The Fuse Is Burning Brightly on France’s Fiscal Time Bomb

It’s been more than three weeks since I targeted French fiscal policy for abuse and more than one week since I wrote something negative about the French fiscal system.

I must be slowing down as I get older, so it’s time of rectify this oversight.

My fundamental problem with the French system is that the burden of government spending is excessive and the politicians seem to think the answer is additional increments of class-warfare tax policy.

If you think I’m exaggerating, just check out this chart on government spending. The public sector in France is more bloated than the ones that exist in Italy, Sweden, and Greece!

That’s quite an achievement.

And then remember that the new French President is imposing a new top income tax rate of 75 percent. Though, to be fair, President Hollande generously says he doesn’t want the overall tax burden on any taxpayer to exceed 80 percent. All hail Francois the Merciful!

Notwithstanding this magnanimous gesture, some taxpayers have the gall (no pun intended) to object to this level of fleecing. Famous actors and successful entrepreneurs are among those saying Au Revoir and moving to jurisdictions that have less punitive tax laws.

What most amuses me about this exodus is the way France’s political elite is throwing a temper tantrum. How dare our victims run away!

The situation is so grim in France that The Economist wrote up a special report warning that France is Europe’s “time-bomb.”

Which raises an interesting question. How brightly is the fuse burning, and how much longer until the bomb detonates?

The honest answer is that I don’t know, but here are two stories worth noting.

First, you have to figure the tax burden is a bit too onerous if even high-ranking officials from a socialist government are utilizing tax havens to protect themselves. Here are details from a BBC report.

Jean-Jacques Augier, who managed Mr Hollande’s campaign funds, told the daily Le Monde that there was “nothing illegal” in his tax haven affairs. Meanwhile, ex-budget minister Jerome Cahuzac has been charged with fraud. Ministers are under pressure to reveal what they knew about his tax evasion. On Wednesday President Hollande addressed the scandal on national television, saying that in future all ministers and MPs would have to declare fully their personal finances.

Gee, don’t these members of the political elite understand that Hollande wants them to be able to keep 20 percent of their earnings? What a bunch of ingrates!

Our next story shows that French politicians are so greedy that they’re even willing to undermine their own national sport.

Prime Minister Jean-Marc Ayrault’s office issued a statement today confirming that a 75 percent surcharge on salaries above 1 million euros ($1.3 million) will apply to soccer clubs. “This new tax will cost first-division teams 82 million euros,” France’s Football League said in a statement. “With these crazy labor costs, France will lose its best players, our clubs will see their competitiveness in Europe decline, and the government will lose its best taxpayers.” …Many soccer players would already be taxed at France’s top marginal rate of 49 percent, which kicks in at 500,000 euros a year. Teams would then pay a surcharge to bring the effective tax rate on salaries above 1 million euros to 75 percent.

Mon Dieu! The government “will lose its best taxpayers.” Sounds like the Laffer Curve effects may be so large that the government actually loses tax revenue.

“Follow me. We can escape in this direction”

And since even left-leaning economists have confirmed that tax rates have a big impact on the decisions of such athletes, I hope French sports fans won’t mind if all the best players decide to take their talents elsewhere.

With policy this bad, no wonder Obama will probably never achieve his goal of turning America into another France. But he can take comfort in the fact that the French people overwhelmingly support what he’s trying to do.

But they also must be schizophrenic. As of 2010, an overwhelming majority of them also acknowledged that it was necessary to lower the burden of government spending to boost growth. And an astounding 52 percent of them might move to evil capitalistic America if given the opportunity.

The key thing is not to import French economic policy. Having escaped from her former country, Veronique de Rugy explains why that would be a mistake.

You can also watch Veronique explain the basics of fiscal policy in this testimony to a congressional committee.

P.S. This Chuck Asay cartoon captures the French mentality. Makes you wonder what they’ll do when the house of cards comes tumbling down. All I can say for sure is that the ones who put their money in tax havens will be much happier than the ones who thought they could trust government.

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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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More Entrepreneurs Say “Au Revoir” to the Administration Fiscale, Escape France’s Confiscatory Tax Regime

As a general rule, it’s not right to take pleasure at the misfortune of others.

But I think we’re allowed an exception to that Schadenfreude rule when the “others” are greedy politicians pursuing spiteful policies. We want the political elite to suffer misfortune because of our desire to promote freedom and prosperity for ordinary people.

With that in mind, I have a big smile on my face because Francois Hollande’s class-warfare tax policy in France is a bigger failure than even I predicted it would be.

I’m particularly happy that the geese with the golden eggs are flying away. And the flock seems to get bigger every day.

Here are some amusing excerpts from a story in the Financial Times.

New evidence of top French executives leaving the country has emerged as President Francois Hollande battles a stalling economy and tumbling approval ratings. Two senior executives at Moet Hennessy, the champagne and cognac arm of the LVMH luxury group, are moving to London from Paris and the head of Dassault Systemes, the software arm of Dassault Aviation, said some senior managers of his company had left and he was considering following suit. …The news follows Mr Arnault’s own application for Belgian citizenship, leaked last September, which poured fuel on a fiery debate in France about entrepreneurship, patriotism and high taxes.

Yup, just like Joe Biden, French politicians want people to think it’s patriotic to give more money to wasteful and incompetent politicians.

“I am the John Galt of France”

And then they have the gall (no pun intended) to complain when the intended victims decide they don’t want to cooperate in their own disembowelment.

You can see why I have a smile on my face.

While I’m happy that some people are escaping Hollande’s punitive tax grasp, there are plenty of victims that can’t escape. France’s economy is in the toilet and millions of ordinary people are suffering.

Figures released on Monday showing a worse-than-expected 1.2 per cent fall in industrial production in January over December underlined the grim outlook facing Mr Hollande, whose approval ratings have fallen this month to as low as 30 per cent. The economy went into reverse in the last quarter of 2012, unemployment has hit 10 per cent of the workforce

Not surprisingly, the politicians are not learning any lessons. They either have their heads buried in the sand or they lash out at those who offer constructive criticism.

The government has denied claims of a tax exodus and denounced as “French bashing” criticism such as the declaration last month by Maurice Taylor, head of tyremaker Titan International, that he would be “stupid” to buy a French factory.

Hollande and his cronies can pretend that successful taxpayers aren’t escaping, but reality will hit them over the head when they count how much tax revenue they receive this year and next year.

In other words, we’re going to see an interesting Laffer Curve experiment.

We saw in America that rich people paid a lot more to the IRS when Reagan lowered their tax rates in the 1980s.

Francois Hollande is trying to run the same experiment, only in reverse.

Anybody want to take a wild guess how that’s going to turn out?

P.S. As shown in this remarkable chart, the real problem in France is that government is far too big. And if the public sector is consuming more than 50 percent of a nation’s economic output, it’s impossible to have a good tax system.

Some big-government nations – such as Sweden and Denmark – try to minimize the damage of high tax burdens, but there’s no way to have a non-destructive tax system when the government wants to take half of what people produce.

And France is trying to maximize the pain rather than minimize the pain, so it’s a safe bet that Hollande’s policies won’t end well.

P.P.S. The debacle in France helps explain why we should celebrate tax competition. The fact that entrepreneurs can migrate to nations with better (or less worse) tax systems is a valuable way of penalizing politicians that impose bad policy.

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Corporate Jet Loopholes, Depreciation, and Common-Sense Tax Policy

I’m not a fan of loopholes in the tax code.

I’ve complained about the number of pages in the tax code, the number of provisions in the tax code, and I’ve even groused about the rising number of pages in the instruction manual for the 1040 tax form.

And I’ve specifically come out against tax preferences for ethanol, housing, municipal bonds, charity, and state and local taxes.

But just as you don’t necessarily know whether someone is tall or short without knowing the average height of a population, you can’t automatically identify loopholes without first defining an ideal tax system. In other words, you need a benchmark (referred to as “the tax base” or “taxable income”) in order to measure what’s a loophole.

Unfortunately, that’s not an easy task because there are two competing visions of the ideal benchmark. I’ve addressed this issue previously, in this post on the “tax expenditure con job,” but let’s dig into the weeds a bit.

1. Those on the left, including the Joint Committee on Taxation, use what is sometimes called the “Haig-Simons” definition of a tax base. Also known as the “comprehensive income tax base,” this system assumes that there should be double taxation of income that is saved and invested (as shown by this startling chart). Another way of saying this is that the Haig-Simons approach assumes the government should tax income plus changes in the value of assets. Moreover, the Haig-Simons system assumes “worldwide taxation” and that businesses can’t deduct investment costs as they occur.
2. Those on the right, by contrast, support what is generally called “consumption-based” taxation. This doesn’t mean a tax collected at the cash register (though a national sales tax is an example of a tax with a “consumption base”). Instead, it simply refers to a system where income is taxed only one time. So, for example, a flat tax is a consumption-base tax since income is taxed only one time as it is earned, just as a national sales tax is a consumption-base tax since income is taxed only one time as it is spent. Moreover, a consumption-base system assumes “territorial taxation” and that business expenses should be deductible in the year the money changes hands.

