Question of the Week: Quit Dodging the Issue and Tell Us the Revenue-Maximizing Point on the Laffer Curve

I feel like I’m on the witness stand and I’m being badgered by a hostile lawyers. Readers keep asking me to identify the revenue-maximizing point on the Laffer Curve.

But I don’t like that question. In the past, I’ve explained that the growth-maximizing point on the Laffer Curve is where enough revenue is raised to finance the legitimate – and limited – functions of government.

And one of the earliest posts on this blog explained that we don’t want to maximize tax revenue.

But I still get versions of this question, including a few that accuse me of dodging the issue.

So what the heck, I may as well give an answer to the question. But I won’t give my answer. Instead, I’ll provide the analysis of a Nobel Prize winner.

James Mirrlees won the Nobel Prize in Economics in 1996 and he’s researched this issue, starting with a left-of-center perspective.

Many economists, including Mirrlees, want to use the tax system to achieve a higher degree of equality than would otherwise obtain. This means taking a substantial amount of the additional income of high-income people, which would imply high marginal tax rates on them. But when the government imposes such high marginal tax rates on the highest-income people, it reduces the incentive of the most productive people to be productive. …Economists have long wanted to figure out the optimum, but until Mirrlees’s work no one had been able to solve it.

And what did Mirrlees find? Well, notwithstanding his own preferences, he calculated that the tax rate should be no higher than 20 percent.

Mirrlees started with no presumption against high marginal tax rates. Indeed, he has been an adviser to Britain’s Labour Party, which for decades imposed marginal tax rates in excess of 80 percent. But Mirrlees found that the top marginal tax rate should be only about 20 percent; and moreover, it should be about the same 20 percent for everyone. In short, Mirrlees’s work justified what is now known as a “flat tax,” more appropriately called a “flat tax rate.” Mirrlees wrote, “I must confess that I had expected the rigourous analysis of income taxation in the utilitarian manner to provide arguments for high tax rates. It has not done so.”

Not only a rate of 20 percent, but a flat tax!

Too bad the Labour Party politicians don’t listen to his advice. Heck, the Conservative Party politicians don’t follow his advice either.

But at least we have a rigorous estimate of the revenue-maximizing point on the Laffer Curve.

Though I hasten to add that it’s not the ideal tax rate. As the risk of being repetitive, the tax system should only fund the legitimate functions of government. For much of our history, the government only consumed about 10 percent of economic output and we didn’t need any broad-based tax. So you know where I stand.

That being said, it’s clearly destructive to have tax rates that are above both the growth-maximizing level and the revenue-maximizing level. And that’s where we stand now.

For more information, here’s my video on the Laffer Curve.

And if you want to learn specifically why Obama’s class-warfare agenda is misguided, here’s my Laffer-Curve-lesson-for-Obama post.

P.S. The Tax Foundation has estimated that the revenue-maximizing corporate tax rate is 14 percent.

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OECD Study Admits Income Taxes Penalize Growth, Acknowledges that Tax Competition Restrains Excessive Government

I have to start this post with a big caveat.

OECD bureaucrats get tax-free salaries but urge higher taxes for everyone else

I’m not a fan of the Paris-based Organization for Economic Cooperation and Development. The international bureaucracy is infamous for using American tax dollars to promote a statist economic agenda.

Most recently, it launched a new scheme to raise the tax burden on multinational companies, which is really just a backdoor way of saying that the OECD (and the high-tax nations that it represents) wants higher taxes on workers, consumers, and shareholders.

But the OECD’s anti-market agenda goes much deeper.

• The OECD has allied itself with the nutjobs from the so-called Occupy movement to push for bigger government and higher taxes.
• The OECD, in an effort to promote redistributionism, has concocted absurdly misleading statistics claiming that there is more poverty in the US than in Greece, Hungary, Portugal, or Turkey.
• The OECD is pushing a “Multilateral Convention” that is designed to become something akin to a World Tax Organization, with the power to persecute nations with free-market tax policy.
• The OECD supports Obama’s class-warfare agenda, publishing documents endorsing “higher marginal tax rates” so that the so-called rich “contribute their fair share.”
• The OECD advocates the value-added tax based on the absurd notion that increasing the burden of government is good for growth and employment.

Now that there’s no ambiguity about my overall position, I can admit that the OECD isn’t always on the wrong side. Much of the bad policy comes from its committee system, which brings together bureaucrats from member nations.

The OECD also has an economics department, and they sometimes produce good work. Most recently, they produced a report on the Swiss tax system that contains some very sound analysis – including a rejection of Obama-style class warfare and a call to lower income tax burdens.

Shifting the taxation of income to the taxation of consumption may be beneficial for boosting economic activity (Johansson et al., 2008 provide evidence across OECD economies). These benefits may be bigger if personal income taxes are lowered rather than social security contributions, because personal income tax also discourages entrepreneurial activity and investment more broadly.

I somewhat disagree with the assertion that payroll taxes do more damage than VAT taxes. They both drive a wedge between pre-tax income and post-tax consumption.

But the point about income taxes is right on the mark.

Interestingly, the report also endorses tax competition as a means of restraining the burden of government spending.

Evidence also suggests that tax autonomy may lead to a smaller and more efficient public sector, helping to limit the tax burden and improve tax compliance… Efficiency-raising effects of tax autonomy and tax competition on the public sector have also been reported in empirical research with Norwegian and German data… Tax autonomy generates opportunities to choose the level of public service provision and taxation, although in practice such “voting with your feet” seems mostly limited to young, highly educated and high-income households. Decentralised tax setting also fosters benchmarking of the performance of jurisdictions belonging to the same government level by voters, even in the absence of “voting with your feet”.

The report also notes that tax competition has reduced corporate tax rates.

Tax competition is likely to have contributed significantly to lowering corporate tax rates in Switzerland over the past 25 years. Indeed, empirical evidence shows that the responsiveness of sub-national governments to tax changes of other subnational governments (“tax mimicking”) is the strongest in the case of corporate taxation (Blöchliger and Pinero Campos, 2011). …Progressive corporate income taxes harm incentives for businesses to grow. Since growing businesses are likely to be high performers in terms of productivity, such disincentives are likely to hit high-performing businesses the most, with losses to aggregate productivity performance, which has been modest in Switzerland relative to best-performing high-income countries.

P.S. This isn’t the first time the economists at the OECD have broken ranks with the political hacks that generally control the bureaucracy. In a 1998 Economic Outlook (see page 166), they wrote that “the ability to choose the location of economic activity offsets shortcomings in government budgeting processes, limiting a tendency to spend and tax excessively.”

And in another publication (see page 1), the economists noted that “legal tax avoidance can be reduced by closing loopholes and illegal tax evasion can be contained by better enforcement of tax codes. But the root of the problem appears in many cases to be high tax rates.”

These passages sound like they could have been authored by Pierre Bessard!

P.P.S. I hasten to add that none of this justifies handouts from American taxpayers to the Paris-based bureaucracy any more than occasional bits of rationality from the World Bank (on government spending), IMF (on the Laffer Curve), or United Nations (also on the Laffer Curve) justify subsidies to those organizations.

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Great Moments in Government: The IRS Apologizes for Bias while Simultaneously Denying Bias

I’m happy to bash the IRS, but I usually try to explain that our anger should be focused on the politicians who created the corrupt, 74,000-page tax code.

But sometimes the IRS deserves some negative attention. The tax collection bureaucracy has thieving employees, incompetent employees, thuggish employees, brainless employees, and victimizing employees.

The senior folks at the IRS also deserve scorn for bone-headed decisions such as squandering millions of dollars on a P.R. campaign and a scheme to regulate and control private tax preparers.

Now it seems we have another reason to condemn the tax-collection bureaucracy. The IRS is engaging in Nixon-type political harassment.

Here’s some of what the Associated Press just reported.

The Internal Revenue Service inappropriately flagged conservative political groups for additional reviews during the 2012 election to see if they were violating their tax-exempt status, a top IRS official said Friday. Organizations were singled out because they included the words “tea party” or “patriot” in their applications for tax-exempt status, said Lois Lerner, who heads the IRS division that oversees tax-exempt groups.

Heaven forbid somebody self-identify as being patriotic. Obviously a cause for investigation by the IRS.

And it’s rather ironic that the IRS felt compelled to apologize just a few days after President Obama just told us we shouldn’t listen to “voices” telling us that bad things happen in Washington.

But it’s not just that the IRS targeted groups opposing big government. The bureaucrats also violated the rules designed to protect taxpayers from IRS abuse.

…groups were asked for their list of donors, which violates IRS policy in most cases, she said. “That was wrong. That was absolutely incorrect, it was insensitive and it was inappropriate. That’s not how we go about selecting cases for further review,” Lerner said at a conference sponsored by the American Bar Association. “The IRS would like to apologize for that,” she added.

But you can put your mind at ease because senior IRS officials assure us that the targeting of Tea Party groups had nothing to do with political bias.

Lerner said the practice was…not motivated by political bias. …IRS Commissioner Douglas Shulman told Congress in March 2012 that the IRS was not targeting groups based on their political views. “There’s absolutely no targeting. This is the kind of back and forth that happens to people” who apply for tax-exempt status, Shulman told a House Ways and Means subcommittee.

Just like we’re supposed to believe that political bias had nothing to do with all the IRS harassment of conservative groups during the Clinton years. The message from the elites in Washington is “Nothing to see here, move along.”

But as the Wall Street Journal warned at the time, it seems there is a remarkable lack of curiosity about patterns of IRS abuse.

…once we agree that a politicized IRS is a dangerous thing, it is hard to understand the see-no-evil approach taken by the Congress, the press and the judiciary about serious, current allegations of exactly this. …organizations have been using the Freedom of Information Act to find out if there is anything to the extraordinary run of audits that happened to hit a number of tax-exempt organizations that might reasonably be described as Clinton enemies. …we have lots of Clinton enemies who have suffered actual audits, and very little interest in finding out whether this was simply a massive coincidence or the result of something more sinister.

And now we’re going through the same process again.

Maybe, just maybe, there’s a lesson to be learned about the dangers of giving power to politicians and bureaucrats.

Yet another argument for the flat tax. If there’s no charitable deduction, there’s no opening for a politically biased IRS bureaucracy to investigate and harass non-profit groups because of their philosophical beliefs.

P.S. On a lighter note, here’s the IRS version of the quadratic formula, and a cartoon showing how GPS would work if operated by the IRS.

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The Strangest Tax Loophole Award

I have a love-hate relationship with tax loopholes.

I’m a big fan of the flat tax, in part because I hate when powerful interest groups use their insider connections to get special treatment. This corrupt process helps explain why the tax code is now a 74,000-page monstrosity.

I want to get rid of all preferences, deductions, credits, deductions, exclusions, and shelters, including one that benefit me such as the home mortgage interest deduction, the charitable contributions deduction, and the state and local tax deduction.

On the other hand, I favor just about anything that lets people keep more of their money. Loopholes are escape hatches that people can use to protect themselves from the grasping claws of the IRS.

The bottom line is that we should only get rid of loopholes if every penny of potential new revenue is used to finance lower tax rates.*

Now that we’ve covered some basics, let’s stop being serious and boring and look at what has to be the strangest tax loophole in the United States.

And it wasn’t even concocted by the crowd in Washington. The award for strangest tax loophole goes to the politicians of Nevada, who decided at some point not to apply the sales tax to prostitution.

Here are some of the details from the New York Daily News.

The tax man may soon be visiting a few Nevada brothels. …Assembly Speaker Marilyn Kirkpatrick (D-North Las Vegas) says the bill would target events and businesses that have either been deemed exempt from state sales taxes or have simply been overlooked. Those operations include brothels, which Nevada lawmakers have been hesitant to tax out of fear that doing so would further legitimize the stigmatized, but legal trade. …George Flint, the director of the Nevada Brothel Association, fears that so-called houses of ill repute could not handle an 8% tax on money spent at brothels, and has proposed a $5 entrance fee instead.

As a libertarian, I suppose I should be impressed. Not only is this “victimless crime” legal, but it isn’t taxed!

But as an observer of politics, I’m completely perplexed. Normally, politicians love to impose “sin taxes” on behaviors that are seen as unseemly. It’s sort of a win-win situation for them. They get to collect more revenue while telling us that it’s for our own good.

This helps explain why there are high taxes on things such as booze, cigarettes, energy, and fast food.

So why have Nevada politicians overlooked (at least up to now) the chance to tax prostitution?

I suppose I could make a joke that they didn’t want to tax the things that they consume, but I’m being serious.

Are the lobbyists for brothels super effective? Well, they probably do have the best holiday parties, but is that why prostitution isn’t taxed?

