Federal bureaucrats are overpaid compared to workers in the productive sector of the economy.
State and local bureaucrats also are overpaid compared to people in the private sector, though usually the gap is not quite as large.
But “usually” does not means “always.”
The most absurd examples of excess bureaucrat pay generally are found at the state and local level.
Especially in places like New Jersey where politicians and government employee unions have strong alliances against taxpayers.
And California, of course, where fleecing taxpayers has become an art form for some bureaucrats (see here, here, here, here, here, here, here, and here).
If you don’t believe me, read these excerpts from a Bloomberg report by Martine Paris.
A Beverly Hills cop tops the list of the highest-paid California municipal employees, 100 of whom took home $439,000 or more in total wages last year. The assistant police chief’s total compensation was $716,284 in 2021, $208,087 in regular income, with the rest for lump-sum and other pay… Marc Coopwood retired last year as assistant police chief in Beverly Hills after 4 years and 7 months in the role… As part of his separation agreement, he was issued a final payment that included 12 months’ salary and benefits, as well as compensation for unused leave, the city said in a statement. …The top 10 highest-paid list includes city managers in West Hollywood, Artesia and Fremont, two fire captains in the city of Los Angeles and a firefighter, as well as a load dispatcher at the Los Angeles Department of Water & Power who booked $400,000 in overtime compensation.
I don’t know what’s more outrageous, the assistant police chief with more than $716K of compensation, or the fact that 100 bureaucrats pocketed at least $439K?
Or is it the bureaucrat who fleeced taxpayers for $400K of overtime?
When I write about government schools, I often revise Winston Churchill’s famous quote about the Royal Air Force so that it reads “never have so many paid so much to achieve so little.”
Many families, especially those with money, have opted out. They are still forced to pay taxes for government schools, of course, but they prefer private education.
That means paying with their money for a private school or paying with their time (and some money) for homeschooling.
It’s happening more and more, as John Harden and Steven Johnson have reported in the Washington Post.
The pandemic transformed the landscape of K-12 education. Some parents withdrew their kids from public school and placed them into private or home schools. Their reasons varied: Many preferred private schools that offered in-person instruction; others distrusted public schools’ pandemic precautions. …So far, data show that since 2019, private enrollment is up, public enrollment is down and home schooling has become more popular. Families flocked to private and home schools at the greatest rate in a decade, according to American Community Survey estimates from the U.S. Census. The government projects that K-12 public school enrollment — already facing demographic pressures — will drop further to about 46 million students by fall 2030, according to the National Center for Education Statistics, reversing decades of growth.
The story then continues with summary statements from several parents about why they opted their kids out of government schools.
But allow me to throw in my two cents and answer the question about “Why are Americans Fleeing Public Schools?”
Subpar Education – I sent my kids to private schools because I wanted them to get a better-quality education and the evidence is clear that private alternatives do a much better job of teaching.
Political Brainwashing – It is good for kids to learn the good points and bad points about their nation’s history, but things like the “1619 Project” are academically sloppy and almost seem designed to promote victimhood and division.
Pandemic Failure – It became apparent to many parents that government schools, first and foremost, are run for the benefit of government bureaucrats rather than providing education for children.
There doubtlessly are many other reasons for choosing private alternatives over the government monopoly.
Some parents worry about safety. Others want a school that reflects their social and religious values.
Since I’m a public-finance economist, I’m motivated by the fact that government schools cost more and provide and inferior product.
The bottom line is that everyone deserves education choice, not just rich people (including lots of hypocritical leftists).
P.S. Here’s a video explaining the benefits of school choice.
P.P.S. There’s international evidence fromSweden, Chile, Canada, and the Netherlands, all of which shows superior results when competition replaces government education monopolies.
One of the reasons the western world became relatively rich in recent centuries is that “rule of law” evolved to constrain capricious and dictatorial behavior by government officials.
But support for the “rule of law” as a concept does not mean blind approval and/or acquiescence to every bit of legislation that politicians enact.
Simply stated, I want justice. In some cases, that means I want enforcement of laws. In other cases, I want resistance to laws.
Now let’s apply this principle to the issue of gun control in America’s northern neighbor.
Here’s what’s happening in Canada, as reported by Amanda Coletta for the Washington Post.
…in 2020, …Prime Minister Justin Trudeau banned some 1,500 makes and models of “military-grade” assault-style firearms and pledged to buy them back from owners. …as Canada’s Liberal government prepares to launch the first phase of the mandatory buyback, several provinces and territories say they won’t help. The most strident opponents, including the United Conservative Party government in Alberta, are suggesting the Royal Canadian Mounted Police “refuse to participate.” Tyler Shandro, the province’s justice minister, declared the buyback was not “an objective, priority or goal” of the province or its Mounties. Alberta, he said, is “not legally obligated to provide resources for it.” …Saskatchewan, Manitoba and New Brunswick have also balked at using “scarce RCMP resources” for the program. …“Alberta taxpayers pay over $750 dollars per year to fund the RCMP as our provincial police service,” Shandro, the Alberta justice minister, wrote in September to Curtis Zablocki, the head of the Alberta RCMP. “We expect that those dollars not be wasted to pay for a confiscation program that will not increase public safety.”
For what it’s worth, Mr. Shandro is understating the case against gun confiscation.
It’s not just that such proposals “will not increase public safety.” An even bigger concern is that they will reduce public safety because bad people obviously won’t be turning in their guns.