While some features of the tax code – such as the healthcare exclusion – are loopholes according to both the Haig-Simons system and the consumption-base system, you get a divergence of opinion in key areas.

a) In a consumption-base world, there’s no double taxation and the capital gains tax therefore doesn’t exist. But from the perspective of the Haig-Simons tax base, the fact that capital gains are taxed at 23.8 percent instead of 39.6 percent is characterized as a loophole.

b) In a consumption-base world, there’s no double taxation and all savings gets the equivalent of IRA or 401(k) treatment. But from the perspective of Haig-Simons tax base, IRAs and 401(k)s are loopholes.

c) In a consumption-base world, there’s territorial taxation and no attempt to impose tax on income earned (and subject to tax) in other countries. But the Haig-Simons tax base assumes “worldwide taxation,” which means that “deferral” is a loophole rather than a way of mitigating a discriminatory penalty.

So why am I getting into boring details on this wonky issue? In part, because it helps people understand that tax reform is not just a matter of having a low tax rate. It’s also very important to define income correctly.

But I also think some background knowledge is necessary to explain why the White House is blowing smoke when they relentlessly demagogue against “corporate jets” as part of their never-ending campaign for class-warfare tax policy.

Let’s examine some excerpts from an ABC News report.

Listening to the White House, you’d think the key to averting the across-the-board spending cuts (the dreaded “sequester”) set to in place on March 1 is closing the tax break for owners of private jets. …Carney has brought up the corporate jet tax break at every single briefing this week. Listening to the White House, you might think that the “balanced” Democratic plan to avert the spending cuts would close that loophole for private jets. But you would be wrong. The Senate Democratic plan – which has been endorsed by the White House and is, in fact, the only Democratic plan actively under consideration right now – doesn’t touch corporate jets. …The tax break…allows the owners of private jets to depreciate their airplanes over five years instead of the standard seven years for commercial airplanes.

I don’t want you to focus on the demagoguery or the potential hypocrisy. Instead, consider the final sentence of the excerpt.

It turns out that the supposed “loophole” is really a penalty from a consumption-base perspective. 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 (after all, what is profit other than total revenue minus total costs?).

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).

Anyhow, because the tax bias imposes a five-year wait rather than a seven-year wait, the Obama White House would like us to believe that companies are getting some sort of egregious loophole.

Nonsense. In a good tax regime, companies should be able to deduct expenses in the year they are incurred. The fact that they have to wait five years is a penalty. But the White House wants us to perceive this penalty as a loophole or subsidy because it could be even more onerous.

By the way, if we’re worried about actual subsidies that benefit corporate jets, Tim Carney’s already explained that we should focus on the cronyists at the Export-Import Bank. And I heartily agree.

P.S. Defining the right “tax base” doesn’t imply anything about tax rates. You can have a so-called progressive rate structure or a single rate with either the Haig-Simons system or a consumption-base system.

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The New York Times Calls (again) for Higher Taxes on Middle-Class Americans

All statists want much bigger government, but not all of them are honest about how to finance a Greek-sized welfare state.

The President, for instance, wants us to believe that the rich are some sort of fiscal pinata, capable of generating endless amounts of tax revenue.

Using IRS tax data, I’ve shown that this is a very inaccurate assumption. And I’ve also used IRS data to show the President that there are big Laffer-Curve effects when you try to rape and pillage high-income Americans.

Heck, even the Europeans have realized that you can only squeeze so much blood from that stone.

Notwithstanding the misleading rhetoric from the Obama Administration, there are some honest folks on the left who understand and acknowledge that you can’t have bigger government unless you put ordinary people on the chopping block.

• The New York Times endorsed higher taxes on the middle class in 2010.
• The then-House Majority Leader Steny Hoyer also gave a green light that year to higher taxes on the middle class.
• In 2012, MIT professor and former IMF official Simon Johnson argued that the middle class should pay more tax.
• The Washington Post also called for higher taxes on the middle class last year, as did Vice President Joe Biden’s former economist.
• A New York Times columnist also called for broad-based tax hikes on the middle class tin 2012.
• Last year, a Senior Fellow from Demos argued for higher taxes on all Americans, specifically middle class.

The New York Times seems really fixated on screwing Joe Lunchbucket. Here are some excerpts from an editorial in today’s paper.

…new taxes on high-income Americans are a matter of necessity and fairness; they are also a necessary precondition to what in time will have to be tax increases on the middle class. …As the economy strengthens and the population ages, more taxes will be needed from further down the income scale… But there will never be a consensus for more taxes from the middle class without imposing higher taxes on wealthy Americans, who have enjoyed low taxes for a long time.

What’s particularly interesting about this editorial is that the New York Times is very explicit about political strategy. They support more class-warfare taxes in order to set the stage for higher taxes on the middle class.

We can’t say we haven’t been warned.

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Grilled about Cayman Investments, Jack Lew Chooses the I’m-a-Moron Defense

Every so often, you get a “teaching moment” in Washington, and we now have an excellent opportunity to educate lawmakers about the “offshore” world because President Obama’s nominee to be Treasury Secretary has been caught with his hand in the tax haven cookie jar.

Mr. Lew not only invested some of his own money in a Cayman-based fund, he also was in charge of a Citi Bank division that had over 100 Cayman-domiciled funds.

As you can imagine, Republicans are having some fun with this issue.

Democrats used to be critical of Ugland House

Mitt Romney was subjected to a lot of class-warfare demagoguery during the 2012 campaign because he also invested  some of his wealth in a Cayman fund, so GOPers are hoisting Lew on a petard and grilling him about the obvious hypocrisy of a leftist utilizing – both personally and professionally – a jurisdiction that commits the unforgivable crime of not imposing income tax.

In a sensible world, Lew would say what everyone in the financial world already understands, which is that the Cayman Islands are an excellent, fully legal, tax-neutral platform for investment funds because 1) there’s no added layer of tax, 2) there’s good rule of law, and, 3) foreigners can invest in the American economy without creating any nexus with the IRS.

But we don’t live in a sensible world, so Lew instead wants us to believe he’s a moron and that he didn’t realize that funds were domiciled in Cayman.

And I guess all the other wealthy leftists with offshore-based investments probably think that as well, right?

Anyhow, I’m taking a glass-half-full perspective on this kerfuffle since it gives me an opportunity to educate more people about why tax havens are a liberalizing and positive force in the global economy.

Oh, what about Lew as Treasury Secretary? Well, as I explain for Real News, he’s competent but misguided.

In other words, the chances of any good reform in the next four years are asymptotically approaching zero. Based on his background (and also based on the views of the President he’ll be serving), it’s virtually impossible to envision good entitlement reform, pro-growth tax reform, and any changes to lessen the likelihood of future Greek-style fiscal collapse (as amusingly illustrated by this cartoon).

So with any luck, they’ll be some tax havens around that the rest of us can utilize when that day of reckoning occurs.

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The Joy of “Involuntary Contributions”

I’ve been in Washington long enough to build up a bit of immunity to run-of-the-mill rhetorical nonsense.

So when Obama claims that corrupt, pork-barrel projects like Solyndra are “an investment,” I shake my head with disgust but I don’t get overly agitated.

And when the class-warfare crowd says that the so-called rich should “contribute” more to “give back” to society, I roll my eyes with disdain but don’t lose any sleep.

That being said, rhetoric matters and we should mock and counter the statists when they try to distort language for political purposes.

That’s why this Scott Stantis cartoon strip is very much worth sharing.

Stantis, by the way, produced the best-ever cartoon about the so-called stimulus. In one picture, he achieved everything I tried to explain in my video on Keynesian economics.

And he also has a good cartoon about Obama’s anti-gun agenda and the Constitution.

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Texas vs. California

I’ve been pointing out the differences between California stagnation and Texas prosperity for quite some time.

And since California voters approved a new 13.3 percent top tax rate last November, I expect the gap to become even wider.

Simply stated, California is the France of America and Texas is the Cayman Islands of America.

So it’s understandable that the Governor of Texas is telling employers in California that his state has a better climate for job creation.

John Fund of National Review opines on this bit of competition between states.

Texas governor Rick Perry knows how to start a rumble. Last week, he spent a mere $24,000 on radio ads in California, urging firms there to move to Texas, with its “zero state income tax, low overall tax burden, sensible regulations, and fair legal system.” …He begins a four-day barnstorming tour of California today, touting Texas’s virtues to business owners. …several observers acknowledged that Perry has gotten the better of the battle.

Texas is clearly doing better on jobs, and it’s easy to avoid higher taxes when you obey Mitchell’s Golden Rule and restrain the burden of government spending.

Indeed, in the last five years Texas has gained 400,000 new jobs while California has lost 640,000. The Lone Star State’s rate of job growth was 33 percent higher than California’s last year, even as the Golden State finally pulled out of the recession. …Texas’s legislature has just trimmed its $188 billion two-year budget by 8 percent, and the state may have more revenue than it can legally spend because it is barred from raising outlays more than the rate of economic growth.

Here’s a very good Steve Breen cartoon about Perry’s fishing trip to the west coast.

And remember my post about Phil Mickelson threatening to leave the state? Well, Chip Bok has a humorous take on that looming departure.

I’ve already written about the exodus of jobs from California, and expect even more in the future.

P.S. Texas is far from perfect. There’s a good bit of crony capitalism in the state. But there’s also some bad policy in the Cayman Islands, so the analogy is appropriate.

