tax reform that only alters marginal tax rates for the top 1%. …The specification…displays the response to a one percent rise in the net-of-tax rate of the top 1% in the income distribution. …The tax cut leads to significant increases in average top 1% incomes, which rise on impact by 0.52 percent and by 0.97 and 1.02 percent in the following two years, after which there is a gradual decline. …the cut in top 1% tax rates leads to a statistically significant increase in real GDP of up to 0.34 percent in the third year. …There are also spillover effects to incomes outside of the top 1%. Average incomes of the bottom 99% rise by 0.15 percent on impact and by up to 0.35 percent in the third year.

So we learn that lower tax rates for the “rich” are good for the economy and also beneficial for the living standards of the general population.

Why, then, would anybody want to impose high tax rates? Here’s a hint from the study.

Despite the spillover effects, a top marginal rate cut unambiguously leads to greater inequality in pre-tax income.

In other words, the rich get richer faster than the non-rich get richer when the top tax rate is reduced. So if you’re driven by class-warfare animus, you may decide that you’re willing to hurt poor and middle-class people in order to prevent upper-income taxpayers from realizing a bigger share of the economy’s increased output.

That doesn’t make much sense. But if you watch this video on class-warfare tax policy, there’s no logical reason to support higher tax rates on more successful taxpayers.

Unfortunately, politicians generally are motivated by a desire to maximize votes and power, not by what’s logical.

Which is why, when I’m doing educational outreach on Capitol Hill, I often make an extra effort to explain that a bigger economy – enabled by small government and free markets – is the same as a bigger tax base.

That’s far from a pure libertarian argument, to be sure, but it’s not easy when you’re trying to convince the foxes that it doesn’t make long-run sense to deplete the henhouse.

P.S. Notwithstanding all the academic evidence, there’s one group of people in Washington who deliberately assume that tax policy has no impact on economic output.

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Exactly three years ago, I posted a simple quiz about libertarians and patriotism.

The two questions in that quiz are illuminating since they highlight how libertarians in some cases may differ from conservatives (click here for more on that issue), but I also included this t-shirt, which seems to capture the mindset of a lot of Americans regardless of their political outlook.

Well, it seems that Mark Twain had the same attitude as the young lady in the photo, at least if we can believe the quote in this Steve Breen cartoon.

Simply stated, our loyalty should be to a set of ideals, not to any particular group of people who happen to hold power.

Patriotism Cartoon

What makes the cartoon so effective, though, is the inclusion of an IRS thug and a snoop from the NSA.

Reminds me of this cartoon about Obama and the Founding Fathers.

But there’s a serious point to discuss. Are we losing our freedoms and giving the state too much power and authority?

According to a recent news report, a former lieutenant colonel for the infamous East German STASI spy agency says the NSA-type snooping ability “would have been a dream come true.”

Wolfgang Schmidt…pondered the magnitude of domestic spying in the United States under the Obama administration. A smile spread across his face. “You know, for us, this would have been a dream come true,” he said, recalling the days when he was a lieutenant colonel in the defunct communist country’s secret police, the Stasi. In those days, his department was limited to tapping 40 phones at a time, he recalled. Decide to spy on a new victim and an old one had to be dropped, because of a lack of equipment. He finds breathtaking the idea that the U.S. government receives daily reports on the cellphone usage of millions of Americans and can monitor the Internet traffic of millions more.

I’ve already written that we do have enemies and that I think it’s okay to spy on those enemies (though I want the government to get judicial approval before spying on Americans).

But I also wrote that spying should be subject to cost-benefit analysis. The NSA info-gathering exercise reminds me of anti-money laundering laws and those laws are a costly failure. They invade our privacy, hurt the poor, impose high regulatory costs, and have little or no impact on underlying crimes.

We also need to be concerned about potential misuse of data, whether by people currently in the government or those that will have access to the information in the future.

This is what worries me the most. Simply stated, I don’t trust people in government. Which, rather ironically, means I’m in agreement with a former STASI bigwig.

Even Schmidt, 73, who headed one of the more infamous departments in the infamous Stasi, called himself appalled. The dark side to gathering such a broad, seemingly untargeted, amount of information is obvious, he said. “It is the height of naivete to think that once collected this information won’t be used,” he said. “This is the nature of secret government organizations. The only way to protect the people’s privacy is not to allow the government to collect their information in the first place.”

Hmmm… maybe being warned about the risk of unrestrained government by a former communist spy is the modern equivalent of being called ugly by a frog?

In any event, I suppose Herr Schmidt has first-hand knowledge of the danger of giving government too much information.

P.S. Speaking of first-hand knowledge, it’s somewhat amusing that former communists in Russia and current communists in China have told the Europeans that the welfare state breeds too much dependency.

P.P.S. While this post has touched on libertarians and patriotism, fairness requires me to acknowledge that leftist politicians also believe in a form of patriotism.

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Political cartoonists like Michael Ramirez and Chuck Asay are effective because they convey so much with images.

But we need more than clever cartoons if we’re going to educate the general population about how government harms the economy and undermines freedom.

He just turned 83, and let’s hope he has another 20 years of columns to write

And that’s why Thomas Sowell is so invaluable. He’s one of the nation’s top economic thinkers, but he also writes for mass audiences and his columns are masterful combinations of logic and persuasion.

His latest column about poverty is a good example. In this first excerpt, he succinctly explains that official poverty is not the same as destitution.