Beats me. Sounds like a good opportunity for public policy research.

*Another concern is that many politicians don’t understand the difference between a tax loophole such as ethanol and a tax penalty such as double taxation, so their version of tax reform could make bad policies even worse.

P.S. Since this post is about taxes and prostitution, I can’t resist sharing this bit of humor.

P.P.S. Speaking of prostitution, did you know that British taxpayers finance sex trips to Amsterdam?

P.P.P.S. You won’t be surprised to learn that climate-change ideologues claim that global warming causes prostitution.

P.P.P.P.S. You also won’t be surprised to learn that the Germans have figured out very creative ways of taxing prostitution.

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Why the So-Called Marketplace Fairness Act Is a Misguided Expansion of Power for State Governments

I’m either a total optimist or a glutton for punishment. I recently explained the benefits of “tax havens” for the unfriendly readers of the New York Times.

Now I’m defending a different form of tax competition for CNN, another news outlet that leans left. In this case, the topic is whether states can reach beyond their borders for tax revenue.

Here’s some of what I wrote about the so-called Marketplace Fairness Act that was just approved by the Senate and presumably will soon be considered by the House. I start by explaining that the powers of governments should be constrained by borders.

Let’s assume you live in Utah, Hawaii or South Carolina, and you go to Nevada for a vacation. While in Las Vegas, you spend some money in the casinos. Gambling is illegal in the state where you live, so should the cops in your home state be able to track your activities and arrest you for what happened in Nevada? The answer, needless to say, is no. Or at least it should be no. Common sense tells us that state laws should only apply to things that happen inside a state’s borders. But this sensible principle is being tossed out the window by the U.S. Senate, which has approved a proposal that would give states the ability to impose their taxes on out-of-state sellers.

I also explain that this issue isn’t about whether the Internet should be taxed. Indeed, as a fan of the flat tax, I don’t want special favors or special penalties in the tax code. Internet profits and Internet sales should face the same (ideally low) taxes as all other sectors of the economy.

Instead, the fight is really about whether a state government has the right to force out-of-state merchants to act as deputy tax collectors. If you believe that borders should limit the power of governments, the answer is no.

But that rubs politicians the wrong way.

…some governors and state legislators don’t like this system because many states don’t bother imposing any tax on sales to out-of-state consumers. And even if states levied taxes on sales to out-of-state consumers, what about the five states that don’t have any sales tax? Wouldn’t those states become “tax havens” for Internet sales? For these reasons, some politicians fret that the Internet will put competitive pressure on them to keep their sales tax rates from getting too high.

But this is exactly why politicians shouldn’t be allowed to tax beyond their borders. We want tax competition in order to limit the greed of the political class.

States with no payroll income taxes, such as Nevada, Florida, Tennessee, Texas and New Hampshire, help restrain the greed of politicians in states that have punitive income tax systems, such as California, Illinois, New York and Massachusetts. And if politicians in the high-tax states refuse to adjust their bad tax policies, then people should have the freedom to escape and earn income in other states. The same principle applies to sales taxes. If politicians in, say, Arizona are worried that consumers will go online or travel across the border to avoid the punitive sales tax, then they should reduce their sales tax rate.

So what’s the bottom line?

Politicians can choose to maintain uncompetitive tax systems, of course, but they also should be prepared to accept the consequences. I don’t think California and Illinois should try to become the France and Greece of America, but that’s something for the voters of those states to figure out for themselves. In any event, they shouldn’t have the right to force out-of-state sellers to act as deputy tax collection officials if they decide to impose bad tax policy. …To be blunt, a sales tax cartel is bad news for tax policy and bad news for privacy. Let’s limit the power of state governments so they can only screw up things inside their own borders.

Let’s close on a light note. Here’s a clever cartoon from Nate Beeler.

I agree with the cartoon’s message, at least to the extent that onerous taxes can be very deadly to an industry. But, as noted above, I don’t want special tax-free status for the Internet.

So the ideal cartoon would show lots of surfers from all industries exercising the freedom to pick the waves with the smallest and least destructive sharks. Some might even call that federalism.

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If the Government Doesn’t Double Tax Your Retirement Savings, Are You Benefitting from an Entitlement?

I’m cited some remarkable examples of Orwellian language abuse.

• The World Bank published a study of national tax systems and countries with higher tax burdens were rewarded with a grade of “high effort.”
• A German bureaucrat accused a Czech politician of  “obstructing the democratic process” for blocking a treaty, even though voters weren’t allowed to vote on the treaty in 26 out of 27 EU nations.
• American politicians, including President Obama, deliberately cause confusion by referring to tax provisions as being forms of government spending.

I prefer the honest approach. If you believe in bigger government and higher taxes, you should “man up” and openly express your views. Don’t dissemble, prevaricate, mislead, and obfuscate.

The same is true, by the way, for advocates of individual freedom and smaller government. I’ve always admired Barry Goldwater, who famously wrote, “I have little interest in streamlining government or in making it more efficient, for I mean to reduce its size. I do not undertake to promote welfare, for I propose to extend freedom. My aim is not to pass laws, but to repeal them.” There’s no ambiguity in that statement!

Anyhow, we have a new entry in this contest for the most egregious use of Orwellian word games. And, not surprisingly, it’s by a statist.

Fred Hiatt, the editorial page editor of the Washington Post, wrote a column claiming that people are getting an entitlement if the government doesn’t double tax their retirement savings.

This spring Obama proposed a cap of about $3.4 million on how much people can save in their tax-advantaged IRAs and 401(k) plans… Obama isn’t keeping people from saving as much money as they can or want. The question is how much the rest of us should have to chip in. Obama is suggesting that at some point retirement accounts, invented to encourage working people to set aside enough for their sunset years, no longer need a helping hand from taxpayers. …The entitlement culture…runs deeper than the entitlement programs we normally think of, like Medicare and Social Security. …Now it’s the top one-thousandth demanding their right to tax breaks for socking away unlimited wealth in retirement plans.

There are several things about these excerpts that rub me the wrong way.

First, IRAs and 401(k)s are not “tax advantaged.” They’re tax neutral. These vehicles exist so that people don’t get double taxed on their savings. As I explained last year.

If you have a traditional IRA (or “front-ended” IRA), you get a deduction for any money you put in a retirement account, but then you pay tax on the money – including any earnings – when the money is withdrawn. If you have a Roth IRA (or “back-ended” IRA), you pay tax on your income in the year that it is earned, but if you put the money in a retirement account, there is no additional tax on withdrawals or the subsequent earnings. From an economic perspective, front-ended IRAs and back-ended IRAs generate the same result. Income that is saved and invested is treated the same as income that is immediately consumed.

But let’s set that aside. My main gripe with Hiatt’s column is that he wants us to think that people with IRAs and 401(k)s are getting “a helping hand from taxpayers” and that this is part of an “entitlement culture.”

This is statist nonsense. If somebody has an IRA and 401(k), they’re saving their own money. There’s no obligation being imposed on me or any other taxpayer.

But Hiatt presumably thinks that the government’s decision not to impose double taxation is somehow akin to a giveaway. But that only makes sense if you assume that government has a preemptive claim to all private income.

And if you have that bizarre mindset, then I guess it makes sense that IRAs and 401(k)s are part of the “entitlement culture.”

In other words, Hiatt wants us the think that there’s no moral, ethical, or economic difference between giving person A $5,000 of other people’s money and person B being allowed to keep $5,000 of his or her own money.

But if that’s true, why bother producing and subjecting yourself to stress when your reward is punitive tax rates? Why not participate in the easy side of the “entitlement culture” and simply take other people’s money?

In the real world, of course, that leads to policies with ever-growing numbers of people choosing to ride in the wagon and fewer and fewer people pulling the wagon.

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New European Data: When Tax Competition Is Weakened, Politicians Respond by Increasing Tax Rates

I often argue that we need to preserve tax competition and tax havens in order to limit the greed of the political class.

Without some sort of external constraint, they will over-tax and over-spend, creating the kind of downward economic spiral already happening in some European nations.

Speaking of which, new evidence from Europe bolsters my case.

Back in 2009, facing pressure from the big G-20 nations, all of the world’s major low-tax jurisdictions – even Switzerland – acquiesced to the notion that human rights laws protecting financial privacy no longer would apply to foreign investors.

In other words, high-tax governments now have much greater ability to track – and tax – flight capital.

So how have they responded since that time? Well, look at this chart from the European Union’s new report on taxation trends. Tax rates have begun to increase, reversing a very positive trend (which began with the Reagan and Thatcher tax cuts, though this chart only shows data since 1995).

We can’t say, of course, that the increase in tax rates since 2009 is because tax competition was eroded. Just like we can’t say the reduction of tax rates in the preceding years was because of tax competition.

But we do know that simple economic theory tells us that monopolists are more likely to raise prices than firms in competitive markets. Likewise, governments are more likely to raise tax rates if they think taxpayers don’t have escape options.

And we also know that the proponents of higher tax rates, such as the statist bureaucrats at the Paris-based OECD, are also the biggest opponents of tax competition. The OECD even complained in one of its reports that tax competition “may hamper the application of progressive tax rates.”

Well, those international bureaucrats (who, by the way, get tax-free salaries) are getting their wish. Tax rates are increasing.

“Let them eat cake”

So the political class can breathe a sigh of relief.

But what about the people of Europe? Well, economic growth is almost non-existent and unemployment is at record levels.

However, you can’t make an omelet without breaking a few eggs. As a past representative of Europe’s political elite once remarked, “let them eat cake.”

Marie Antoinette eventually may have regretted her choice of words, but Europe’s current politicians are probably more clever and have contingency plans. When the you-know-what hits the fan and Europe descends into social disarray and economic chaos, ordinary people will be the ones at risk.

Unfortunately, the United States is on the same path, as shown by these sobering charts from the Bank for International Settlements (and also as illustrated by these very funny Michael Ramirez and Bob Gorrell cartoons).

For more information on the important liberalizing impact of tax competition, here’s the video I narrated for the Center for Freedom and Prosperity.

But remember that restraining fiscal burdens is not the only reason to preserve tax competition and tax havens. There also are very important moral reasons to support low-tax jurisdictions.

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Raise Your Glass and Give a Toast to Celebrate the Real-World Benefits of Lower Taxes and Economic Freedom

I share a lot of economic theory and empirical evidence in favor of lower tax rates. And I’m constantly extolling the virtues of overall economic freedom.

But sometimes it helps to have a real-world example of how a specific industry responds when it is freed from onerous taxation and pointless regulation.

Tom Acitelli explains in the Wall Street Journal how the American beer industry was rejuvenated by deregulation and tax cuts. Here are some excerpts from his column.

As recently as 35 years ago, there were fewer than 50 breweries in the whole country… The story of the U.S. ascent to the top tier of world beer began in the late 1970s, when brewing was liberated from government taxation and regulation that had held it back since Prohibition. …The brewing industry had been trying unsuccessfully for years to get Washington to lower excise taxes on beer produced by smaller brewers. …H.R. 3605 cut the federal excise tax on beer to $7 from $9 per barrel on the first 60,000 barrels produced, so long as a brewery produced no more than two million barrels annually.  …The tax cut unleashed a revolution in American brewing. Hundreds of smaller breweries began to open across the country selling what came to be called craft beer.

But the industry wasn’t held back just by taxation.

Some of the stars of American craft beer, such as Ken Grossman of Sierra Nevada and Sam Calagione at Dogfish Head, got their start with home brewing—an activity that until the late 1970s was illegal in the U.S. …the government did little to enforce the anti-home-brewing law. Still, the air of illegality discouraged many who might have taken up home-brewing… Enthusiasts in the U.S. kept their interests underground, usually sharing information only with a small circle of other home brewers. Who knew when the government might start enforcing the home-brewing prohibition? Gradually, though, the secretive home brewers grew bolder. …They lobbied…to introduce legislation legalizing home-brewing at the federal level. …legislation…was reconciled with a House bill in August 1978. President Carter signed the law that October, and it took effect the following February. Home-brewing of up to 200 gallons a year per household was suddenly permitted.

So what happened when economic liberty was legalized?

The result: Home-brewing took off, helping to spur the movement toward craft beer that had been touched off by the beer tax reduction. The beer industry swelled in the 1980s and 1990s, producing thousands of jobs and tens of millions of dollars in annual tax revenue. The rise of American beer wasn’t an accident. It was spurred by efforts to cut taxes and regulation that unleashed entrepreneurship. Too bad Washington doesn’t raise a toast to that idea more often.

The part about “millions of dollars in annual tax revenue” rubs me the wrong way, as I explained in a recent post about marijuana legalization in Colorado, but even an anti-taxer like myself recognizes that ending a form of prohibition is a net plus for freedom.