P.P.S. This “coyote” joke about California and Texas is the fourth-most viewed post in the history of this blog.

P.P.P.S. Here’s a photo that shows the California bureaucracy in action, and a cartoon featuring archaeologists from the future.

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Rather than Helping the Poor, Higher Tax Rates Redistribute Rich People

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

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

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

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

But Hannan also makes a good point about complexity.

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

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

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

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

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

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

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

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

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

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Penn and Teller Explain Class Warfare

I’m fond of my video analyzing the problems with class warfare tax policy, and I’ve explained that higher tax rates on the rich will cause bad Laffer Curve effects because investors, entrepreneurs, and small business owners have considerable ability to change the timing, level, and composition of their income.

But if you want to enjoy a succinct video that captures the moral bankruptcy of Obama’s agenda of class warfare and redistribution, this Penn & Teller video is well worth watching. And sharing.

And if you want to see rich, pro-tax statists exposed as hypocrites, watch these ambush interviews by Michelle Fields (who also narrated a very good video explaining how government policy mistakes caused – and exacerbated – the Great Depression).

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Based on a Review of Studies Looking at the Impact of Taxes on Growth, Academic Research Gives Obama a Record of 0-23-3

How do you define a terrible team? No, this isn’t going to be a joke about Notre Dame foolishly thinking it could match up against a team from the Southeastern Conference in college football’s national title game (though the Irish win the contest for prettiest make-believe girlfriends).

I’m asking the question because a winless record is usually a good indication of a team that doesn’t know what it’s doing and is in over its head.

With that in mind, and given the White House’s position that class warfare taxation is good fiscal policy, how should we interpret a recent publication from the Tax Foundation, which reviews the academic research on taxes and growth and doesn’t find a single study supporting the notion that higher tax rates are good for prosperity.

None. Zero. Nada. Zilch.

Twenty-three studies found a negative relationship between taxes and growth, by contrast, while three studies didn’t find any relationship.

For those keeping score at home, that’s a score of 0-23-3 for the view espoused by the Obama Administration.

This new Tax Foundation report is also useful if you want more information to debunk the absurd study from the Congressional Research Service that claimed no relationship between tax policy and growth. Indeed, the TF report even explains that serious methodological flaws made “the CRS study unpublishable in any peer-reviewed academic journal.”

So what do we find in the Tax Foundation report?

…what does the academic literature say about the empirical relationship between taxes and economic growth? While there are a variety of methods and data sources, the results consistently point to significant negative effects of taxes on economic growth even after controlling for various other factors such as government spending, business cycle conditions, and monetary policy. In this review of the literature, I find twenty-six such studies going back to 1983, and all but three of those studies, and every study in the last fifteen years, find a negative effect of taxes on growth.

And what does this mean?

…results support the Neo-classical view that income and wealth must first be produced and then consumed, meaning that taxes on the factors of production, i.e., capital and labor, are particularly disruptive of wealth creation. Corporate and shareholder taxes reduce the incentive to invest and to build capital. Less investment means fewer productive workers and correspondingly lower wages. Taxes on income and wages reduce the incentive to work. Progressive income taxes, where higher income is taxed at higher rates, reduce the returns to education, since high incomes are associated with high levels of education, and so reduce the incentive to build human capital. Progressive taxation also reduces investment, risk taking, and entrepreneurial activity since a disproportionately large share of these activities is done by high income earners.

To be blunt, the report’s findings suggest the Obama White House is clueless about tax policy.

…there are not a lot of dissenting opinions coming from peer-reviewed academic journals. More and more, the consensus among experts is that taxes on corporate and personal income are particularly harmful to economic growth… This is because economic growth ultimately comes from production, innovation, and risk-taking.

Here’s my cut-and-paste copy of the table summarizing all the academic research.

So what’s the bottom line? The Tax Foundation report concludes with the following.

In sum, the U.S. tax system is a drag on the economy.  Pro-growth tax reform that reduces the burden of corporate and personal income taxes would generate a more robust economic recovery and put the U.S. on a higher growth trajectory, with more investment, more employment, higher wages, and a higher standard of living.

In other words, America would be more prosperous with a simple and fair system such as the flat tax.

Too bad the political elite is more focused on maintaining (or even exacerbating) a corrupt status quo, even if it means less prosperity for the nation.

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The Basket Case Sometimes Known as Japan

Good fiscal policy doesn’t require heavy lifting. Governments simply need to limit the burden of government spending.

The key variable is making sure spending doesn’t consume ever-larger shares of economic output. In other words, follow Mitchell’s Golden Rule.

It’s possible for a nation to have a large public sector and be fiscally stable. Growth won’t be very impressive, but big government doesn’t automatically mean collapse. Sweden and Denmark are good role models for this approach.

And it’s even easier for a jurisdiction to have a small government and be fiscally stable, particularly since less spending and lower taxes are associated with prosperity. Hong Kong, Singapore, and Switzerland are good examples.

Unfortunately, many nations face fiscal death spirals. The burden of government spending keeps climbing, while private sectors gets hit over and over again with higher taxes. This destructive combination inevitably leads to fiscal collapse.

I’ve warned about potential fiscal crises in France, Greece, and the United Kingdom. I’ve even noted that the United States has a very dismal future if government policy stays on autopilot.

More spending and higher taxes!

But Japan may be poster child for reckless and irresponsible tax and spending policy.

Even though the public sector already is far too big and even though the government has incurred more debt than any other developed economy, the new Prime Minster thinks another Keynesian stimulus package is the recipe for economic revival.

I’m not joking. Even though the economy has been stagnant for 20 years – a period that has seen several so-called stimulus schemes, the government wants to throw good money after bad.

You won’t be surprised to learn that the New York Times approves of this new pork-fest.

The $116 billion stimulus package unveiled Friday by Japan’s new prime minister, Shinzo Abe, is a step in the right direction… Mr. Abe’s package of public-works spending…, investment tax credits and more spending on education and health care could help jump start the moribund Japanese economy. … Some forward-looking steps, like expanded health care spending, are already in the stimulus package.

Though if you read the entire editorial, at least the NYT acknowledged that this so-called stimulus should be accompanied by some long-term reforms such as fewer subsidies for politically powerful sectors of the Japanese economy.

Japan’s Fiscal Suicide

Now let’s shift to the tax side of the fiscal equation. We know that Japan has some of the highest tax rates in the industrialized world. Indeed, until last year, Japan was the only nation to have a higher corporate tax rate than the United States.

These high tax rates undermine competitiveness and hamper growth. Simply stated, the government is discouraging work, saving, investment, entrepreneurship, and other productive behaviors.

So what do you think the Japanese government is planning? You guessed it. Even higher tax rates. Here are some excerpts from a story at Tax-news.com.

…the ruling Liberal Democratic  Party (LDP) and its coalition partner, New Komeito, have now turned their attention  to ways to revise taxation, including increased taxes for the wealthiest taxpayers. …While there may be some disagreement within the coalition concerning an inheritance   tax rate rise for the largest estates, which is supported by New Komeito, there   is expected to be less of a problem over raising individual income tax rates   for the highest-earners. A progressive tax package, which might, for example, raise the present highest   40% income tax rate and reduce the JPY50m inheritance tax exemption amount,   is likely to be announced at a coalition meeting expected later this month.

I’m not going to pretend that I know when Japan’s economy implodes, but I think that collapse is almost inevitable at this point. Class warfare tax policy and Keynesian fiscal policy are not a recipe for a good outcome.

The real mystery is why both a state and a nation on the other side of the Pacific Ocean want to copy Japan’s suicidal fiscal policy?

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The Never-Ending Class Warfare Crusade

The most-viewed post in the history of this blog is the “riding in the wagon” cartoon, but the post that has received the highest number of star-ratings is my video on class warfare.

I hope that means people share my concerns about the destructive and punitive mentality of so many of the kleptocrats in Washington.

Speaking of which, I debated one of those people on Bloomberg TV.

We got a decent amount of time, so a lot of topics were discussed. Here are the ones that merit a comment or two.

• Stealing all the income of the rich wouldn’t be enough to finance big government, though I should have used the three-month figure Mattie Duppler shared in her video indictment of Obama’s tax policy.
• There should be a cap so that nobody has to pay more than 25 percent of their income to government. I actually think that’s far too high, but polling data shows that this is a good way of framing the issue.
• Our fiscal problem is an excessive burden of government spending.
• Entitlement reform must be part of the answer.
• My opponent says higher taxes are patriotic, so I guess he belongs in the same category as Joe Biden and Francois Hollande. I guess we’ll call them the Three Stooges of statism.
• He also claims that it would be “fair” to go back to Bill Clinton’s top tax rate, but anybody want to bet that Michael will now call for even higher tax rates now that Obama succeeded in pushing the top rate to 39.6 percent?
• And we definitely know he doesn’t want to go back to Bill Clinton spending levels, so he wants the bad part of the 1990s but not the good part.
• Michael asserts that the United States is a low-tax nation, simply because we don’t tax as much as Europe. But, given the economic stagnation and lower living standards on the other side of the Atlantic, why would anybody want to mimic those failed welfare states.
• Unsurprisingly, I make my typical point about how we can balance the budget if we merely limit federal spending so that it grows 2.5 percent annually. In other words, Mitchell’s Golden Rule leads to good results.
• But I do agree with Michael that payroll taxes are too high (not that this is what he really thinks), though I should have echoed my January 2 post and said that those taxes should be reduced as part of genuine Social Security reform.