“Poverty” once had some concrete meaning — not enough food to eat or not enough clothing or shelter to protect you from the elements, for example. Today it means whatever the government bureaucrats, who set up the statistical criteria, choose to make it mean. And they have every incentive to define poverty in a way that includes enough people to justify welfare state spending. Most Americans with incomes below the official poverty level have air-conditioning, television, own a motor vehicle and, far from being hungry, are more likely than other Americans to be overweight. But an arbitrary definition of words and numbers gives them access to the taxpayers’ money.

He then makes a very important point about economic incentives.

Even when they have the potential to become productive members of society, the loss of welfare state benefits if they try to do so is an implicit “tax” on what they would earn that often exceeds the explicit tax on a millionaire. If increasing your income by $10,000 would cause you to lose $15,000 in government benefits, would you do it? In short, the political left’s welfare state makes poverty more comfortable, while penalizing attempts to rise out of poverty.

Since columnists are limited to about 800 words, Sowell doesn’t have leeway to give details, but his explanation of how the government traps people in poverty is the rhetorical version of this amazing chart.

He concludes with some powerful observation about who really benefits from the welfare state.

…the left’s agenda is a disservice to [the poor], as well as to society.  …The agenda of the left — promoting envy and a sense of grievance, while making loud demands for “rights” to what other people have produced — is a pattern that has been widespread in countries around the world. This agenda has seldom lifted the poor out of poverty. But it has lifted the left to positions of power and self-aggrandizement, while they promote policies with socially counterproductive results.

But his main message (similar to this video and illustrated by this chart) is that the welfare state hurts the poor even more than it hurts taxpayers.

P.S. As a big fan of Professor Sowell, I’ve cited his columns more than 20 times. My favorite examples of his writing can be viewed here, here, here, here, here, here, here, here, hereherehereherehereherehereherehereherehere, and here. And you can see him in action here.

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Notwithstanding the title of this post, I’m not writing about how the government wastes foreign aid money in an attempt to bribe foreign governments into supporting the United States.

Instead, this is a story about how politicians and bureaucrats throw our money down the toilet.

Let’s start by looking at some aggravating and nauseating example of government boondoggles.

Every one of these stories is a disgusting example of how the political class in Washington squanders our money in a frivolous manner, generally in ways that line the pockets of well-connected insiders.

And as you might imagine, every day brings new revelations of waste. The latest boondoggle to catch my eye is from the State Department, which has been pissing away money in an attempt to “buy friends.”

Here’s some of what Foreign Policy reported on this scandal.

…web-savvy State Department employees spent $630,000 to earn more Facebook “likes,” in an effort that struggled to reach its target audience, according to a searing Inspector General’s report… Between 2011 and March 2013, the department’s Bureau of the International Information Programs, tried to boost the seeming popularity of the department’s Facebook properties by advertising and page improvements. But the results weren’t so good… “Many in the bureau criticize the advertising campaigns as ‘buying fans’ who may have once clicked on an ad or ‘liked’ a photo but have no real interest in the topic and have never engaged further,” reads the Inspector General report.

Gee, isn’t this just great. My tax dollars are being flushed down a toilet so some geeks at the State Department could create the illusion that more people liked some propaganda pages.

But we’re talking about government, so let’s not forget mindless duplication.

The IG report stings — especially because the Bureau of International Information and Programs is supposed to be Foggy Bottom’s epicenter of online savvy. …overlap and coordination issues trouble the various bureau’s 150 social media accounts. The report also mentions a “pervasive perception of cronyism” exacerbating its already “serious morale problem.” …Some of the issues are rather tedious, like whether embassy staffers should go to the Office of Web Engagement or the Office of Innovative Engagement for advice on social media.

Perhaps I’m just old fashioned, but why on earth am I paying for an “Office of Web Engagement” and an “Office of Innovative Engagement.” Not only that, but I’m paying for them to squabble over who gets to hold more meetings and produce more memos?!?

Since I’m a peacemaker, I have a very simply solution to that controversy. Let’s abolish both of those worthless parts of the federal behemoth.

Let’s close by looking at the big picture. My leftist friends, when confronted by this boondoggle, or other examples of government waste, have a formulaic response: “You’re fixating on a trivial issue that equals only an infinitesimally small share of the budget,” they say, “entitlements account for the lion’s share of federal spending.”

That’s true, but since they oppose genuine entitlement reform, I’m not sure that point they’re trying to make.

But even if entitlements somehow didn’t exist and the overall fiscal outlook was positive rather than negative, would that justify waste in government?

It’s never a good idea to give more money to the crowd in Washington. They have no incentive to behave in a prudent fashion. Reminds me of these wise words of advice from Milton Friedman.

There are four ways to spend money.

1. You can spend your own money on yourself. When you do that, why you really watch out for what you’re doing, and you try to get the most for your money.

2. Then you can spend your own money on somebody else. For example, I buy a birthday present for someone. Well then, I’m not so careful about the content of the present, but I’m very careful about the cost.

3. Then, I can spend somebody else’s money on myself. And if I spend somebody else’s money on myself, then I’m going to have a good lunch!

4. Finally, I can spend somebody else’s money on somebody else. And if I spend somebody else’s money on somebody else, I’m not concerned about how much it costs, and I’m not concerned about what I get.

And that’s government. And that’s close to 40 percent of our national income.

P.S. But don’t forget that the bloated government Friedman warns us about also is the major source and cause of corruption in Washington.

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