And I definitely like what Acitelli writes about applying more broadly the lessons of lower taxes and deregulation. Heck, if we’re good students and study hard, maybe some day we can be Hong Kong instead of France.

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Explaining to the Kleptocrats on Capitol Hill that Tax Havens Should Be Emulated, not Persecuted

Since I just left Monaco and am now in Geneva, this is an appropriate time to extol the virtues of so-called tax havens.

The name’s Bond….James Bond

But I don’t merely say nice things about low-tax jurisdictions when I’m in friendly environments.

I believe in swinging my sword in the belly of the beast.

That’s why I recently defended tax havens and tax competition for the fiscal heathens who read the New York Times.

In an even bigger display of futile optimism, I also just explained the benefits of tax competition, fiscal sovereignty, and financial privacy for the kleptocrats in Congress.

Here’s some of what I wrote for The Hill, starting with the obvious point that it is preposterous to blame tax havens for the financial crisis.

When the financial crisis hit, politicians from high-tax nations didn’t let the crisis go to waste. Acting through the G-20, they launched an attack on so-called tax havens, asserting that “hot money” from the offshore world somehow had caused the banking system to become unstable.  This campaign against low-tax jurisdictions made no sense. Nobody in the Cayman Islands or Monaco was responsible for the Federal Reserve’s easy money. Nobody in Panama or Singapore had anything to do with the corrupt system of Fannie Mae/Freddie Mac subsidies.

I then explained that tax havens once again are being attacked, though in this case multinational corporations are the main victims of a new scheme by the parasitical bureaucrats at the OECD.

So-called tax havens will suffer collateral damage, though, since big firms use them as very desirable platforms for a significant chunk of cross-border economic activity.

Tax havens are being attacked again… Funded with American tax dollars, the Organization for Economic Cooperation and Development (OECD) published a report on “Addressing Base Erosion and Profit Shifting,” (BEPS) and will follow up in a few months with specific recommendations.  This new OECD scheme is targeting multinational companies for a big tax hike, probably by requiring global tax returns, but that means tax havens are in the cross hairs because their pro-growth tax policies make them attractive locations for cross-border economic activity. Indeed, the OECD specifically has complained that “small jurisdictions act as conduits, receiving disproportionately large amounts of Foreign Direct Investment compared to large industrialised countries and investing disproportionately large amounts in major developed and emerging economies.” …its new campaign isn’t just targeting small tax havens, but will also undermine the relatively attractive fiscal systems in nations such as Ireland, Hong Kong, Switzerland, Slovakia, Singapore, Estonia, and the Netherlands. The burden of this will fall not on companies, but on workers, consumers, and shareholders.

I close with a warning that tax havens and tax competition are one of the few restraints on the greed of the political class. We need to preserve these liberalizing forces if we want to protect ourselves from even worse fiscal policy.

…anti-tax haven demagoguery is perfectly acceptable in political circles since it is seen as expanding the power of government over taxpayers.  The real issue we should be addressing is whether we need some sort of external constraint to protect us from fiscal crises that are triggered by the overspending and overtaxing of the political class.  For a couple of decades following the Reagan and Thatcher tax cuts, governments around the world have been forced by tax competition to lower tax rates, reduce double taxation of saving and investment and reform their tax system.  Defenders of the welfare state and proponents of class-warfare tax policy have resented this liberalizing process and grab any opportunity to demonize tax havens, particularly since these jurisdictions have strong human rights laws that protect the financial privacy of investors.

For further information, I highly recommend the writings of Allister Heath and Pierre Bessard.

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New European Central Bank Study Finds that Government Spending Undermines Growth

The fiscal policy debate often drives me crazy because far too many people focus on deficits.

The Keynesians argue that deficits are good for growth and this leads them to support more government spending.

The “austerity” crowd at places such as the International Monetary Fund, by contrast, argues that deficits are bad for growth and this leads them to support higher taxes.

Then you have institutions such as the Congressional Budget Office that want the worst of all worlds, supporting Keynesian spending in the short run while advocating higher taxes in the long run.

But since I don’t like higher spending or higher taxes, you can see why I want to pull my hair out.

With this in mind, I’m pleased that economists at the European Central Bank have released some new research on “Fiscal Composition and Long-Term Growth” which doesn’t reflexively assume that red ink is the key variable. Instead, they dispassionately look at how several fiscal policy variables impact economic performance.

Here is the general conclusion.

In this study we use a large panel of developed and developing countries for the period 1970-2008. …Specifically, we examine the following issues: the influence of which budgetary components have a stronger influence in affecting (positively or negatively) per capita GDP growth rates… Our evidence suggests that for the full sample…government expenditures appear with significant negative signs.

This makes sense. Whether financed by taxes or borrowing, excessive government expenditures hurt an economy by diverting resources from productive uses.

But not all government spending is created equal. Here are some of the specific findings.

In a nutshell, our results comprise notably: i) for the full sample revenues have no significant impact on growth whereas government expenditures have significant negative effects; ii) the same is true for the OECD sub-sample with the addition that total government revenues have a negative impact on growth; iii) taxes on income are less welcome for growth; iv) public wages, interest payments, subsidies and government consumption have a negative effect on output growth; v) expenditures on social security and welfare are less growth enhancing.

It’s noteworthy that government spending is negatively correlated with economic performance for both developing and advanced nations.

It’s also interesting that taxes on income are bad for growth everywhere, and overall revenue is bad for growth in advanced nations (both of these findings, incidentally, suggest that Obama’s class-warfare tax agenda is quite misguided).

The authors of the study also find that some forms of government spending are particularly harmful for growth. That also makes a lot of sense since I’ve explained in my video on the Rahn Curve that core public goods can be good for growth while other types of government spending undermine prosperity.

So what does all this mean? Simply stated, the fiscal problem in virtually all nations is not red ink. It’s big government. Large deficits aren’t desirable, to be sure, but they’re best understood as side effects of too much spending.

In other words, entitlements need to be reformed and discretionary spending needs to be reduced. Solve these underlying problems and you fix the symptoms of red ink and sluggish growth.

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The Revised Bowles-Simpson Tax-Hike Plan Might Be even Worse than the Previous Version

I wrote last September that the budget plan put forward by Erskine Bowles and Alan Simpson was fatally flawed.

There were some positive features in the plan, to be sure, such as lower marginal tax rates. And I suppose it’s worth noting that the burden of government spending didn’t climb as fast under their proposal as it did in Obama’s budget, though that’s hardly an accomplishment.

But there were lots of fatal flaws in the Bowles-Simpson plan. It included a big tax increase, even though America’s fiscal problem is entirely the result of too much spending.

Moreover, the so-called entitlement reform in Bowles-Simpson wasn’t reform. It was basically a random package of means testing and price controls, and we have lots of experience showing that this approach doesn’t yield sustainable savings.

Well, Bowles and Simpson now have a new plan. Have they learned from their past mistakes? Have they responded to earlier criticisms? Have they made a more serious effort to restrain spending? To genuinely reform entitlements? To shut down useless agencies, programs, and department?

Not that you’ll be surprised, but the answer to all those questions is a big fat NO. Ryan Ellis of Americans for Tax Reform has a short analysis of the plan’s shortcomings and here are some of the highlights (though lowlights might be a better word).

The Simpson-Bowles plan headline report says it only raises taxes by $585 billion over a decade by eliminating or limiting tax deductions and credits (beyond what is needed to lower rates). …However, the plan also calls for “Chained CPI,” which the President’s FY 2014 budget says raises taxes by another $100 billion over the decade, and this plan’s Figure 21 (buried deep in the appendix) says will raise taxes by $124 billion. …There’s a third hidden tax increase, again only to be found buried in Figure 21.  This is “program integrity,” which is a polite euphemism for creating a fishing expedition audit slush fund for the IRS.  This is expected to raise another $30 billion by 2023. Put it all together, and the plan raises taxes by $739 billion over the next decade. …All of the tax hikes described above are just the first stage of new tax hikes in the Simpson-Bowles plan.  There’s also a shadowy “Step Four” which calls for even deeper tax increases to “fix” the entitlement crisis.

In other words, the plan is taxes, then more taxes, followed by additional taxes, topped off by a promise of even more taxes.

Ryan also notes that the plan doesn’t do anything about the fiscal disaster of Obamacare and that it also exacerbates the tax code’s punitive bias by increasing double taxation of income that is saved and invested.

Gee, what’s not to love about such a proposal?

Nonetheless, a lot of people feel compelled to say nice things about Bowles-Simpson. I don’t know whether it’s because they blindly assume a “bipartisan” plan must be good.

Or perhaps they think that a plan needs to be “balanced” between tax increases and spending cuts.

I don’t have any objection to bipartisanship, assuming politicians are proposing good ideas, but let’s take a closer look at this notion of “balance.”

1. Why should we raise taxes when the current fiscal mess is the result of the excessive spending of the Bush-Obama years?
2. Why should we raise taxes when the long-run fiscal mess is the result of rising spending caused by poorly designed entitlement programs?
3. Why should we raise taxes when the “spending cuts” we get in exchange are based on dishonest Washington budget math?
4. Why should we raise taxes when bitter experience teaches us that politicians will simply raise spending?

Let’s close by elaborating on this final question. A couple of years ago, a columnist at the New York Times complained that Republicans used to be much more susceptible to getting seduced by these “balanced” budget deals.

But the reporter inadvertently showed that tax-hike deals are a mistake. It turns out that the only budget deal which actually worked was the one in 1997 that lowered taxes instead!

I’m not making an argument for the Laffer Curve, by the way. The fiscal success of the late 1990s was a result of genuine spending restraint, as explained in this video. The lower taxes were simply a bit of icing on the cake.

My main point is that genuine fiscal restraint is far less likely to happen if tax hikes are on the table. After all, why would politicians have any incentive to do the right thing if there’s a possibility of simply siphoning more money from the economy’s productive sector?

We see the same pattern in other nations. When governments such as Canada and New Zealand actually imposed genuine limits on the growth of government spending, good things happened.

But when governments supposedly try to deal with fiscal problems by raising taxes, you get dismal results. Just look at mess in Europe, where tax increases have been nine times larger than spending cuts.

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False Alarm: The Libertarian Revolution Has Not Begun

I just saw a headline that made me think that libertarian fantasies somehow had turned into reality.

As you can see, 24 IRS employees were just arrested for stealing. But what about the other 105,976 bureaucrats at the Internal Revenue Service who seize our money under the implied threat of violence?

Shouldn’t they be arrested for stealing from us as well?

But then my bubble burst. The story has nothing to do with the injustice of the internal revenue code and the shakedown of American taxpayers.

It turns out that these IRS bureaucrats were busted for getting unauthorized government handouts.

…authorities say Internal Revenue Service employees in Tennessee were stealing unemployment and other benefits while fully employed. On Thursday, 13 of those employees were indicted on federal charges that they lied to get unemployment, food stamps, welfare and housing vouchers. An additional 11 have been indicted on state charges of theft greater than $1,000.

In other words, these “public servants” were guilty of a form of triple dipping.

1. They took money from taxpayers as part of their excessive compensation packages.
2. Their day job was to then enforce a coercive and reprehensible tax system that took money from taxpayers
3. And they then bilked taxpayers yet again by mooching from various handout programs.

I’m actually surprised that they got arrested. Based on Keynesian economics, they should get medals for “stimulating” the economy.

P.S. All humor aside, non-anarchist libertarians face an interesting mental challenge. Many of them view the tax system as a form of theft. And there’s no question that it is enforced – ultimately – at the point of a gun. But with the exception of anarcho-capitalists, libertarians support the kind of limited government envisioned by the Founding Fathers. So how do you justify the taxes needed to finance that limited public sector? Most people would justify tax systems if they’re the result of a democratic process, but libertarians believe in rights rather than untrammeled majoritarianism. So how can they rationalize taxation? I freely confess that I don’t have the right answer. As I’ve noted before, I’m a practical libertarian, not the theoretical type. My job is to somehow figure out how we can shrink the federal government back to 3 percent of economic output. After that, the theoretical libertarians can figure out the thorny issues.

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It’s Tax Freedom Day, So Congratulations (if You Don’t Live in New York, California, New Jersey, Illinois, etc)

It’s time to celebrate.

That’s because we have reached Tax Freedom Day, meaning that – in the aggregate – we have finally earned enough money to pay for all the federal, state, and local taxes that will be imposed on us this year by our political masters.

But we’re not collectivists, so aggregate measures don’t really matter. Our individual tax burdens can vary considerably depending on the level and composition of our income, as well as the state in which we live.