One point I failed to emphasize, though, is that class-warfare taxes won’t raise much revenue because of Laffer Curve effects. My comments about successful people escaping places like France and California touched on the issue, but I should have been much more explicit.

P.S. Was I right, or was I right, when I wrote that the real national title game was played on December 1? Such a tragedy that Georgia fell four yards short of the championship.

Since ‘Bama trounced Notre Dame by 28 points and edged Georgia by 4 points, I guess that means the Bulldawgs would have crushed the Irish by 24 points. Which would have been even more impressive than when we beat them 17-10 to win the 1980 national championship.

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The only Good Death Tax Is a Dead Death Tax

Just before the end of the year, I shared some fascinating research about people dying quicker or living longer when there are changes in the death tax. Sort of the ultimate Laffer Curve response, particularly if it’s the former.

But the more serious point is that the death tax shouldn’t exist at all, as I’ve explained for USA Today. And in this CNBC debate, I argue that it is an immoral form of double taxation.

You’ll see that Jared sneakily tries to include wealth taxes and death taxes together in order to accuse me of an inaccuracy, but the chart (click to enlarge) clearly shows that there are many jurisdictions that wisely avoid this anti-competitive levy.

The data is a few years old, but it’s clear that the United states has one of the most punitive death tax systems in the world.

Unfortunately, this is a good description of many parts of our tax system. We also have the world’s highest corporate tax rate and we also have very high tax burdens on dividends and capital gains (and the tax rates on both just got worse thanks to the fiscal cliff legislation).

But probably the key difference between us is that Jared genuinely thinks government should be bigger and that the tax burden should be much higher.

Though I will give him credit. Not only does he want class-warfare tax hikes, such as a higher death tax, but he openly admits he wants to rape and pillage the middle class as well.

Not surprisingly, I argue that more revenue in Washington will exacerbate the real problem of a federal government that is too big and spending too much.

P.S. Here’s a cartoon that is only funny if you don’t think too deeply about what it means.

P.P.S. You’ll notice that the video in this post has good quality, unlike the fuzzy resolution and discontinuous footage in clips I’ve recently shared. That’s because Cato’s expert on such things is back in the office and we’re no longer relying on my sub-par technical knowledge.

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Grading the Fiscal Cliff Deal: Terrible, but Could Be Worse

There’s no official agreement, so everything you read here may turn out to be nonsense, but it appears that the misfits in Washington have reached a deal on the fiscal cliff.

It seems as though my prediction about the outcome was correct. Not that this makes me happy.

First, the good news.

…

…

…

Oh, wait, there isn’t any.

Now for the bad news.

• The top tax rate will increase to 39.6 percent for entrepreneurs, investors, small business owners, and other “rich” taxpayers making more than $400,000 ($450,000 for married couples). This is Obama’s big victory. He gets his class-warfare trophy.
• The double tax on dividends and capital gains will climb from 15 percent to 20 percent (23.8 percent if you include the Obamacare tax on investment income).
• The death tax rate will be boosted from 35 percent to 40 percent (which doesn’t sound like a big step in the wrong direction until you remember it was 0 percent in 2010).
• The alternative minimum tax will still exist, though it will be “patched” to protect as many as 30 million households from being swept into this surreal parallel tax system that requires people to use a second method of calculating their taxes – with the government getting the greatest possible amount.
• Unemployment benefits will be extended, ensnaring more Americans in joblessness.
• Medicare spending will be increased as part of a “doc fix” to increase reimbursement payments for providers.

This is sort of like a late Christmas present, but we must have been naughty all year long and taxpayers are getting lumps of coal.

That being said, I was expecting even worse, so this deal (assuming it happens) almost seems like a relief.

Sort of like knowing that you were going to have your arm amputated, but then finding out that at least you’ll get some anesthetic. You’re not happy about the outcome, but you’re relieved that it won’t be as bad as you thought it would be.

But let’s not delude ourselves. This deal is not good for the economy. It doesn’t do anything to cap the burden of government spending. It doesn’t reform entitlement programs.

And we may even lose the sequester, the provision that was included in the 2011 debt limit that would have slightly reduced the growth of government over the next 10 years.

What a dismal ending to 2012.

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Class Warfare Tax Policy Causes Portugal to Crash on the Laffer Curve, but Will Obama Learn from this Mistake?

Back in mid-2010, I wrote that Portugal was going to exacerbate its fiscal problems by raising taxes.

Needless to say, I was right. Not that this required any special insight. After all, no nation has ever taxed its way to prosperity.

We’re now at the end of 2012 and Portugal is still saddled with a weak economy. And the higher taxes haven’t resulted in less red ink. Indeed, according to the Economist Intelligence Unit, government debt has jumped from 93 percent of GDP in 2010 to 124 percent of GDP this year.

Why did higher taxes backfire in Portugal? For the same reasons that higher taxes have failed in Greece, Spain, Bulgaria, France, Italy, the United Kingdom, and so many other nations.

• Higher taxes undermine incentives for productive behavior, thus reducing an economy’s potential for growth. This means less economic output, which also means a smaller tax base. This Laffer Curve effect doesn’t necessarily mean less revenue, but it certainly means that tax increases rarely raise as much money as initially projected.
• Higher taxes usually are a substitute for the real solution of spending restraint (i.e., Mitchell’s Golden Rule). Politicians oftentimes refuse to reduce the burden of government spending because of an expectation of additional tax revenue. Heck, in many cases, higher taxes trigger an increase in the size and scope of the public sector.

So did Portugal learn any lessons from this failed experiment in Obamanomics?

Hardly. Indeed, the government plans to double down on this approach – even though it’s increasingly apparent that higher tax burdens won’t translate into much – if any – additional tax revenue. Here are some excerpts from a report in the Financial Times.

Lisbon plans to lift income tax revenue by more than 30 per cent, raising the effective average rate by more than a third from 9.8 to 13.2 per cent. Anyone receiving more than the minimum wage of €485 a month, including pensioners, will also pay an extraordinary tax of 3.5 per cent on their income. …the steep tax increases facing many families have made the outlook for 2013 – the third consecutive year of austerity, recession and rising unemployment – the grimmest yet. Total tax revenue has fallen considerably below target this year, forcing the government to implement additional austerity measures… The coalition will be relying on increased state revenue to account for about 80 per cent of the fiscal adjustment required in 2013 – a reversal of the original bailout plan, in which consolidation was to be achieved mainly through spending cuts.

Amazing. The government imposes huge tax hikes, which don’t generate any positive results. Yet even though “tax revenue has fallen considerably below target,” confirming that there are significant Laffer Curve issues, the government chooses to repeat the snake-oil fiscal therapy of higher taxes.

Anybody want to guess what’s going to happen? The answer, of course, is that this will further dampen incentives to generate income and comply with the government’s fiscal demands.

The latest increases have stretched the tax system to the limit, says Carlos Loureiro, a tax partner at Deloitte. “The current model is exhausted. We need to do something different,” he says. “Any further increase in tax rates is unlikely to result in increased revenue.” Income from value added tax, the government’s biggest source of tax revenue representing about 36 per cent of the total, has been falling since 2008, despite a sharp increase in the rate – the main rate is now 23 per cent. Both the government and the European Commission have acknowledged the risks of depending on increased tax revenue, which is more growth sensitive, to meet fiscal targets and contingency spending cuts amounting to 0.5 per cent of national output have prepared in case of another tax shortfall.

I almost want to laugh at the part of the excerpt which notes that tax revenue “has been falling…despite a sharp increase in the rate.”

Maybe it’s time for these fiscal pyromaniacs to realize that revenues might be falling because rates are higher. In other words, Portugal not only isn’t at the ideal point on the Laffer Curve (collecting the amount of revenue needed to finance legitimate activities of government), it may even be past the revenue-maximizing part of the curve.

To be fair, there are lots of factors that determine economic performance, so higher tax burdens are just one possible explanation for why the tax base is shrinking or stagnant.

The one thing we can state with certainty, though, is that Portugal’s fiscal problem is too much government spending. The failure to address this problem then leads to very unpleasant symptoms, such as lots of red ink and self-destructive class-warfare tax policy.

If all that sounds familiar, that’s because it’s also a description of what President Obama is proposing for the United States.

Ummm…shouldn’t they be targeting politicians?

P.S. I don’t want to imply that Portugal is a total basket case. True, I’m not optimistic about the country’s future, but at least some lawmakers now acknowledge that Keynesian spending was a big mistake. And there are even signs that Portuguese officials are beginning to realize that lower tax rates should be part of the solution. But good policy may be impossible since so many people now have a moocher mentality.

P.P.S. At the risk of bearing bad news to close the year, research from both the Bank for International Settlements and the Organization for Economic Cooperation and Development shows the United States actually faces a bigger long-run fiscal challenge than Portugal.