Speaking of that, the good folks of North Dakota are the only ones actually celebrating Tax Freedom Day on this exact date. If you look at the map, Tax Freedom Day is as early as late March for residents of Louisiana and Mississippi, and as late as May for the unfortunate residents of New York, Connecticut, and New Jersey.

You’ll notice, by the way, that Tax Freedom Day is correlated with average state income. That’s one of the reasons why low-income states tend to get better scores. Simply stated, it’s hard to collect a lot of revenue from people who don’t have much money.

And a state that historically has been wealthy, like Connecticut, will probably collect a lot of revenue even if it has a good tax system (though, for the record, Connecticut has veered dramatically in the wrong direction in the past couple of decades).

So if you want to measure whether a state has a good or bad tax system, I recommend the “fiscal” and “tax burden” categories in the “Freedom Index” from the Mercatus Center. Using that measure, South Dakota gets the best score (compared to the 6th-best score using Tax Freedom Day).

P.S. If you like maps, here are some interesting ones, starting with some international comparisons.

• Which nations have the most red ink.
• Which nations are money laundering centers (hint, not tax havens).
• A crazy left-wing “Happy Planet” map.
• Another silly map supposedly showing that America is one of the world’s most authoritarian nations.

Here are some good state maps with useful information.

• Which states have no income taxes.
• Which states give the highest welfare payments.
• Which states are in a “death spiral” because of too many takers and too few makers.
• Which states have too many school bureaucrats compared to teachers.

There’s even a local map.

• How many of the nation’s richest counties are in the D.C. metro region.

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There’s Not Much Hope for Tax Reform

In recent months, I’ve displayed uncharacteristic levels of optimism on issues ranging from Obamacare to the Laffer Curve.

But this doesn’t mean I’m now a blind Pollyanna. We almost always face an uphill battle in our efforts to restrain the power and greed of the political class.

I don’t see this simple system in America’s future

And in some areas, such as the fight for pro-growth and humane tax reform, I see very little reason for hope.

In honor of tax day, I explained my pessimism in an article for The Daily Caller.

I outlined four reasons to be glum, starting with the fact that tax reform yields big benefits in the long run, but that isn’t a very compelling argument for politicians that rarely think past the next election.

Our tax code is now a 74,000-page monstrosity, and it seems that politicians make the system more convoluted every year with new credits, deductions, exemptions, preferences, exclusions, and other special provisions. …In theory, it makes sense to scrape off these barnacles and restore the ship… Our political system, though, is dominated by lawmakers who tend not to think past the next election cycle.

I then mention that too many people now see the tax code as a tool for directly taking money from others.

…a growing number of Americans now see tax returns as a vehicle for getting money from the government. I’m not talking about the fiscal illusion that results when some people over-pay their taxes and then are happy to get a refund. …I’m talking about a different crowd. There are now millions of Americans who benefit from redistribution programs that are laundered through the tax code. …“refundable” credits allow people to get checks from the government even if they didn’t pay any tax. …Needless to say, those people don’t have much incentive to oppose the current system.

My third concern deals with the under-appreciated fact that the Washington establishment gets rich from the current system.

The metropolitan DC area is now the wealthiest region of the nation; it includes 10 of America’s 15 richest counties. …One of the main sources of that unearned — and undeserved — prosperity is the tax code… many people make big bucks manipulating the tax code. Lobbyists obviously would hate a simple and fair flat tax… Many of these insiders are former politicians and former Capitol Hill staffers — particularly those that worked on the tax-writing committees. They make big bucks, and the current staffers look forward to the day when they can cash in on their “government service” and start “earning” huge salaries. Needless to say, these people are not exactly advocates of reform.

Last but not least, I explain that high-tax governments are undermining tax competition with financial protectionism, thus giving them more leeway to impose bad policy.

Beginning with the Reagan and Thatcher tax cuts, the world experienced a virtuous period of tax competition that lasted for about 30 years. Even politicians in statist nations such as France and Germany felt compelled to lower tax rates… In recent years, however, high-tax nations and left-wing international bureaucracies such as the Paris-based Organization for Economic Cooperation and Development have worked to undermine tax competition and make it easier for politicians to impose class-warfare tax policy. They first went after so-called tax havens… Now the OECD has a new plan to go after multinational companies and significantly boost their tax burdens, presumably through the creation of a global tax return and a policy called “formula apportionment.” …every time they make progress, politicians feel less pressure to lower tax rates and reform tax systems. Why bother improving the tax code, after all, if you think that taxpayers have no choice but to submit?

I also should have added another big challenge. In the absence of good entitlement reform, the burden of government spending will dramatically increase in coming decades and create pressure for additional tax hikes. That’s not an environment conducive to tax reform.

Unless, of course, you’re a politician and you somehow think adding a value-added tax on top of the current income tax can be considered reform.

P.S. I’ve referenced the flat tax in this post, but all of these obstacles also explain why there’s even less chance of a national sales tax.

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Some Good Cartoons if You’re Suffering from Post-Tax Return Traumatic Stress Disorder

For the past 30 or so years, I’ve done my own taxes by hand. I thought this was a good approach because it would help me better understand the practical challenges of the tax code.

Dan Mitchell has dropped out of this contest

But it’s time to confess that I broke down and used Turbotax for yesterday’s tax return.

It’s not that my financial affairs are complicated. I basically get my Cato salary and a bit of income from speeches and articles. But even that became too much of a challenge. The tipping point was the form for Health Savings Accounts. The IRS is yelling at me for how I filled out this form in past years, and I fear that I will be perpetually in their cross hairs without relying on a computer program to avoid mistakes.

To help me deal with yesterday’s traumatic experience, I’m sharing some very good cartoons.

We’ll start with one from Gary Varvel.

Sort of the visual version of this letter-to-the-editor.

Our next cartoon, which may be my favorite of the group, is from Glenn McCoy.

By the way, if you don’t think the IRS is capable of thuggery, read this horrifying story.

I don’t know Paul Fell’s work, but this next cartoon is a very good introduction.

This is the second time the grim reaper has appeared in a cartoon. The first time involved the death tax.

Last but not least, we have a Chip Bok cartoon about tax code complexity.

As a bonus, it also features the complexity of Obamacare. If you like cartoons that mix the IRS and Obamacare, check out this classic from Glenn McCoy and this gem by Gary Varvel.

If you still need to be cheered up, here’s some more IRS humor to brighten your day, including the IRS version of the quadratic formula, a new Obama 1040 form, a list of tax day tips from David Letterman, a cartoon ofhow GPS would work if operated by the IRS, an IRS-designed pencil sharpener, a sale on 1040-form toilet paper (a real product), and two songs about the tax agency (here and here),  and a PG-13 joke about a Rabbi and an IRS agent.

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New GAO Study Mistakenly Focuses on Make-Believe Tax Expenditures

I’m very leery of corporate tax reform, largely because I don’t think there are enough genuine loopholes on the business side of the tax code to finance a meaningful reduction in the corporate tax rate.

That leads me to worry that politicians might try to “pay for” lower rates by forcing companies to overstate their income.

Based on a new study about so-called corporate tax expenditures from the Government Accountability Office, my concerns are quite warranted.

The vast majority of the $181 billion in annual “tax expenditures” listed by the GAO are not loopholes. Instead, they are provisions designed to mitigate mistakes in the tax code that force firms to exaggerate their income.

Here are the key findings.

In 2011, the Department of the Treasury estimated 80 tax expenditures resulted in the government forgoing corporate tax revenue totaling more than $181 billion. …approximately the same size as the amount of corporate income tax revenue the federal government collected that year. …According to Treasury’s 2011 estimates, 80 tax expenditures had corporate revenue losses. Of those, two expenditures accounted for 65 percent of all estimated corporate revenues losses in 2011 while another five tax expenditures—each with at least $5 billion or more in estimated revenue loss for 2011—accounted for an additional 21 percent of corporate revenue loss estimates.

Sounds innocuous, but take a look at this table from the report, which identifies the “seven largest corporate tax expenditures.”

To be blunt, there’s a huge problem in the GAO analysis. Neither depreciation nor deferral are loopholes.

I wrote a detailed post explaining depreciation earlier this month, citing three different experts on the issue. But if you want a short-and-sweet description, here’s how I described depreciation in my post on corporate jets.

If a company purchases a jet for $20 million, they should be able to deduct – or expense – that $20 million when calculating that year’s taxable income… A sensible tax system defines profit as total revenue minus total costs – including purchases of private jets. But today’s screwy tax code forces them to wait five years before fully deducting the cost of the jet (a process known as depreciation). Given that money today has more value than money in the future, this is a penalty that creates a tax bias against investment (the tax code also requires depreciation for purchases of machines, structures, and other forms of investment).

In other words, businesses should be allowed to immediately “expense” investment expenditures. What the GAO refers to as “accelerated depreciation” is simply the partial mitigation of a penalty, not a loophole.

The same is true about “deferral.” Here’s what I wrote about that issue in February 2010.

Under current law, the “foreign-source” income of multinationals is subject to tax by the IRS even though it already is subject to all applicable tax where it is earned (just as the IRS taxes foreign companies on income they earn in America). But at least companies have the ability to sometimes delay when this double taxation occurs, thanks to a policy known as deferral.

I added to those remarks later in the year.

From a tax policy perspective, the right approach is “territorial” taxation, which is the common-sense notion of only taxing activity inside national borders. It’s no coincidence that all pro-growth tax reform plans, such as the flat tax and national sales tax, use this approach. Unfortunately, America is one of the world’s few nations to utilize the opposite approach of “worldwide” taxation, which means that U.S. companies face the competitive disadvantage of having two nations tax the same income. Fortunately, the damaging impact of worldwide taxation is mitigated by a policy known as deferral, which allows multinationals to postpone the second layer of tax.

Simply stated, the U.S. government should not be trying to tax income earned in other countries. “Deferral” is the mitigation of a penalty, not a loophole.

So why would the GAO make these mistakes? Well, to be fair to the bureaucrats, they simply relied on the analysis of the Treasury Department.

But why does Treasury (and the Joint Committee on Taxation) make these mistakes? The answer is that they use the “Haig-Simons” tax base as a benchmark, and that approach assumes bad policies such as the double taxation of income that is saved and invested. If you want to get deep in the weeds of tax policy, I shared late last year some good analysis on Haig-Simons produced by my colleague Chris Edwards.

By the way, properly defining loopholes also is an issue for reform on the individual portions of the tax code. I’ve previously pointed out the flawed analysis of the Tax Policy Center, which put together a list of the 12 largest “tax expenditure” and included six items that don’t belong.

To conclude, the right tax base is what’s called “consumed income.” But that’s simply another way of saying that the system should only tax income one time, and it’s how income is defined for both the flat tax and national sales tax.

One final comment about GAO. It’s understandable that they used the Treasury Department’s methodology, but they also should have produced a list of tax expenditures based on a consumed-income tax base. That’s basic competence and fairness.

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A Tax Haven Primer for the New York Times

I could only use 428 words, but I highlighted the main arguments for tax havens and tax competition in a “Room for Debate” piece for the New York Times.

I hope that my contribution is a good addition to the powerful analysis of experts such as Allister Heath and Pierre Bessard.

I started with the economic argument.

…tax havens are very valuable because they discourage anti-growth tax policy. Simply stated, it is very difficult for governments to impose and enforce confiscatory tax rates when investors and entrepreneurs can shift their economic activity to jurisdictions with better tax policy. Particularly if those nations have strong policies on financial privacy, thus making it difficult for uncompetitive high-tax nations to track and tax flight capital. Thanks to this process of tax competition, with havens playing a key role, top personal income tax rates have dropped from an average of more than 67 percent in 1980 to about 42 percent today. Corporate tax rates also have plummeted, falling from an average of 48 percent to 24 percent. …Lawmakers also were pressured to lower or eliminate death taxes and wealth taxes, as well as to reduce the double taxation of interest, dividends and capital gains. Once again, tax havens deserve much of the credit because politicians presumably would not have implemented these pro-growth reforms if they didn’t have to worry that the geese with the golden eggs might fly away to a confidential account in a well-run nation like Luxembourg or Singapore.

Since I didn’t have much space, here’s a video that elaborates on the economic benefits of tax havens, including an explanation of why fiscal sovereignty is a big part of the debate.

My favorite part of the video is when I quote OECD economists admitting the beneficial impact of tax havens.

I also explain for readers of the New York Times that there’s a critical ethical reason to defend low-tax jurisdictions.

Tax havens also play a very valuable moral role by providing high-quality rule of law in an uncertain world, offering a financial refuge for people who live in nations where governments are incompetent and corrupt. …There are also billions of people living in nations with venal and oppressive governments. 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.

To elaborate, here’s my video making the moral case for tax havens.

By the way, many of the issues in this video may not resonate for those of us in “first world” nations, but please remember that the majority of people in the world live in countries where basic human rights are at risk or simply don’t exist.

But that doesn’t mean we shouldn’t worry about the stability of our nations. I close my contribution to the New York Times by warning that the welfare state may collapse.

With more and more nations careening toward fiscal collapse, raising the risk of social chaos and economic calamity, it is more important than ever that there are places where people can protect themselves from bad government. Tax havens should be celebrated, not persecuted.

I didn’t have space to cite the BIS and OECD data showing that most of the world’s big nations – including Germany, the United States, and the United Kingdom – face fiscal problems more significant that Greece is dealing with today. Assuming these nations don’t implement desperately needed entitlement reform, the you-know-what is going to hit the fan at some point. Folks with funds in a tax haven will be in much better shape if, or when, that happens.

For more background information on tax competition, here’s a video explaining the ABCs of the issue.

It’s galling, by the way, that the bureaucrats at the OECD pushing for a global tax cartel get tax-free salaries.

And here’s my video debunking some of the common myths about tax havens.

My favorite part of this video is the revelation that a former John Kerry staffer fabricated a number that is still being used by anti-tax haven demagogues.

And speaking of demagogues misusing numbers, you’ll notice the current resident of 1600 Pennsylvania Avenue has a starring role in this video.

I’ve probably exhausted your interest in videos, but if you’re game for one more, click here to learn more about the Paris-based Organization for Economic Cooperation and Development, a statist international bureaucracy that is active in trying to undermine tax havens as part of it’s efforts to create a global tax cartel to prop up Europe’s welfare states.

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Burden of Government Spending Will Be $2 Trillion Higher in 2023 According to Obama’s Budget

If you include all the appendices, there are thousands of pages in the President’s new budget.

But the first thing I do every year is find the table showing how fast the burden of government spending will increase.

That’s Table S-1 of the budget, and it shows that the President is proposing $41 trillion of spending over the next 10 years.

But perhaps most relevant, he wants the federal budget to be $2 trillion higher in 2023 than it is today.

And this is based on the White House’s dodgy assumptions. The numbers almost certainly will look a bit worse when the Congressional Budget Office re-estimates the President’s budget.

By the way, there’s a reason the above chart looks familiar. It almost identical to the ones I put together last year and the year before. So give Obama points for consistency. Rain or shine, year in and year out, he proposes that government spending should rise by $2 trillion every time he proposes a budget.

He’s also consistent in that he demands higher taxes. Americans for Tax Reform has a list of the “Top 10″ tax hikes in the President’s budget. Most of them are based on the President’s class-warfare ideology, though he also wants to hit lower-income people with a big hike in the tobacco tax.

Another example of unfortunate consistency is that the President whiffs on entitlement reform. Unlike the House of Representatives, there’s no proposal to fix Medicare or Medicaid.

He does have a “chained CPI” proposal that would slightly reduce cost-of-living adjustments for Social Security, but that would be a substitute for the reforms that are needed to both control costs and give workers the option to boost retirement income with personal accounts.

Moreover, chained CPI is a huge tax hike, as explained by my colleague Chris Edwards.

So what’s the bottom line? Well, there isn’t one. We’re going to have gridlock for the foreseeable future. The House has passed a decent budget with some modest entitlement reform, but there’s no way that the Senate will accept that plan.

Similarly, there’s no way (knock on wood!) that the House will acquiesce to the President’s raise-taxes-but-leave-spending-on-autopilot proposal. Or the big-government plan from Senate Democrats.

So neither side will move the ball.

We’ll have some fiscal skirmishes, to be sure, with the debt limit and the FY2014 appropriations bills being obvious examples.

But nothing big will happen until either 2015 (if the Democrats win control of the House) or 2017 (if Republicans win the White House and control of the Senate).

By then, we’ll be two or fours years closer to being the next Greece.

P.S. Actually, I think many other nations are in a position to be the next Greece, though it’s discouraging that some estimates indicate that our long-run fiscal status is worse than basket cases such as Italy and France.

P.P.S. As these cartoons suggest, maybe our real fiscal problem is that the President refuses to admit there’s a problem?

P.P.P.S. But I think this cartoon more accurately shows our real challenge.

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According to Washington Post Exposé, People Who Utilize Tax Havens Are Far More Honest than Politicians

Using data stolen from service providers in the Cook Islands and the British Virgin Islands, the Washington Post published a supposed exposé of Americans who do business in so-called tax havens.

Another Research Trip to Cayman – One of the Sacrifices I Make in the Fight for Freedom

Since I’m the self-appointed defender of low-tax jurisdictions in Washington, this caught my attention. Thomas Jefferson wasn’t joking when he warned that “eternal vigilance is the price of liberty.” I’m constantly fighting against anti-tax haven schemes that would undermine tax competition, financial privacy, and fiscal sovereignty.

Even if it means a bunch of international bureaucrats threaten to toss me in a Mexican jail or a Treasury Department official says I’m being disloyal to America. Or, in this case, if it simply means I’m debunking demagoguery.

The supposedly earth-shattering highlight of the article is that some Americans linked to offshore companies and trusts have run afoul of the legal system.

Among the 4,000 U.S. individuals listed in the records, at least 30 are American citizens accused in lawsuits or criminal cases of fraud, money laundering or other serious financial misconduct.

But the real revelation is that people in the offshore world must be unusually honest. Fewer than 1 percent of them have been named in a lawsuit, much less been involved with a criminal case.

This is just a wild guess, but I’m quite confident that you would find far more evidence of misbehavior if you took a random sample of 4,000 Americans from just about any cross-section of the population.

We know we would find a greater propensity for bad behavior if we examined 4,000 politicians. And I assume that would be true for journalists as well. And folks on Wall Street. And realtors. And plumbers. Perhaps even think tank employees. Anyhow, you get the point.

Citing a couple of anecdotes, the reporter then tries to imply that low-tax jurisdictions somehow lend themselves to criminal activity.

 Fraud experts say offshore bank accounts and companies are vital to the operation of complex financial crimes. Allen Stanford, who ran a $7 billion Ponzi scheme, used a bank he controlled in Antigua. Bernard Madoff, who ran the largest Ponzi scheme in U.S. history, used a series of offshore “feeder funds” to fuel the growth of his multibillion-dollar house of cards.

The Allen Stanford case was a genuine black eye for the offshore world, but it’s absurd to link Madoff’s criminality to tax havens. The offshore funds that invested with Madoff were victimized in the same way that many onshore funds lost money.

Moreover, there’s no evidence in this article – or from any other source to my knowledge – suggesting that financial impropriety is more likely in low-tax jurisdictions.

We then get some “hard” numbers.

Today, there are between 50 and 60 offshore financial centers around the world holding untold billions of dollars at a time of historic U.S. deficits and forced budget cuts. Groups that monitor tax issues estimate that between $8 trillion and $32 trillion in private global wealth is parked offshore.

So we have offshore wealth of somewhere “between $8 trillion and $32 trillion”? With that level of precision, or lack thereof, perhaps you now understand why the make-believe numbers about alleged tax evasion are about as credible as a revenue estimate from the Joint Committee on Taxation.

Speaking of make-believe numbers, the article mentions one of Washington’s worst lawmakers, a Senator who pushed through a law that has united the world against the United States.

Sen. Carl M. Levin (D-Mich.) has been holding hearings and conducting investigations into the offshore world for nearly three decades. In 2010, Congress passed the Foreign Account Tax Compliance Act requiring that U.S. taxpayers report foreign assets to the government and foreign institutions alert the IRS when Americans open accounts.

He justifies bad policy by claiming that there’s a pot of gold at the end of the tax haven rainbow.

“We can’t afford to lose tens of billions of dollars a year to tax-avoidance schemes,” Levin said. “And many of these schemes involve the shift of U.S. corporate tax revenues earned here in the U.S. to offshore tax havens.”

But FATCA is predicted to collected less than $1 billion per year, and it probably will lose revenue once you include Laffer Curve effects such as lower investment in the American economy from overseas.

The most interesting part of the article, as least from a personal perspective, is that the Center for Freedom and Prosperity is listed as one of the “powerful lobbying interests” fighting to preserve tax competition.

The efforts by Levin and other lawmakers have been opposed by powerful lobbying interests, including the banking and accounting industries and a little-known nonprofit group called the Center for Freedom and Prosperity. CF&P was founded by Daniel J. Mitchell, a former Senate Finance Committee staffer who works as a tax expert for the Cato Institute, and Andrew Quinlan, who was a senior economic analyst for the Republican National Committee before helping start the center. …The center argues that unfettered access to offshore havens leads to lower taxes and more prosperity.

Having helped to start the organization, I wish CF&P was powerful. The Center has never had a budget of more than $250,000 per year, so it truly is a David vs. Goliath battle when we go up against bloated and over-funded bureaucracies such as the IRS and the Paris-based Organization for Economic Cooperation and Development.

The reporter somehow thinks it is big news that the Center has tried to raise money from the business community in low-tax jurisdictions.

According to records reviewed by The Post and ICIJ, the organization’s fundraising pleas have been circulated to offshore entities that make millions by providing anonymity for wealthy clients, many of them U.S. citizens.

Unfortunately, even though these offshore entities supposedly “make millions,” I’m embarrassed to say that CF&P has not been able to convince them that it makes sense to support an organization dedicated to protecting tax competition, financial privacy, and fiscal sovereignty.

But maybe that will change now that the OECD has launched a new attack on tax planning by multinational firms.

Let’s close by returning to the policy issue. The article quotes me defending the right of jurisdictions to determine their own fiscal affairs.

Mitchell, the co-founder of CF&P, added that nations shouldn’t be telling other countries how to conduct their affairs and noted that the United States is one of the worst offenders in the world when it comes to corporate secrecy.

My only gripe is that the reporter mischaracterizes my position. Yes, there are several states that are “tax havens” because of their efficient and confidential incorporation laws, but that means America is “one of the best providers,” not “one of the worst offenders.”

This is something to celebrate. I’m glad the United States is a safe haven for the oppressed people of the world. That’s great news for our economy. I just wish we also were a tax haven for American citizens.

“The United States is one of the biggest tax havens in the world,” Mitchell said. “In general, the United States is impervious to fishing expeditions here, and then the United States turns around and says, ‘Allow us to do fishing expeditions in your country.’”

But I’m not a hypocrite. Other nations should have the sovereign right to maintain pro-growth tax and privacy laws as well.

Other nations shouldn’t feel obliged to enforce bad American tax law, any more than we should feel obliged to enforce any of their bad laws.

P.S. You probably won’t be surprised to learn that “onshore” nations are much more susceptible to dirty money than “offshore” jurisdictions. Which is why you have a hard time finding any tax havens on this map showing the nations with the most money laundering.

P.P.S. On the topic of tax havens, you won’t be surprised to learn that Senator Levin is not the only dishonest demagogue in Washington. If you pay close attention around 1:25 and 2:25 of this video, you’ll see that the current resident of 1600 Pennsylvania Avenue also has an unfortunate tendency to play fast and loose with the truth.

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Early Details Show Obama Will Propose a Bait-and-Switch Budget Plan Containing Higher Taxes and More Spending

Are we about to see a new kinder-and-gentler Obama? Has the tax-and-spend President of the past four years been replaced by a fiscal moderate?

That’s certainly the spin we’re getting from the White House about the President’s new budget. Let’s look at this theme, predictably regurgitated in a Washington Post report.

President Obama will release a budget next week that proposes significant cuts to Medicare and Social Security and fewer tax hikes than in the past, a conciliatory approach…the document will incorporate the compromise offer Obama made to House Speaker John A. Boehner (R-Ohio) last December in the discussions over the “fiscal cliff” – which included $1.8 trillion in deficit reduction through spending cuts and tax increases. …unlike the Republican budget that passed the House last month, Obama’s budget does not balance within 10 years.

Since America’s fiscal challenge is the overall burden of government spending, I’m not overly worried about the fact that Obama’s budget doesn’t get to balance.

But I am curious whether Obama truly is proposing a “conciliatory” budget. Are the tax hikes smaller? Are the supposed spending cuts larger?

Actually, there are no genuine spending cuts since the President’s budget is based on dishonest baseline budgeting. At best, we’re simply talking about slowing the growth of government.

But since Mitchell’s Golden Rule is based on the very modest goal of having government grow slower than the private sector, it’s possible that Obama may be proposing something worthwhile.

But possible isn’t the same as probable. Indeed, it appears that the budget is predicated on a giant bait-and-switch since the beneficial spending restraint imposed by sequestration would be repealed!