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Once Obama’s Policies Are Implemented Next Year, U.S. Capital Gains Tax Rate Will be 70 percent Higher than Global Average

Back in September, I shared a very good primer on the capital gains tax from the folks at the Wall Street Journal, which explained why this form of double taxation is so destructive.

I also posted some very good analysis from John Goodman about the issue.

Unfortunately, even though the United States already has a very anti-competitive system – as shown by these two charts, some folks think that the tax rate on capital gains should be even higher.

And it looks like they’re going to succeed, either because we go over the fiscal cliff or because Republicans acquiesce to Obama’s punitive proposal.

But this won’t be good for American competitiveness. Here’s some of what my colleague Chris Edwards just wrote about the issue.

Nearly every country has reduced tax rates on individual long-term capital gains, with some countries imposing no tax at all. …If the U.S. capital gains tax rate rises next year as scheduled, it will be much higher than the average OECD rate. …Capital gains taxes raise less than five percent of federal revenues, yet they do substantial damage. Higher rates will harm investment, entrepreneurship, and growth, and will raise little, if any, added federal revenue. …Figure 1 shows that the U.S. capital gains tax rate of 19.1 percent in 2012 is higher than the OECD average rate of 16.4 percent.  These figures include both federal and average state-level tax rates on long-term capital gains. Next year, the expiration of the Bush tax cuts will push up the U.S. rate by 5 percentage points, and the new investment tax imposed under the 2010 health care law will push up the rate another 3.8 percent. As a result, the top U.S. capital gains tax rate will be 27.9 percent, which will be far higher than the OECD average. The federal alternative minimum tax and other provisions can increase the U.S. capital gains tax rate even higher.

The worst country is Denmark, at 42 percent, followed by France (32.5 percent), Finland (32 percent), Sweden and Ireland (both 30 percent), and the United Kingdom and Norway (both 28 percent).

Every other developed nations will have a capital gains tax rate below the United States level. And even some of those above the U.S. level often have provisions that spare many taxpayers from this pernicious form of double taxation.

Some countries have exemptions for smaller investors. In Britain, for example, individuals can exempt from tax the first $17,000 of capital gains each year. Eleven OECD countries do not impose taxes on longterm capital gains, nor do some jurisdictions outside of the OECD, such as Hong Kong, Malaysia, and Thailand.

The nations on the list that don’t tax capital gains are Belgium, Czech Republic, Greece, Luxembourg, Mexico, Netherlands, New Zealand, Slovenia, South Korea, Switzerland, and Turkey.

I’m not surprised to see Switzerland on that list since that nation has some very sensible fiscal policies. And the Netherlands, notwithstanding its welfare state and long-run fiscal challenges, is very focused on global competitiveness.

But who would have thought Greece had any good policies?!? Or Belgium? Though maybe that’s one of the reasons why many successful French taxpayers are choosing that nation as a refuge.

Heck, even Russia has abolished its capital gains tax.

In his paper, Chris also gives a good explanation of the underlying tax theory in the capital gains tax debate. Simply stated, the statists like the “Haig-Simons” approach because it justifies class-warfare tax policy.

To maximize growth, we should “tax the fruit of the tree, but not the tree itself.” That is, we should tax the flow of consumption produced by capital assets, not the capital that will provide for future consumption. A Haig-Simons tax base—which includes capital gains—taxes the tree itself.  Why does a Haig-Simons tax base garner support if it is impractical and anti-growth? It appears to be because the liberal idea of “fairness” includes heavy taxation of high earners. Since high earners save more than others, they would be taxed heavily under a Haig-Simons tax base. …Today, many economists favor shifting from an income to a consumption tax base… Under a consumption tax base, savings would not be double-taxed, and capital gains would not face separate taxation because the cashflow from realized gains would be taxed when consumed. With regard to “fairness,” a Haig-Simons tax base penalizes frugal people and rewards the spendthrift. That’s because earnings are taxed a second time when saved, while immediate consumption does not face a further tax. That makes no sense because it is frugal people—savers—who are the benefactors of the economy since their funds get invested in the new businesses and new capital equipment that generates growth.

The right approach is to have a “consumption tax base,” which simply is another way of saying that income shouldn’t be taxed more than one time (as shown in this flowchart).

My video elaborates on all these issues and explains why the right capital gains tax rate is zero.

Writing about the death tax yesterday, I mentioned that it also is a perverse form of double taxation. And just as with the death tax, it’s worth noting that all the major pro-growth tax reform plans  – such as the flat tax or national sales tax – also have no capital gains tax.

It’s bad enough when the IRS gets to tax our income one time. They shouldn’t be allowed more than one bite of the apple.

P.S. Chris makes a very important point about higher capital gains taxes collecting little, if any revenue. Simply stated, there’s a large Laffer Curve effect since investors can choose not to sell an asset if the tax penalty is too high.

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Obama’s Deadly Plan for the Death Tax

In some ways, it would be fun to be a leftist.

No, I’m not talking about living a life of idleness and letting others pay my bills, though I suppose that’s tempting to some people.

And I’m not talking about becoming a Washington insider and using corrupt connections to obtain unearned wealth, though I confess I’m actually friends with some of those people.

Instead, I’m talking about what it must be like to engage in reckless demagoguery and personal smears.

Remember during the presidential campaign when Mitt Romney was – for all intents and purposes – accused of causing a woman’s death because of his actions at Bain Capital?

The pro-Obama Super-PAC that produced that ad relied on indirect connections and overlooked some very salient facts that completely disproved even the indirect connections.

But even though the ad was exposed as maliciously false, the folks who put it together probably laughed all the way to the bank.

With this in mind, maybe it’s time to publicly ask why President Obama wants to kill old people.

“Time for your death panel appointment”

This isn’t a blog post about Obamacare, though there certainly are enough horror stories from the United Kingdom to make us fearful of government-run healthcare.

I’m referring instead to what might happen because of Obama’s proposal for a much more onerous death tax, which is part of his class-warfare agenda and would take effect in just a couple of days.

It seems that there’s good evidence this may lead to some premature deaths. CNBC reports.

Many families are faced with a stark proposition. If the life of an elderly wealthy family member extends into 2013, the tax bills will be substantially higher. An estate that could bequest $3 million this year will leave just $1.9 million after taxes next year. Shifting a death from January to December could produce $1.1 million in tax savings. It may seem incredible to contemplate pulling the plug on grandma to save tax dollars. While we know that investors will sell stocks to avoid rising capital gains taxes, accelerating the death of a loved one seems at least a bit morbid—perhaps even evil. Will people really make life and death decisions based on taxes? Do we don our green eye shades when it comes to something this serious? There is good evidence that there is some “elasticity” in the timing of important decisions about life and death.

And what does that mean? Well, according to some of the academic research, the President is going to have proverbial blood on his hands.

Gans and Leigh looked into another natural experiment. In 1979, Australia abolished its federal inheritance taxes. Official records show that approximately 50 deaths were shifted from the week before the abolition to the week after. “Although we cannot rule out the possibility that our results are driven by misreporting, our results imply that over the very short run, the death rate may be highly elastic with respect to the inheritance tax rate,” Gans and Leigh write. This isn’t just something peculiar to Australia. Economists Wojciech Kopczuk of Columbia University and Joel Slemrod of the University of Michigan studied how mortality rates in the United States were changed by falling or rising estate taxes. They note that while the evidence of “death elasticity” is “not overwhelming,” every $10,000 in available tax savings increases the chance of dying in the low-tax period by 1.6 percent. This is true both when taxes are falling, so that people are surviving longer to achieve the tax savings, and when they are rising, so that people are dying earlier, according to Kopczuk and Slemrod. “Death elasticity” does not necessarily mean that greedy relatives are pulling the plug on the dying or forcing the sickly to extend their lives into a lower taxed period. According to a 2008 paper from University of Pittsburgh Medical Center Doctor G. Stuart Mendenhall, while tax increases give potential heirs large economic incentives to limit care that would prolong life, distressed patients may “voluntarily trade prolongation of their life past the end [a low tax period] for large financial implications for their kin.

I’ve previously cited the research from Australia, and also wrote a post about incentives to die in 2010, when the death tax temporarily was abolished, so this research makes sense.

What’s the bottom line?

…based on past reactions to changes in taxes, it at least seems likely that some deaths that might otherwise have occurred shortly after January 1 will occur shortly before. Death may slip in ahead of the tax man for some with estates worth over $1 million.

In the grand scheme of things, I have a hard time feeling anguish about some elderly rich guy dying today rather than one week from now. But there is real data to suggest that Obama’s policies will cause premature deaths.

And these premature deaths will only occur because the President is greedy for more revenue from a tax that shouldn’t even exist. Indeed, it’s worth noting that every pro-growth tax reform plan – such as the flat tax or national sales tax – eliminates this pernicious form of double taxation.

Since I’m an economist, I can’t resist a final comment about this tax having a terrible impact on capital formation. This is bad for workers, since it translates into lower wages.

And it’s definitely not good for U.S. competitiveness.

P.S. Whatever you do, don’t die in New Jersey.

P.P.S. It’s a morbid topic, but there is such a thing as death tax humor.

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The Continuing Exodus of Jobs – and Taxable Income – from California

Like most people, I’m a sucker for a heartwarming story around the holidays.