Obama’s budget proposal, however, would eliminate sequestration.

This appears almost as an afterthought in the Washington Post article, but it should be the lead story. The White House wants to get rid of a policy that genuinely limits the growth of spending.

We won’t have the official numbers until the budget is released next Wednesday, but I’ll be very curious to see whether the supposed spending cuts elsewhere in his budget are greater than or less than the spending increases that will occur if sequestration is canceled. Particularly since the President also is proposing lots of new spending on everything from early child education to brain mapping.

Moreover, it seems as though Obama tax numbers are based on dodgy math as well. The White House is claiming that this is a “conciliatory” budget because he’s no longer proposing $1.6 trillion of tax hikes.

The budget is more conservative than Obama’s earlier proposals, which called for $1.6 trillion in new taxes and fewer cuts to health and domestic spending programs. Obama is seeking to raise $580 billion in tax revenue by limiting deductions for the wealthy and closing loopholes for certain industries like oil and gas. Those changes are in addition to the increased tobacco taxes and more limited retirement accounts for the wealthy that are meant to pay for new spending.

Let’s try to disentangle the preceding passage. The President wants $580 billion of new taxes from “deductions” and “loopholes.” But he also wants an unknown pile of revenue from new tobacco taxes and from restricting IRAs. And keep in mind that he already got $600 billion as part of the fiscal cliff.

Until we get official numbers, we can’t say anything with certainty, but I’ll be checking on Wednesday to see how much revenue the President intends to grab as a result of the tobacco and IRA provisions. Suffice to say that I won’t be surprised if the net impact of all his tax hikes is close to $1.6 trillion. Especially since he’s also proposing to manipulate CPI data, a change that would generate another $100 billion in revenues.

In other words, the revenue side of his budget likely will be a bait-and-switch scam, just like the spending side is a joke once you understand that he wants to get rid of sequestration.

I hope I’m wrong, but I fear that my concerns will be validated next Wednesday and we’ll see another budget that has no real entitlement reform and more class-warfare tax hikes.

P.S. The budget approved by the House of Representatives avoided any tax increases and restrained spending to that it will grow by an average of 3.4 percent annually. Not exactly draconian, but that approach does balance the budget in 10 years.

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Identifying the Right “Depreciation” Tax Policy: The Most Boring – but Important – Article You Will Read Today

I’m normally reluctant to write about “depreciation” because I imagine eyes glazing around the world. After all, not many people care about the tax treatment of business investment expenses.

But I was surprised by the positive response I received after writing a post about Obama’s demagoguery against “tax loopholes” for corporate jets. So with considerable trepidation let’s take another look at the issue.

First, a bit of background. Every economic theory agrees that investment is a key for long-run growth and higher living standards. Even Marxist and socialist theory agrees with this insight (though they foolishly think government somehow is competent to be in charge of investments).

Let’s look at two remarkable charts, starting with one that shows the very powerful link between total investment and wages for workers.

As you can see (click the chart to see a larger version), if we want people to earn more money, it definitely helps for there to be more investment. More “capital” means that workers have higher productivity, and that’s the primary determinant of wages and salary.

Our second chart shows how the internal revenue code treats income that is consumed compared to how it penalizes income that is saved and invested. Simply stated, the current system is very biased against capital formation because of the combined impact of capital gains taxes, corporate income taxes, double taxes on dividends, and death taxes.

Indeed, one of the reasons why the right kind of tax reform will generate more prosperity is that double taxation of saving and investment is eliminated. With either a flat tax or national sales tax, economic activity is taxed only one time. No death tax, no capital gains tax, no double tax on dividends in either plan.

All of this background information helps underscore why it is especially foolish for the tax code to specifically penalize business investment. And this happens because companies have to “depreciate” rather than “expense” their investments.

Here’s how I described depreciation in my post on corporate jets.

If a company purchases a jet for $20 million, they should be able to deduct – or expense – that $20 million when calculating that year’s taxable income… A sensible tax system defines profit as total revenue minus total costs – including purchases of private jets. But today’s screwy tax code forces them to wait five years before fully deducting the cost of the jet (a process known as depreciation). Given that money today has more value than money in the future, this is a penalty that creates a tax bias against investment (the tax code also requires depreciation for purchases of machines, structures, and other forms of investment).

And I also addressed the issue when writing about the economic illiteracy in one of the Obama-Romney debates.

Now let’s see what some experts on the topic have to say.

Here’s some very sage analysis from Alan Viard of the American Enterprise Institute.

…a deal that cuts the corporate rate could end up doing more harm than good. The problem is that Congress and the Obama administration are thinking of pairing the rate cut with a slow-down of companies’ depreciation deductions. That’s a bad combination. A key goal of corporate tax reform should be to reduce the tax penalty on business investment. Investments in equipment, factories, and other forms of capital help power the long-run economic growth that boosts wages and living standards for American workers. …If depreciation is slowed down enough to offset the full revenue loss from the rate cut, then there’s no reduction in the investment penalty, on balance. The depreciation changes take back with the left hand everything that the rate cut gives with the right hand. …In fact, the policy makes the tax penalty on new investments bigger. …Why is this bad combination being considered? Maybe because the rate cut is easy to understand and the harm of slower depreciation is easy to overlook. …Yes, let’s cut the corporate tax rate. But, let’s not slow down depreciation to pay for it.

Amen. Proposals to lower America’s destructively high corporate tax rate are needed, but I don’t want politicians “paying for” the change with other policies that are similarly harmful to growth and competitiveness.

Margo Thorning of the American Council for Capital Formation adds some wisdom with her column in today’s Wall Street Journal.

…proposals that would increase the tax burden on capital-intensive industries—which are contributing to U.S. economic growth and employment—should be viewed with caution. …stretching out depreciation allowances reduces a company’s annual cash flow and raises the “hurdle rate” that new investments would have to meet before they are approved. For capital-intensive firms in sectors such as energy, manufacturing, utilities and transportation, the trade-off between delayed cash flow and lower corporate income-tax rates may result in cutbacks in capital spending. …Each additional $1 billion in investment is associated with 23,000 new jobs, according to data from the Department of Commerce and the Bureau of Labor Statistics. …Rather than drawing out depreciation schedules, a better, pro-growth approach to corporate tax reform would be to allow all investment to be expensed—in other words, deducted from income in the first year.

I share Margo’s concerns, which is why I’m very suspicious when the President says he wants to lower the corporate tax rate and “reform” the system.

Last but not least, Matt Mitchell (no relation) of the Mercatus Center recently added his two cents to the discussion.

The idea that “accelerated” depreciation is a loophole can be traced back to Stanley Surrey, the Harvard law professor whose work in the 1950s, 60s, and 70s influenced many…, including Senator Bill Bradley. …immediate expensing would mean abandoning “the attempt to tax business income.” That’s because it would essentially turn the corporate income tax into a corporate consumption tax. And that may be a good thing. Capital taxation is notoriously inefficient. This is one reason why Robert Hall and Alvin Rabushka permitted immediate 100 percent expensing in their famous flat consumption tax.

You should realize, by the way, that the distorted view of what’s a loophole doesn’t just apply to depreciation. The Joint Committee on Taxation (the same folks who basically assume that the revenue-maximizing tax rate is 100 percent) also tells lawmakers that it’s a loophole if you don’t double-tax capital gains, or if you allow people to avoid double taxation by utilizing IRAs.

With advice like that, no wonder the tax code is a mess.

Anyhow, congratulations are in order. If you’ve made it this far, you almost surely know more about depreciation than every single politician in Washington. Though, to be sure, that’s not exactly a big achievement.

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Question of the Week: What’s the Right Point on the Laffer Curve?

Back in 2010, I wrote a post entitled “What’s the Ideal Point on the Laffer Curve?“

Except I didn’t answer my own question. I simply pointed out that revenue maximization was not the ideal outcome.

I explained that policy makers instead should seek to maximize prosperity, and that this implied a much lower tax rate.

But what is that tax rate, several people have inquired?

The simple answer is that the tax rate should be set to finance the legitimate functions of government.

But that leads to an obvious follow-up question. What are those legitimate functions?

According to my anarcho-capitalist friends, there’s no need for any public sector. Even national defense and courts can be shifted to the private sector.

In that case, the “right” tax rate obviously is zero.

But what if you’re a squishy, middle-of-the-road moderate like me, and you’re willing to go along with the limited central government envisioned by America’s Founding Fathers?

That system operated very well for about 150 years and the federal government consumed, on average, only about 3 percent of economic output. And even if you include state and local governments, overall government spending was still less than 10 percent of GDP.

Moreover, for much of that time, America prospered with no income tax.

But this doesn’t mean there was no tax burden. There were excise taxes and import taxes, so if the horizontal axis of the Laffer Curve measured “Taxes as a Share of GDP,” then you would be above zero.

Or you could envision a world where those taxes were eliminated and replaced by a flat tax or national sales tax with a very low rate. Perhaps about 5 percent.

So I’m going to pick that number as my answer, even though I know that 5 percent is nothing more than a gut instinct.

For more information about the growth-maximizing size of government, watch this video on the Rahn Curve.

There are two key things to understand about my discussion of the Rahn Curve.

First, I assume in the video that the private sector can’t provide core public goods, so the discussion beginning about 0:33 will irk the anarcho-capitalists. I realize I’m making a blunt assumption, but I try to keep my videos from getting too long and I didn’t want to distract people by getting into issues such as whether things like national defense can be privatized.

Second, you’ll notice around 3:20 of the video that I explain why I think the academic research overstates the growth-maximizing size of government. Practically speaking, this seems irrelevant since the burden of government spending in almost all nations is well above 20 percent-25 percent of GDP.

But I hold out hope that we’ll be able to reform entitlements and take other steps to reduce the size and scope of government. And if that means total government spending drops to 20 percent-25 percent of GDP, I don’t want that to be the stopping point.

At the very least, we should shrink the size of the state back to 10 percent of economic output.

And if we ever get that low, then we can have a fun discussion with the anarcho-capitalists on what else we can privatize.

P.S. If a nation obeys Mitchell’s Golden Rule for a long enough period of time, government spending as a share of GDP asymptotically will approach zero. So perhaps there comes a time where my rule can be relaxed and replaced with something akin to the Swiss debt brake, which allows for the possibility of government growing at the same rate as GDP.

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Revenge of the Laffer Curve…Again and Again and Again

If I live to be 100 years old, I suspect I’ll still be futilely trying to educate politicians that there’s not a simplistic linear relationship between tax rates and tax revenue.

You can’t double tax rates, for instance, and expect to double tax revenue. Simply stated, there’s another variable – called taxable income – that needs to be added to the equation. This simple insight is what gives us the Laffer Curve.

This is common sense in the business community. No restaurant owner would ever be foolish enough to think that revenues will double if all prices increase by 100 percent. People in the real world know that this would mean lower sales.

At best, revenues will rise by much less than 100 percent in that scenario. And if sales drop by enough, revenues may actually fall.

Perhaps because so few of them have business experience, it seems that politicians have a hard time grasping this simple concept.

The latest examples come from Europe, where the never-ending greed for more revenue has resulted in the imposition of financial transaction taxes.

So how’s that working out? Are politicians collecting the revenue they expected?

Hardly. Here are some of the details from a City A.M. column.

…taxes on financial transactions across Europe have devastated market activity and failed to raise as much as politicians hoped, according to new figures out yesterday.

The article cites three powerful examples, starting with Hungary.

Hungary implemented a 0.1 per cent tax at the start of the year. But it raised less than half the revenue the state had hoped for, bringing in 13bn Hungarian Forints (£36m) in January.

Wow, less than 50 percent of the revenue that politicians were expecting. But the politicians probably don’t care about the collateral damage they’re imposing on the economy because they’ll get to buy votes with another 13 billion Forints (about $55 million).

Now let’s see how the French are doing.

France forged ahead on its own, introducing a 0.2 per cent tax on sales of shares of major firms. But that only raised €200m (£169.4m) from August to November, well below to €530m expected.

Gee, what a shame, the politicians in Paris are only getting about one-third as much money as they were expecting. That’s even worse than Hungary.

But they’ll surely squander that bit of cash as fast as possible.

Our last example comes from Italy. There are no revenue numbers yet, but the decline in financial activity suggests this tax also will be a flop.

And Italy launched its FTT this month. Figures from TMF Group suggest it has cut trading volumes by 38 per cent already

Though politicians may decide it’s a success since they may get more than 50 percent of what they were originally estimating.

That kind of forecasting error would get somebody fired at any private business, but being a politician means never having to say you’re sorry.

And it certainly never means learning from mistakes. The evidence on the Laffer Curve is ubiquitous, with powerful examples in Ireland, the United Kingdom, Italy, France, Spain, as well as Bulgaria and Romania. Or states such as Illinois, Oregon, Florida, Maryland, Washington, DC, and New York.

P.S. Even President Obama has sort of acknowledged the supply-side principles that are the basis of the Laffer Curve.

P.P.S. Remember that the goal of good tax policy is NOT to maximize revenue.

P.P.P.S. I warned the European Union’s Taxation Commissioner about the dangers of a tax on financial transactions last year. Needless to say, my sage counsel appears to have been ignored.

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California’s Golden Bureaucrat Snags $400K of Yearly Compensation – for the Rest of Her Life!

A regular feature of this blog used to be a “taxpayers vs bureaucrats” series, which featured outrageous examples of government employees getting wildly overcompensated.

I even narrated a video on the topic of excessive pay and benefits for bureaucrats.

But I stopped the series because it was too depressing. How often can read stories like this, after all, and not feel glum about America’s future?

• The chief bureaucrat of a low-income California city getting almost $800,000 per year.
• Cops in Oakland getting average compensation of $188,000.
• A school superintendent in New York raking in more than $500 thousand of annual compensation.
• A California government official raking in $822,000 of taxpayer-financed loot in just one.
• A Philadelphia bureaucrat, after working only 2-1/2 years, nailing down a guaranteed pension of $50,000 per year.
• A New York school bureaucrat simultaneously getting a $225,000 salary and $300,000 pension.
• California taxpayers being forced to pay a fired bureaucrat $550,000 for unused vacation time.
• An employee of the New Jersey Turnpike system raking in annual compensation of $320,000.

But I must lack willpower because I can’t resist writing about the latest scandal involving bureaucratic bloat.

Check out some of the ridiculous details about the woman who has earned the title of California’s Golden Bureaucrat.

Alameda County supervisors have really taken to heart the adage that government should run like a business — rewarding County Administrator Susan Muranishi with the Wall Street-like wage of $423,664 a year. For the rest of her life. …Muranishi’s annual pension will be equal to the dollar total of her entire yearly package — $413,000. She also has a separate executive private pension plan, for which the county chips in $46,500 a year.

Yes, you read correctly. She’ll be ripping off taxpayers “for the rest of her life.”

But if you want to get even more upset, check out how she’s bilking the people.

…in addition to her $301,000 base salary, Muranishi receives:

• $24,000, plus change, in “equity pay’’ to guarantee that she makes at least 10 percent more than anyone else in the county.
• About $54,000 a year in “longevity” pay for having stayed with the county for more than 30 years.
• An annual performance bonus of $24,000.
• And another $9,000 a year for serving on the county’s three-member Surplus Property Authority, an ad hoc committee of the Board of Supervisors that oversees the sale of excess land.

Like other county executives, Muranishi also gets an $8,292-a-year car allowance.

I’m relieved she’s getting a car allowance. The poor thing otherwise would have to rely on public transit. And isn’t it nice that she automatically gets a “performance bonus”? Sort of defeats the purpose, though, if it’s automatic. But what do I know, I’m just a taxpayer.

Even though I obviously lack the special insight needed to justify bloated compensation packages for California bureaucrats, I have enough common sense to know that the over-burdened taxpayers of California are being stretched beyond the breaking point – especially now that the looters and moochers have imposed a new 13.3 percent top tax rate on the state’s dwindling supply of high earners.

It’s no surprise that lots of high-paying jobs are relocating to states like Texas with better tax policy. Nor is it a surprise when pro golfers like Phil Mickelson warn they may leave the state. But when even a certified leftist like Bill Maher says he’s thinking about escaping, you know the situation is serious.

So for the umpteenth time, I will predict that the combination of bloated government and punitive taxation will lead to fiscal crisis in California.

Too much government spending and the Laffer Curve are not a good combination.

When you lure too many people into riding in the wagon and penalize those pulling the wagon, bad things happen. Doesn’t matter whether you’re looking at France or California.

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Good News: We’re Heading in the Wrong Direction at a Slower Pace

In recent months, people have asked me why I’m acting all giddy and optimistic. Am I hooked on cocaine? Have I fallen in love? Did I inherit several million dollars?

These questions started after I said the fiscal cliff was a smaller loss than I expected. Then people wondered what was going on when I wrote that we should celebrate the sequester victory. The questions got more intense when I opined that the Tea Party had made a positive difference. And people were even more nonplussed when I wrote that we should enjoy a win over the IMF.

But I’m not the only person thinking that things may be heading in the right direction.

Conn Carroll explains his optimism in the Washington Examiner. He starts by noting how bad Congress was back in 2009 and 2010.

…its liberal predecessor passed a trillion-dollar stimulus, enacted a government takeover of health care and institutionalized the power of Wall Street’s Too Big To Fail banks by passing the Dodd-Frank financial regulation law.

Then he explains that the new Tea Party Congress has changed the fiscal outlook.

…if you look at the hard numbers — if you look at the tax-and-spending trajectory that the United States was on before the 112th Congress was sworn into office, and then look at the path the U.S. is on now — you’d see that Republicans in Congress have made tremendous progress in shrinking the size and scope of the federal government.

But is there any proof?

Conn points out that the CBO “baselines” from early 2011 showed government growing very rapidly.

…the nonpartisan Congressional Budget Office released its annual Budget and Economic Outlook for fiscal years 2011 through 2021. That document showed the federal government was on track to spend…a total of almost $50 trillion ($49.8 trillion to be exact) through 2021. At the same time, tax revenues were set to rise from just 14.8 percent of GDP in 2011 to 20.8 percent in 2021.

The same estimates from early this year, by contrast, show government growing at a slower pace.

The CBO’s Budget and Economic Outlook for fiscal years 2013 through 2023 shows just how much House Republicans have actually accomplished. The federal government is now on track to spend just $46.2 trillion through 2021. That is a $3.6 trillion spending cut. And instead of taxes eating up 21 percent of the U.S. economy in 2021, now the government is set to take in just 18.9 percent.

Here are the respective baselines from those CBO publications. Let’s start by looking at how spending is projected to grow at a slower pace for the rest of the decade.

That’s $3.5 trillion of savings. Not genuine spending cuts, of course, but it’s real progress if government doesn’t grow as fast.

Here are the revenue numbers.

This data basically shows that the tax burden will be much smaller than projected because about 98 percent of the Bush tax cuts were made permanent as part of the fiscal cliff deal.

And if you believe in the Starve-the-Beast theory (and you should), this will make it harder for politicians to increase the burden of government spending in the future.

Conn also notes that the unemployment rate has fallen.

Despite all of this supposedly economy-killing “austerity,” unemployment has steadily fallen, too. When Republicans took control of the House in 2011, the nation’s unemployment rate was 9 percent. Today, it has fallen to 7.7 percent.

If this seems like a familiar point, it’s because I share his assessment. I wrote back in February of last year that gridlock was a positive thing for the economy since it reduced the likelihood of new bad policies.

What’s remarkable about these developments, as Conn notes, is that folks were expecting Obama to have momentum as his second term began.

Just three months ago, many in Washington were predicting Obama would steamroll Republicans into accepting higher taxes for millions of earners, undoing the sequester and maybe even passing new stimulus spending. Instead, Republicans have stayed unified, outfoxed Obama, preserved and made permanent most of last decade’s tax cuts (including permanent indexing of the Alternative Minimum Tax) and let the sequester cuts occur on schedule. As a result, Obama’s approval ratings have tumbled, and his entire second-term agenda is in jeopardy.

The final sentence in that excerpt explains why I’m feeling semi-optimistic. Obama’s agenda of more taxes and more spending is being thwarted.

To be sure, that doesn’t mean we’re seeing good policies of tax reform and fiscal restraint. And we still face a very dour fiscal future unless entitlements are reformed.

But we’re going in the wrong direction at a slower pace, and that beats the alternative.

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Targeting Multinationals, the OECD Launches New Scheme to Boost the Tax Burden on Business

I’ve been very critical of the Organization for Economic Cooperation and Development. Most recently, I criticized the Paris-based bureaucracy for making the rather remarkable assertion that a value-added tax would boost growth and employment.

But that’s just the tip of the iceberg.

• The OECD has allied itself with the nutjobs from the so-called Occupy movement to push for bigger government and higher taxes.
• The OECD, in an effort to promote redistributionism, has concocted absurdly misleading statistics claiming that there is more poverty in the US than in Greece, Hungary, Portugal, or Turkey.
• The OECD is pushing a “Multilateral Convention” that is designed to become something akin to a World Tax Organization, with the power to persecute nations with free-market tax policy.
• The OECD supports Obama’s class-warfare agenda, publishing documents endorsing “higher marginal tax rates” so that the so-called rich “contribute their fair share.”

Now the bureaucrats have concocted another scheme to increase the size and scape of government. The OECD just published a study on “Addressing Base Erosion and Profit Shifting” that seemingly is designed to lay the groundwork for a radical rewrite of business taxation.

In a new Tax & Budget Bulletin for Cato, I outline some of my concerns with this new “BEPS” initiative.

…the BEPS report…calls for dramatic changes in corporate tax policy based on the presumption that governments are not seizing enough revenue from multinational companies. The OECD essentially argues that it is illegitimate for businesses to shift economic activity to jurisdictions that have more favorable tax laws. …The core accusation in the OECD report is that firms systematically—but legally—reduce their tax burdens by taking advantage of differences in national tax policies.

Ironically, the OECD admits in the report that revenues have been trending upwards.

…the report acknowledges that “… revenues from corporate income taxes as a share of gross domestic product have increased over time. …Other than offering anecdotes, the OECD provides no evidence that a revenue problem exists. In this sense, the BEPS report is very similar to the OECD’s 1998 “Harmful Tax Competition” report, which asserted that so-called tax havens were causing damage but did not offer any hard evidence of any actual damage.

To elaborate, the BEPS scheme should be considered Part II of the OECD’s anti-tax competition project. Part I was the attack on so-called tax havens, which began back in the mid- to late-1990s.

The OECD justified that campaign by asserting there was a need to fight illegal tax evasion (conveniently overlooking, of course, the fact that nations should not have the right to impose their laws on what happens in other countries).

The BEPS initiative is remarkable because it is going after legal tax avoidance. Even though governments already have carte blanche to change business tax policy.

…governments already have immense powers to restrict corporate tax planning through “transfer pricing” rules and other regulations. Moreover, there is barely any mention of the huge number of tax treaties between nations that further regulate multinational taxation.

So what does the OECD want?

…the OECD hints at its intended outcome when it says that the effort “will require some ‘out of the box’ thinking” and that business activity could be “identified through elements such as sales, workforce, payroll, and fixed assets.” That language suggests that the OECD intends to push global formula apportionment, which means that governments would have the power to reallocate corporate income regardless of where it is actually earned.

And what does this mean? Nothing good, unless you think governments should have more money and investment should be further penalized.

Formula apportionment is attractive to governments that have punitive tax regimes, and it would be a blow to nations with more sensible low-tax systems. …business income currently earned in tax-friendly countries, such as Ireland and the Netherlands, would be reclassified as French-source income or German-source income based on arbitrary calculations of company sales and other factors. …nations with high tax rates would likely gain revenue, while jurisdictions with pro-growth systems would be losers, including Ireland, Hong Kong, Switzerland, Estonia, Luxembourg, Singapore, and the Netherlands.

Since the United States is a high-tax nation for corporations, why should Americans care?

For several reasons, including the fact that it wouldn’t be a good idea to give politicians more revenue that will be used to increase the burden of government spending.

But most important, tax policy will get worse everywhere if tax competition is undermined.

…formula apportionment would be worse than a zero-sum game because it would create a web of regulations that would undermine tax competition and become increasingly onerous over time. Consider that tax competition has spurred OECD governments to cut their corporate tax rates from an average of 48 percent in the early 1980s to 24 percent today. If a formula apportionment system had been in place, the world would have been left with much higher tax rates, and thus less investment and economic growth. …If governments gain the power to define global taxable income, they will have incentives to rig the rules to unfairly gain more revenue. For example, governments could move toward less favorable, anti-investment depreciation schedules, which would harm global growth.

You don’t have to believe me that the BEPS project is designed to further increase the tax burden. The OECD admits that higher taxes are the intended outcome.

The OECD complains that “… governments are often under pressure to offer a competitive tax environment,” and that “failure to collaborate … could be damaging in terms of … a race to the bottom with respect to corporate income taxes.” In other words, the OECD is admitting that the BEPS project seeks higher tax burdens and the curtailment of tax competition.