Sometimes, you get that nice feeling when good things happen to good people, like you find at the end of a classic movie like “It’s a Wonderful Life.”

But since I’m a bit of a curmudgeon, I also feel all warm and fuzzy when bad things happen to bad people.

That’s why I always smile when I read stories about taxpayers moving across borders, thus preventing greedy tax-hiking politicians from collecting more revenue.

“Where’s our tax revenue?!?”

I’m glad when that happens to French politicians. I’m glad when it happens to Italian politicians. I’m glad when it happens to Illinois politicians. And British politicians. And Spanish politicians. And Maryland politicians. I could continue, but I think you get the point.

I’m even glad when it happens to the politicians in Washington.

I smile because I envision the moment when some budget geek tells these sleazy politicians that projected revenues aren’t materializing and they don’t have more money to spend.

So I wish I could be a fly on the wall when this moment of truth happens to California politicians. They convinced voters in the state to enact Prop 30, a huge tax increase targeting those evil, awful, bad rich people.

Governor Brown and his fellow kleptocrats in Sacramento doubtlessly are salivating at the thought of more money to waste.

But notwithstanding a satirical suggestion from Walter Williams, there aren’t guard towers and barbed-wire fences surrounding the state. Productive people can leave, and that’s happening every day. And they take their taxable income with them.

Usually in ways that don’t attract attention. But sometimes a bunch of them leave at the same times, and that is newsworthy. Here’s an example of that happening, as reported by the San Francisco Chronicle.

Chevron Corp. will move up to 800 jobs – about a quarter of its current headquarters staff – from the Bay Area to Houston over the next two years but will remain based in San Ramon, the oil company told employees Thursday. …The company already employs far more people in Houston – about 9,000 full-time employees and contractors – than it does in San Ramon.

We don’t know a lot of details, but these were positions at the company’s headquarters and they were “technical positions dealing with information and advanced energy technologies…tied to Chevron’s worldwide oil exploration and production business.”

Let’s assume these highly skilled employees earn an average of $250,000. I imagine that’s a low-ball estimate, but this is just for purposes of a thought experiment. Now multiply that average salary by 800 workers and you get $200 million of income.

And every penny of that $200 million no longer will be subject to tax by the kleptocrats in the state’s capital.

In other words, we’re seeing the Laffer Curve in action.

Politicians can raise tax rates all day long, but that doesn’t automatically translate into more tax revenue. Politicians keep forgetting that taxable income is not a fixed variable.

What’s happening in a big way with Chevron is happening in small ways every single day with investors, entrepreneurs, small business owners, and other “rich’ people.

That’s good for the people escaping. And it also will warm my heart when California’s despicable politicians discover next year that there’s an “unexpected” revenue shortfall.

P.S. It’s just an anecdote that the Chevron jobs are going to Texas. But when you add together a bunch of anecdotes, you get data. And according to the data, Texas is kicking the you-know-what out of California. Maybe there’s a lesson to be learned?

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The Grinch Who Stole Prosperity

You can see one of my favorite political cartoons, produced by Chuck Asay, by clicking this link. It shows how a burdensome welfare state undermines growth by creating too heavy a load for the economy to carry.

Here’s a Lisa Benson cartoon that makes a similar point, but it focuses on Obama’s class-warfare tax policy.

What makes the cartoon especially effective is that it not only shows that higher tax burden is designed to finance more spending, but also it makes clear that soaking-the-rich won’t be enough.

I’ve already cited a bunch of semi-honest leftists who admit that their real goal is taxing the middle class (probably with a value-added tax!), so we can’t say we haven’t been warned.

P.S. My two other favorite Lisa Benson cartoons can be enjoyed here and here.

P.P.S. For Chuck Asay fans, my two other top choices for his work can be seen here and here.

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Sniveling and Despicable French Thief Complains that Victims Are Running Away

Atlas is shrugging and Dan Mitchell is laughing.

I predicted back in May that well-to-do French taxpayers weren’t fools who would meekly sit still while the hyenas in the political class confiscated ever-larger shares of their income.

But the new President of France, Francois Hollande, doesn’t seem overly concerned by economic rationality and decided (Obama must be quite envious) that a top tax rate of 75 percent is fair.” And patriotic as well!

French Prime Minister: “I’m upset that the wildebeest aren’t remaining still for their disembowelment.”

So I was pleased – but not surprised – when the news leaked out that France’s richest man was saying au revoir and moving to Belgium.

But he’s not the only one. The nation’s top actor also decided that he doesn’t want to be a fatted calf. Indeed, it appears that there are entire communities of French tax exiles living just across the border in Belgium.

Best of all, the greedy politicians are throwing temper tantrums that the geese have found a better place for their golden eggs.

France’s Prime Minister seems particularly agitated about this real-world evidence for the Laffer Curve. Here are some excerpts from a story in the UK-based Telegraph.

“No fair!”

France’s prime minister has slammed wealthy citizens fleeing the country’s punitive tax on high incomes as greedy profiteers seeking to “become even richer”. Jean-Marc Ayrault’s outburst came after France’s best-known actor, Gerard Dépardieu, took up legal residence in a small village just over the border in Belgium, alongside hundreds of other wealthy French nationals seeking lower taxes. “Those who are seeking exile abroad are not those who are scared of becoming poor,” the prime minister declared after unveiling sweeping anti-poverty measures to help those hit by the economic crisis. These individuals are leaving “because they want to get even richer,” he said. “We cannot fight poverty if those with the most, and sometimes with a lot, do not show solidarity and a bit of generosity,” he added.

In the interests of accuracy, let’s re-write Monsieur Ayrault’s final quote from the excerpt. What he’s really saying is: “We cannot buy votes and create dependency if those that produce, and sometimes produce a lot, do not act like morons and let us rape and pillage without consequence.”

So what’s going to happen? Well, I wrote in September that France was going to suffer a fiscal crisis, and I followed up in October with a post explaining how a bloated welfare state was a form of economic suicide.

Yet French politicians don’t seem to care. They don’t seem to realize that a high burden of government spending causes economic weakness by misallocating labor and capital. They seem oblivious  to basic tax policy matters, even though there is plenty of evidence that the Laffer Curve works even in France.

So as France gets ever-closer to fiscal collapse, part of me gets a bit of perverse pleasure from the news. Not because of dislike for the French. The people actually are very nice, in my experience, and France is a very pleasant place to visit. And it was even listed as the best place in the world to live, according to one ranking.

But it helps to have bad examples. And just as I’ve used Greece to help educate American lawmakers about the dangers of statism, I’ll also use France as an example of what not to do.

P.S. France actually is much better than the United States in that rich people actually are free to move across the border without getting shaken down with exit taxes that are reminiscent of totalitarian regimes.

P.P.S. This Chuck Asay cartoon seems to capture the mentality of the French government.

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For both Policy Reasons and Political Reasons, the Fiscal Cliff Is Better than Surrender

It’s never a good idea to display weakness during negotiations. Your opponent will sense your fear and up his demands.

That’s certainly what we’re seeing in Washington. The cartoon at this link captures the GOP’s wobbly attitude on taxes, and this interview is about the ever-increasing demands of the Obama Administration.

It’s rather galling, by the way, to be lectured on taxes by a tax cheat like Tim Geithner.

But my key point is that the GOP’s preemptive surrender emboldened the White House, and helped move the debate even further to the left.

Let me elaborate on two points from the interview.

1. We don’t need a tax increase. We can balance the budget simply by limiting spending so that it grows by “only” 2.5 percent annually. As I say to Cavuto, the White House is pushing higher taxes in order to enable a bigger burden of government spending.
2. It’s important to define austerity correctly. To provide an analogy, we have to drink liquid to survive, but that doesn’t mean it would be a good idea to guzzle paint thinner. Likewise, we need austerity, but that shouldn’t mean higher taxes. We need to be like Estonia and tighten the belts of the public sector, not the private sector.

It’s not my job to give Republicans political advice, but I also want to expand upon the arguments I made a couple of days ago, when I wrote a post giving five policy reasons and five political reasons why the GOP shouldn’t surrender on tax increases.

A couple of readers correctly pointed out that I forgot to mention that tax increases are political poison because middle-class voters turn against the GOP once “revenue” is on the table. They are completely right, and my oversight is inexplicable since I’ve actually made that point in the past. Here’s some of what I wrote last year.

If Republicans put tax increases on the table, however, the politics get turned upside down. Instead of being united against all tax increases, voters realize somebody is going to get mugged and they have an incentive to make sure they’re not the ones who get victimized. That’s when soak-the-rich taxes become very appealing. Democrats, for all intents and purposes, can appeal to average voters by targeting the so-called rich. And even though voters will be skeptical about what Democrats really want, they don’t want to be the primary target of the political predators in Washington. Think of it this way. You’re a wildebeest running away from a pack of hyenas, but you know one member of your herd will get caught and killed. You despise hyenas, but at that critical moment, you’re main goal is wanting another member of the herd to bite the dust. This is why surrendering to tax increases put Republicans in a no-win situation. They oppose class-warfare taxes because they understand the disproportionately damaging impact of higher top income tax rates and increased double taxation of dividends and capital gains. So when GOPers get bullied into agreeing to raise taxes, they want to target less destructive sources of revenue. But that usually means…taxes that are more likely to hit the middle class. Needless to say, Democrats almost always win if there is a fight on whether to tax the middle class or to tax the rich.

I have to pat myself on the back for that passage, particularly the analogy that equates politicians with hyenas (though in the past I’ve apologized to hyenas for that unfair comparison).

Let’s close with a very good cartoon, which points out the foolishness of the media for wanting to send more money to Washington when even they understand that the town is filled with clowns and buffoons. That’s actually a very serious point, as I note about halfway through the interview included in my five-political-reasons-five-policy-reasons post.

But it’s hard to laugh when you contemplate what’s happening. Obama is bullying the GOP, and the Republicans are in the process of surrendering to his class-warfare demands.

That will lead to bad policy, but it will also result in an emasculated, compliant, and house-broken GOP for at least the next two years, and perhaps even Obama’s entire second term. So even though the fiscal cliff tax hike is bigger than what Obama’s currently demanding, the long-run policy damage of surrender almost surely will be far greater.

Republicans don’t have many options in this fight. But they can show some cojones and tell Obama that the only way he’ll get a tax hike is if he wants to take the nation over the cliff.

P.S. If you like the Henry Payne cartoon in this post, you can enjoy some of his other work here, here, here, here, here, here, here, and here.

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The Link Between High Tax Rates and Corruption

I’ve been very critical of Obama’s class-warfare ideology because it leads to bad fiscal policy. But perhaps it is time to give some attention to other arguments against high tax rates.

Robert Samuelson, a columnist for the Washington Post, has a very important insight about tax rates and sleaze in Washington.

His column is mostly about Obama’s anti-tax reform agenda, but it includes this very important passage.

…many politicians support tax breaks for favored groups (the elderly, the poor, small business) and causes (homeownership, attending college, “green” industries). This enhances their power. The man who really pronounced the death sentence for the Tax Reform Act of 1986 was Bill Clinton, who increased the top rate to 39.6 percent rather than broadening the base. As the top rate rose, so did the value of generating new tax breaks. Ironically, many of the people who complain the loudest about Washington influence-peddling and lobbying are the same people who support higher tax rates, which stimulate more influence-peddling and lobbying.

The last sentence is key. Higher tax rates are good news for the politicians, interest groups, bureaucrats, and lobbyists that dominate Washington.

Here’s a simple example. Let’s pretend we have a modest tax rate of 20 percent. Now imagine you are part of an industry with $200 million in profits and you want a special tax break. How much are you willing to pay to get that loophole?

Well, with a 20 percent tax, the most you can save (assuming the loophole is huge and you wipe out all your tax liability) is $40 million.

So how much would you spend on lobbyists, campaign contributions, etc, in order to get that loophole? That’s hard to answer, because it would require some estimate of the probability of success. But one thing we can safely assume is that the industry would never spend more than $40 million.

But let’s now assume you live in a world with 50 percent tax rates. Does that change the incentive for influence peddling in Washington? Of course it does. The industry’s tax bill is now $100 million, so it now has an incentive to spend up to that amount to get special treatment.

So now let’s consider a couple of additional hypothetical questions.

• First, imagine you’re a lobbyist. Do you think you will get more business if tax rates are high, or if tax rates are low?
• Second, imagine you are a politician. Do you think you will get more campaign contributions if tax rates are high, or if tax rates are low?

The answers are obvious, and so are the implications. Yes, higher tax rates are bad for growth and competitiveness. And, yes, they are unfair and discriminatory.

But they also foment and encourage sleaze in D.C., and that’s something that honest leftists should hate as much as the rest of us.

For more information, here’s my video on the link between big government and corruption, including a section on how a loophole-ridden tax system benefits Washington insiders.

And here’s the video on the flat tax, which explains why low tax rates are good for economic performance.

Both videos have good information (at least I like to think), but kudos to Samuelson for drawing an important link between high tax rates and corruption.

P.S. Robert Samuelson is hard to pin down on the philosophical spectrum. He’s written very good columns denouncing Obama’s manipulation of welfare statistics and criticizing the President’s flirtation with the value-added tax. But he’s also had a couple of columns where he identifies a very real problem, but fails to reach the right conclusion, including this piece that should have been an argument for Austrian economics and this piece on health care inefficiency that should have pinned the blame on third-party payer.

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The Last Temptation of Boehner and McConnell

The Benson and Holbert cartoons at this link do an excellent job of mocking Obama’s class-warfare agenda.

But Michael Ramirez is unmatched. Here’s his latest gem, making fun of gullible and brainless Republicans.

The cartoon is great, both because it visually captures the vapid naiveté of GOPers (the eyes are classic) and it also correctly implies that higher taxes on the “rich” will be just the beginning.

Of course, since more and more leftists are admitting they also want to tax the middle class, I’m not sure why anyone thinks that’s a controversial proposition.

You can enjoy some of my favorite Ramirez cartoons by clicking here, here, here, here, here, here, here, here, here, here, here, here, here, here, here, here, here, here, here, and here.

P.S. I don’t want to neglect Chuck Asay, who is probably tied with Ramirez as favorite cartoonist on my list. You will understand why if you click here and here.

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Will Obama Learn from England’s Laffer Curve Mistake?

Obama’s main goal in the fiscal cliff negotiations is to impose a class-warfare tax hike.

He presumably thinks this will give the government more money to spend, but recent evidence from the United Kingdom suggests that he won’t get nearly as much money as he thinks.

Why? Because there’s this thing called the Laffer Curve. It shows that it is naive to believe that there is a linear relationship between tax rates and tax revenue. To accurately predict what will happen to revenues when there is a change in tax policy, you also have to estimate what will happen to taxable income.

And when you’re trying to stick it to the “rich,” you need to understand that they have tremendous control over the timing, level, and composition of their income. So unlike the rest of us, they can respond very easily when the government goes after them.

The Wall Street Journal opines on what recently happened across the Atlantic.

A funny thing often happens on the way to soaking the rich: They don’t stick around for the bath. Take Britain, where Her Majesty’s Revenue and Customs service reports that the number of taxpayers declaring £1 million a year in income fell by more than 60% in fiscal 2010-2011 from the year before. That was the year that millionaires became liable for the 50% income-tax rate that Gordon Brown’s government introduced in its final days in 2010, up from the previous 40% rate. Lo, the total number of millionaire tax filers plunged to 6,000 in 2010-2011, from 16,000 in 2009-2010. The new tax was meant to raise about £2.5 billion more revenue. So much for that. In 2009-2010 British millionaires contributed about £13.4 billion to the public coffers, or just under 9% of the total tax liability of all taxpayers that year. At the 50% rate, the shrunken pool yielded £6.5 billion, or about 4.4%.

In case you think this is just a special case, the United States conducted a similar experiment in the 1980s, except we lowered tax rates instead of raising them. And as you can see in this “lesson” post I wrote for the President, we got the same results as the United Kingdom, except in reverse. More rich people, more taxable income, and more tax revenue.

Here’s a chart showing what happened in the U.K. It shows tax revenue for the 2009-2010 fiscal year, followed by a projection for 2010-2011, and then the real-world numbers.

Now time for some important caveats. There are lots of things that determine taxable income for the rich, so we have no way of precisely knowing the extent to which the higher tax rate caused taxable income – and therefore tax revenue – to fall. The economy’s weak performance may have played a role, though the recession in the U.K. occurred in 2008 and 2009, so you would expect taxable income to climb for the 2010-2011 fiscal year.

It’s also possible that some of the revenue loss was the result of income shifting rather than a genuine decline in the amount of economic activity.

But we do know that the same pattern keeps appearing in nation after nation, whether we’re looking at Italy, France, or Spain. Or states such as Illinois, Oregon, Florida, Maryland, and New York.

You mess with the Laffer Curve and it will get its revenge.

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A Laffer Curve Warning about the Economy and Tax Revenue for President Obama and other Class Warriors

Being a thoughtful and kind person, I offered some advice last year to Barack Obama. I cited some powerful IRS data from the 1980s to demonstrate that there is not a simplistic linear relationship between tax rates and tax revenue.

In other words, just as a restaurant owner knows that a 20-percent increase in prices doesn’t translate into a 20-percent increase in revenue because of lost sales, politicians should understand that higher tax rates don’t mean an automatic and concomitant increase in tax revenue.

This is the infamous Laffer Curve, and it’s simply the common-sense recognition that you should include changes in taxable income in your calculations when trying to measure the impact of higher or lower tax rates on tax revenues.

No, it doesn’t mean lower tax rates “pay for themselves” or that higher tax rates lead to less revenue. That only happens in unusual circumstances. But it does mean that lawmakers should exercise some prudence and judgment when deciding tax policy.

Moreover, even though I’m a strong believer in the importance of good tax policy, it’s also important to understand that taxation is just one of many factors that determine economic performance. So lower tax rates, by themselves, are no guarantee of economic vitality, and higher tax rates don’t necessarily mean the world is coming to an end.

With those caveats in mind, take a look at this table from the Congressional Budget Office’s most recent Budget and Economic Outlook. Taken from page 109, it shows what will happen if the economy grows just a tiny bit less than the baseline projection. Not a recession, by any means, just a drop in the projected growth rate of just 1/10th of 1 percent.