Writing for Forbes, Andy Quinlan of the Center for Freedom and Prosperity highlights how the BEPS scheme will undermine tax competition and enable higher taxes.

…the OECD wants to undo taxpayer gains made in recent decades thanks to tax competition. Since the 1980′s, average global income taxes on both individuals and corporations have dropped significantly, improving incentives in the productive sector of the economy to generate economic growth. These pro-growth reforms are the result of tax competition, or the pressure to adopt competitive economic policies that is put on governments by an increasingly globalized society where both labor and capital are mobile. Tax competition is the only force working on the side of taxpayers, which explains the organized campaign by global elite to defeat it. …If taxpayers want to preserve gains made thanks to tax competition, they must be weary of the threat posed by global tax cartels though organizations such as the OECD.

Speaking of the OECD, this video tells you everything you need to know.

The final kicker is that the bureaucrats at the OECD get tax-free salaries, so they’re insulated from the negative impact of the bad policies they want to impose on everyone else.

That’s even more outrageous than the fact that the OECD tried to have me thrown in a Mexican jail for the supposed crime of standing in the public lobby of a public hotel.

P.S. I just gave a speech to the Anguilla branch of the Society for Trust and Estate Professionals, and much of my remarks focused on the dangers of the BEPS scheme.

I took this picture from my balcony. As you can see, there are some fringe benefits to being a policy wonk.

And I travel to Nevis on Sunday to give another speech.

Tough work, but somebody has to do it. Needless to say, withe possibility of late-season snow forecast for Monday in the DC area, I’m utterly bereft I won’t be there to enjoy the experience.

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(Almost) Everything You Ever Wanted to Know about the Fiscal Policy Debate in a Single Chart

I’m a sucker for a good flowchart because they either can help to simplify analysis or they can show how something is very complex.

Some of my favorites include:

• This explanation of double taxation.
• This depiction of the no-win Greek economic crisis.
• Portrayals of Obamacare complexity here and here.

I’d like to see a good fiscal policy flowchart, one that captures all the options for policymakers.

I created a matrix early last year to illustrate some of the goals and tradeoffs, but it wasn’t comprehensive.

Well, the folks at the UK-based Social Market Foundation have stepped into the breach and put together a flowchart that seems to cover every option.

They call it “The Gordian Knot of Growth.” It’s designed for the UK Chancellor of the Exchequer (akin to our Treasury Secretary and Office of Management and Budget Director), but I think the various boxes also capture almost all of the various policy prescriptions in the US.

But notice that I said this flowchart presents “almost all” of the options. You’ll notice that there’s no box for “tax increases” or “higher marginal tax rates.” That will give you an idea of how Obama’s class-warfare tax policy is way out of the mainstream.

For what it’s worth, I belong in more than one category. I’m an “Expansionary fiscal contractionist,” as well as a “Deregulator” and (under the TINA options) a supporter of “Long term measures.”

In other words, the burden of government spending should be reduced and we should allow markets to allocate resources.

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The Laffer Curve Bites Ireland in the Butt

Cigarette butt, to be more specific.

All over the world, governments impose draconian taxes on tobacco, and then they wind up surprised that projected revenues don’t materialize. We’ve seen this in Bulgaria and Romania, and we’ve seen this Laffer Curve effect in Washington, DC, and Michigan.

Even the Government Accountability Office has found big Laffer Curve effects from tobacco taxation.

And now we’re seeing the same result in Ireland.

Here are some details from an Irish newspaper.

…new Department of Finance figures showing that tobacco excise tax receipts are falling dramatically short of targets, even though taxes have increased and the number of people smoking has remained constant…the latest upsurge in smuggling…is costing the state hundreds of millions in lost revenue. Criminal gangs are openly selling smuggled cigarettes on the streets of central Dublin and other cities, door to door and at fairs and markets. Counterfeit cigarettes can be brought to the Irish market at a cost of just 20 cents a pack and sold on the black market at €4.50. The average selling price of legitimate cigarettes is €9.20 a pack. …Ireland has the most expensive cigarettes in the European Union, meaning that smugglers can make big profits by offering them at cheaper prices.

I have to laugh at the part of the article that says, “receipts are falling dramatically short of targets, even though taxes have increased.”

This is what’s called the Fox Butterfield effect, when a leftist expresses puzzlement about something that’s actually common sense. Named after a former New York Times reporter, who was baffled that more people were in prison at the same time that crime rates were falling, it also shows up in tax policy when statists are surprised that tax revenues don’t automatically rise when tax rates become oppressive.

Ireland, by the way, should know better. About the only good policy left in the Emerald Isle is the low corporate tax rate. And as you can see in this video, that policy has yielded very good results.

My favorite example from that video, needless to say, is what happened during the Reagan years, when the rich paid much more to the IRS after their tax rates were slashed.

P.S. You won’t be surprised to learn that a branch of the United Nations is pushing for global taxation of tobacco. To paraphrase Douglas McArthur, “Bad ideas never die, they become global.”

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Bill Maher: Born-Again Libertarian?

Maybe actors and other Hollywood types are only acting when they embrace statism?

We’ve already seen Hollywood liberals like Rob Schneider and Jon Lovitz complain about class-warfare policy.

And Gerard Depardieu moved out of France to escape the suicidally destructive taxes being demanded by French president Francois Hollande.

But the most shocking news is that even Bill Maher is getting irked that he’s being treated like a pinata.

Take a look at this short video. Ignore the first 2/3rds, which is Rachel Maddow making inane comments about the Ryan budget, and notice what Maher says in the final part.

Wow. He notes that the rich pay the overwhelming share of the federal tax burden (hmmm…I wonder if he watched this video).

And he’s not overly happy about California raping him with a new top tax rate of 13.3 percent.

Closet libertarian?

So now he’s saying he may move out of the state, just like Phil Mickelson. I won’t believe it ’til I see it, but for every well-known celebrity who publicly speculates about migrating to a zero-income tax state, there are probably dozens of investors, entrepreneurs, and small business owners who actually take that step.

And this, folks, is one of the reasons why class-warfare tax policy is so pointlessly destructive.

Reagan showed us in the 1980s that lower tax rates on upper-income taxpayers can generate more tax revenue. California is doing the same experiment, but in reverse.

Magnitudes matter, so we’ll have to wait and see before determining the net impact of Jerry Brown’s tax hike on California tax revenue. But I will blindly assert with confidence that revenues will be far below what politicians are hoping to collect.

In other words, we will see the revenge of the Laffer Curve, regardless of what Bill Maher decides.

P.S. I can’t help adding that Rachel Maddow doesn’t know what she’s talking about. The Ryan budget does not propose a net tax cut, so it’s absurd to claim – or even imply – that there will be “tax cuts for the rich” financed by changes to healthcare. That budget does propose reforms to Medicare and Medicaid, but those changes are to salvage the programs by making them sustainable.

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If Obama Wants More Tax Revenue, He Should Lower the Corporate Tax Rate

Regular readers know that I’m a big advocate of the Laffer Curve, which is the common-sense notion that higher tax rates will cause people to change their behavior in ways that reduce taxable income.

But that doesn’t mean “all tax cuts pay for themselves.” Yes, that happened when Reagan lowered tax rates on the “rich” in the 1980s, but there are also tax cuts that generate little or no revenue feedback.

The key thing to understand is that revenue feedback is driven by the degree to which a tax cut leads to more taxable income. And you tend to get bigger changes in taxable income when you lower rates on taxpayers who have considerable control over the timing, level, and composition of their income.

Who are those taxpayers?

Most of us don’t fall in that category. Cutting my tax rate, for instance, probably won’t have much impact on taxable income. My salary from Cato is already established, so there’s not much opportunity for a “supply-side” effect. Every so often I can earn some extra money by writing an article or giving a speech, but (unfortunately!) not enough for it to make a difference even if my incentives are altered.

But investors, entrepreneurs, corporate managers, and small business owners are among those who do have considerable flexibility to respond when incentives change.

Consider this new research from the Tax Foundation, which finds big “supply-side” responses from a lower corporate tax rate. Let’s start with their description of the problem.

The United States currently imposes the highest statutory corporate tax rate in the developed world. …the steep rate discourages U.S. companies from investing as much as they would otherwise and reduces their competitiveness in international markets. …A major barrier to cutting the U.S. corporate tax rate, however, is the reported revenue cost. According to conventional revenue analyses, such as those performed by Congress’s Joint Committee on Taxation (JCT), a lower corporate tax rate would be an expensive revenue loser.

The Tax Foundation then explains why the current revenue-estimating system is misguided.

In reality, the trade-off posited by conventional revenue estimates is misleading. The estimates overstate the revenue cost of cutting the corporate rate and overstate the potential revenue gains from increasing it, because they ignore tax-induced growth effects. Most notably, Congress’s JCT has adopted the static assumption that tax changes have absolutely no impact, for good or ill, on total production, employment, investment, consumption, and other macroeconomic aggregates. …The static assumption has the advantage of simplicity, and it is not too far from the truth for tax changes that either have little impact on incentives at the margin or affect parameters that do not respond much to incentives. This is an extremely unrealistic assumption, however, in the case of the corporate income tax rate.

Bingo. You can click here for more information on why the Joint Committee on Taxation is wrong, and you may be interested to know that fewer than 15 percent of CPAs agree with the JCT’s assumptions.

Using more realistic assumptions, the Tax Foundation calculates the real-world impact of a lower corporate tax rate.

The Tax Foundation’s dynamic simulation model provides quantitative estimates of the growth and revenue effects. The model estimates, for example, that cutting the federal corporate tax rate from 35 percent to 25 percent would raise GDP by 2.2 percent, increase the private-business capital stock by 6.2 percent, boost wages and hours of work by 1.9 percent and 0.3 percent, respectively, and increase total federal revenues by 0.8 percent.

Indeed, they look at a wide range of options and show us “static” estimates based on JCT-type methodology and “dynamic” estimates based on a model that includes changes in taxable income.

One very important point is that the Tax Foundation looks at the impact of a lower corporate tax rate on all forms of tax revenue.

Federal receipts include many taxes, fees, and payments other than the corporate income tax, such as the personal income tax, payroll taxes, and excises. The size of the economy strongly influences the amounts these taxes, fees, and other payments collect. This is relevant because of the corporate income tax’s big GDP effects. A wide range of federal receipts will expand when a lower corporate income tax rate grows the economy but shrink when a higher corporate income tax downsizes the economic pie.

The study then mentions that the revenue-maximizing corporate tax rate is 14 percent, but warns that this doesn’t mean policy makers should make that their goal.

Although a corporate rate of 14 percent would maximize federal receipts, counting all types of federal revenue, it would not be the optimal rate for the economy unless very little value is placed on people’s incomes and the quantities of goods and services they can consume or invest. The model estimates that while cutting the corporate rate from the revenue-maximizing rate of 14 percent to zero would cost $9 billion of federal revenue, GDP would rise by roughly $300 billion, a payoff of about 33 to 1.

Amen to that point. Our goal isn’t to maximize revenue for the clowns in Washington. The ideal point on the Laffer Curve is where you maximize growth.

If you want my two cents on the topic, you maximize growth when you raise the revenue needed to finance the legitimate functions of government – and that requires a lots less revenue than we’re collecting now according to scholarly evidence on the “Rahn Curve.”

Finally, the Tax Foundation research points out that there’s a difference between the short-run revenue-maximizing rate and the long-run revenue-maximizing rate.

The federal corporate income tax is unusual because the feedbacks there are so strong that cutting the tax’s rate would, over a broad range, more than pay for itself in terms of federal revenues, with the bonus of lifting the incomes and productivity of people throughout the economy. Nevertheless, a corporate rate cut would reduce federal revenues during a transition period, because the rate cut would begin immediately, while it would take several years for the capital stock to expand sufficiently in response to the new incentives to generate the growth needed to return revenues to their prior level.

This chart illustrates this point, using the example of a 25 percent rate.

In other words, the goal of good policy should be to improve the economy’s long-run performance. Over time, that results in more taxable income – a point that even the Congressional Budget Office acknowledges.

The one partial exception to this relationship between good tax policy and long-run tax revenue is the capital gains tax. Lowering that levy can cause big changes to short-run revenue because investors have complete control over when to sell assets. But the reason to lower – or ideally eliminate – that tax is to boost long-run prosperity.

So why aren’t policy makers embracing a lower corporate tax rate? On the right, there should be lots of support because of hostility to high tax rates. And on the left, there should be lots of support because of a desire for more tax revenue. Seems like a match made in Heaven.

But that assumes that folks on the left are motivated by a desire to maximize tax revenue. If you want to know the biggest obstacle to sensible tax policy, pay close attention beginning at the 4:34 mark of this video.

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