As you can see, the 10-year impact is $314 billion, mostly due to lower tax receipts, though there is some impact on outlays because of  higher interest costs and a bit of additional entitlement spending.

So why am I sharing these numbers? Because let’s now think about President Obama’s proposed class-warfare tax hike. He wants higher tax rates on investors, entrepreneurs, small business owners and other “rich” taxpayers. And he wants more double taxation of dividends and capital gains. And a higher death tax rate, even higher than the ones imposed by France and Venezuela.

I think some opponents are exaggerating when they claim that this tax hike will cause a recession and cripple the economy. But I do think that it’s reasonable to contemplate the degree to which the Obama tax hikes will slow growth. More than 1/10th of 1 percent? Less than that? Would the damage occur in the first few years? Would it be spread out over time?

Those questions are hard to answer. Ask five economists and you’ll get nine answers, but there is compelling evidence that higher tax rates do have a negative impact.

But some people assume that taxes don’t matter at all. Using models that, for all intents and purposes, naively assume a simplistic linear relationship between tax rates and tax revenue, the number-crunching bureaucrats in Washington estimate that Obama’s proposed tax hikes will generate about $800 billion over 10 years.

I’m not going to pretend I know the economic impact of those higher tax rates, but for the sake of argument, let’s assume that the impact is minor. Indeed, let’s assume that it’s only 1/10th of 1 percent. Based on the CBO sensitivity analysis above, that means that about 40 percent of the projected deficit reduction will fail to materialize.

And that’s not even considering the fact that politicians will probably increase the burden of government spending because of the expectation of additional tax revenue.

Just something to keep in mind as this debate unfolds.

P.S. I actually shared this exact same data when testifying to the Senate Budget Committee earlier this year. Needless to say,  in some cases I think my testimony went in one ear and out the other.

P.P.S. The revenue-maximizing tax rate is not the ideal point on the Laffer Curve.

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Amusing Obama Thanksgiving Cartoons

I’m not a big fan of Obama’s class warfare approach to tax policy, so I especially enjoy cartoons that make fun of his soak-the-rich ideology. You can see some of my favorites here and here.

Now let’s add two more cartoons to the mix, both with a Thanksgiving theme.

The first one makes fun of Obama for his deliberate ignorance about the budget. Honest leftists admit that we need real entitlement reform, but Obama wants us to believe that the nation’s fiscal problems can be solved by targeting the rich.

The next cartoon comes from the irreplaceable Michael Ramirez.

I like the multiple messages. He’s nailing Obama for engaging in envy, but I also think he’s helping people understand that it doesn’t make sense to rape and pillage the so-called rich if that means less future production.

You can enjoy some of my other favorite Ramirez cartoons by clicking here, here, here, here, here, here, here, here, here, here, here, here, here, here, here, here, and here.

P.S. If you like holiday-themed cartoons about class warfare, you can see some Halloween versions here and here.

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We Should Worry about the Long-Run Burden of Government, not the Fiscal Cliff

I appeared on CNBC yesterday to talk about the “fiscal cliff” and the potential impact on economic performance.

You won’t be surprised to learn that I’m mostly concerned with how the issue gets resolved. Yes, there is some temporary uncertainty that is probably making markets skittish, but I’m much more worried about Obama bullying the GOP into agreeing to a class-warfare deal that leads to higher tax rates on investors, entrepreneurs, and small business owners, as well as more double taxation on saving and investment.

And the long-run damage caused by a more punitive tax system is much more important than any short-run delay in investment expenditures.

I made two points that deserve some elaboration.

First, not all government spending is created equal. As explained in the Rahn Curve video, outlays to provide core public goods are associated with better economic performance. Expenditures for human capital (education) and physical capital (infrastructure) are a mixed bag, depending on whether governments make wise decisions. The bad news, though, is that the vast majority of current government spending is diverted for what is called transfer and consumption spending, and these forms of redistributive outlays are associated with weaker economic performance.

Second, I’m glad I had the opportunity to explain how America’s fiscal status has deteriorated during the Bush-Obama years. One of the CNBC staff understated the magnitude of the problem by looking at just federal spending as a share of GDP and only over the past few years. I pointed out that total government spending is the right variable, and I explained that the trend line has been moving in the wrong direction since Bill Clinton left office.

In this chart, you can see the bad news using either the methodology of the Office of Management and Budget or the approach of the Organization for Economic Cooperation and Development. Since I’m not sure which approach is right, I basically split the difference when discussing the overall burden of government spending.

Keep in mind, by the way, that these numbers are just the tip of the iceberg. Without real entitlement reform, federal spending as a share of GDP will double and total government outlays will rise to at least 60 percent of GDP.

We need some sort of spending cap, ideally akin to the Swiss Debt Brake. But that won’t happen for at least the next four years.

But maybe, with enough pressure, we can convince politicians to comply with my Golden Rule. After 12 years of excessive spending, it’s time to let the private sector grow faster than the government.

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Higher Taxes Mean Bigger Government, not Lower Deficits

President Obama and other statists in Washington want a big class-warfare tax hike. They claim the additional revenue is necessary to reduce red ink.

But their ideological crusade is based on some blatant distortions.

• They tell us that tax increases are necessary, but even CBO data shows that the budget can be balanced in just 10 years if politicians merely limit federal spending so that it grows by “only” 2.5 percent per year.
• They tell us the “rich” should pay more, but we know upper-income taxpayer have considerable ability to alter the timing, level, and composition of their income, so we can expect significant Laffer Curve effects.
• They tell us that the money will be used to reduce the deficit, but at the same time they want to cancel the sequester, thus eliminating the only source of spending restraint from the 2011 debt-limit agreement.

In other words, the Obama tax hike will make government bigger, even if some naively support the tax hike because they want smaller deficits.

That being said, I’m not overly optimistic that Obama’s divisive proposal can be stopped, largely because I don’t think Republicans will take my advice on how to win this fight.

But at least the American people have an appropriately jaundiced view about what will happen if Obama does prevail.

Here are the results of a recent poll showing that a strong majority understand that more revenue will lead to an expansion in the burden of government spending.

Though I suppose these numbers don’t necessarily show that people are against higher taxes. Perhaps some of the 57 percent want higher taxes because they want more government.

After all, that’s the most logical interpretation of the election results in California, where voters approved a referendum to rape and pillage upper-income taxpayers.

But I suspect – and definitely hope – that most of the 57 percent understand that making America more like Europe is not a desirable outcome.

By the way, I shared some polling data last week showing that CPAs think that changes in tax rates lead to substantial Laffer Curve effects.

They were also asked their opinion on whether higher taxes will be used for deficit reduction.

As you can see, they were even more skeptical than the general public, with more than 60 percent definitely thinking that more revenue in Washington will lead to more spending.

To be sure, there’s no particular reason to think that CPAs have any special insight on this issue. On the Laffer Curve question, by contrast, they presumably do have insider knowledge of how taxpayers respond when tax policy changes.

But I’m digressing. The point of this post is to explain that higher taxes will lead to bigger government.

And if you don’t believe me, then why did the New York Times unintentionally admit that the only budget deal that actually resulted in a budget surplus was the one that cut taxes instead of raising them?

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Cartoonists Mock Obama’s Class-Warfare Agenda

I suppose I should write something serious about Obama’s class-warfare agenda, but I’m in Iceland and it’s almost time to head into Reykjavik for dinner. So let’s simply enjoy some humor that gets across the points I would make anyhow.

We’ll start with this great cartoon from Lisa Benson. In a perfect world, this monster would be named “Big Government.” But I’m not complaining too much since the obvious implication of the cartoon is that the soak-the-rich tax hikes will make the deficit worse – which implies that politicians will spend the money and/or that there will be a Laffer Curve response leading to less revenue than politicians predict.

You can see some of my favorite Benson cartoons here, here, here, here, here, here, here, here, here, here, and here.

Here’s a similar cartoon. But instead of feeding a deficit monster, it shows that a tax hike will enable a bunch of politicians to continue their binging at our expense.

Holbert is relatively new to me. The only other cartoon of his that I’ve used (at least than I can remember) can be seen here.

Our final cartoon isn’t about Obama’s class-warfare proposal, but it does show where we’re going if we allow the politicians to continue down the path of tax-and-spend dependency.

You can see two additional Glenn Foden cartoons by clicking here and here.

I especially like the “spa” comment in the basket cartoon. Sort of reminds me of the “frog” story showing how it would be impossible to impose statism in one fell swoop. People would recognize the danger and immediately revolt, much as a frog would immediately hop out if you tried to drop it in boiling water. But just as you can lure a frog into danger by putting it in lukewarm water and slowing turning up the heat until it’s been too weakened to escape, you can also slowly but surely hook people on dependency by creating little programs and eventually turning them into big programs.

That’s sort of where we are today. The burden of government spending has exploded and will get even worse if we don’t enact serious entitlement reform. But too many people now can’t envision a world other than the status quo and they are fearful of change – even though inaction eventually means a Greek-style fiscal crisis.

P.S. Given the theme of this post, you will probably enjoy this Chuck Asay cartoon and this Henry Payne cartoon. Or perhaps you won’t enjoy them if you stop and think about what they’re really saying. But they are both gems, so try to focus only on the humor.

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