But I’m digressing. Let’s get back to the issue of civil disobedience.
The Post article only mentions one type of disobedience, which is the extent to which provincial and territorial governments will refuse to help enforce Trudeau’s bad law (the same phenomenon exists in the US).
The other type is when individuals refuse to comply, which is something we’ve seen in the United States and in nations such as Australia and New Zealand.
By the way, this is why gun registration is a dangerous step. If politicians and bureaucrats know who has guns, confiscation schemes are easier to enforce.
Though hopefully such efforts can be thwarted if gun owners report that their weapons have been “lost” or “stolen” – which surely would happen if American politicians ever tried gun confiscation in the United States.
I frequently call attention to my “anti-convergence club” because it shows – using decades of data – that you get more prosperity in nations with more economic liberty.
Including in Eastern Europe, as we can see from this comparison of pro-market reform nations (the dark blue line) and countries with more government (the light green line).
To be more specific, it comes from a chapter, authored by Dan Negrea, Joseph Lemoine, and Yomna Gaafar, that compares the nations in the region that done the most pro-market reforms with the ones that have lagged behind.
Here’s an excerpt.
Eastern European countries…were at a comparable development level at the time of the democratic revolutions that swept Eastern Europe in the late 80s and early 90s. But by 2021 the group was no longer homogenous: they had different levels of freedom, and some had experienced robust prosperity while others had stagnated at a middle-income level. …we show that the countries that experienced more political, economic, and legal freedoms enjoy greater prosperity. Conversely, those which progressed less on the path of freedom are also less prosperous. …We first selected from among Europe’s formerly Communist countries a group with a comparable level of economic development in 1996, the first year with World Bank data for all post-Communist countries. …We then ranked these countries by their progress towards greater freedom by 2021 using the Atlantic Council’s Freedom Index. …We then created two groups. Group 1 includes all countries in the select group that are in the “free” category of this index. Group 2 includes all the other countries in our select group. Next, for countries in both groups, we compared their GDP per capita levels in 1996 and 2021, and calculated GDP growth multiples for each country and for both groups.
As already suggested by the above chart, Group 1 nations are doing much better than Group 2 nations.
If you want some of the details, here’s a table with a lot more information.
Back in September, Richard Rahn also wrote about economic freedom in Eastern Europe. Here are some excerpts from his column in the Washington Times.
…many of the former countries in Eastern Europe that were part of the Soviet Union or under the Soviet thumb have become some of the economically freest and most successful countries. …As a result of economic freedom, real incomes have also risen rapidly so most are now middle income – which is a sharp change from the poverty that they were mired in during Soviet times. The question is “Why did they do so well?” …Estonia was perhaps the best example of rapid constructive change. When the country gained full independence in 1991, its people elected a brilliant young history professor, Mart Laar, who liked to say the only book he had ever read in economics was Milton Friedman’s “Free to Choose.” Mr. Laar said it sounded good to him so the Estonians went ahead and did it. As expected, the international bureaucrats at the World Bank, IMF, and foreign affairs departments of major countries recommended against going all out for economic freedom. …their advice was properly often ignored. …To this day, many of the former socialist countries have some of the world’s lowest debt-to-GDP ratios and are much more fiscally sound than most of the major countries. During a worldwide financial crisis, they will be the last ones to go bankrupt or resort to hyperinflation… Most the countries instilled more sensible new tax systems with low-rate or even flat taxes. Bulgaria has a simple 10% flat tax on both corporate and personal income.
The demographic outlook in Eastern Europe is terrible. I wrote on that topic back in 2016.
And here are some excerpts from a column in the Washington Post by Charles Lane in late 2019.
The question now is whether the end might be near for Eastern Europe, demographically. …Of the 20 most rapidly shrinking countries in the world, 15 are erstwhile Warsaw Pact members, ex-Soviet republics or components of the former Yugoslavia (plus neighboring Albania). …Eastern Europe’s looming demographic crisis stems directly from its escaping the Soviet orbit in 1989. Freedom of movement, coupled with membership in the borderless European Union, enabled millions of working-age people to leave the former Soviet bloc for work in the more prosperous West. Emigration, plus low and declining birthrates — a characteristic of modern society that Eastern Europe shares with Western Europe and the United States — has resulted in whole villages hollowing out, with only pensioners left behind. …Demographic decline is extremely difficult to reverse, wherever it occurs. As experience has shown in various countries, governments cannot do much to raise birthrates, even with generous subsidies for families with children.
Needless to say, the situation has not improved. Though it will be interesting to see whether the huge baby subsidies in Hungary will make a difference.
But since I’m skeptical of that approach, I’ll close by noting that Eastern Europe’s demographic decline is a recipe for fiscal disaster because there won’t be enough future taxpayers to pay benefits that have been promised to the elderly.
For what it’s worth, “pre-funding” is probably the only practical way of dealing with demographic decline, and this means big reforms such as personal retirement accounts.
This is feasible. Jurisdictions such as Hong Kong and Singapore also are facing demographic decline, but they are in a much stronger position because they don’t have tax-and-transfer welfare states. People are required to save for their own retirement.
The bottom line is that Eastern European nations need to engage in a lot more reform (especially self-funding for things like Social Security and health care) if they want to continue to make economic progress.
P.S. Here’s one final excerpt, dealing with membership in the European Union, from the chapter that we discussed at the start of the column.
…for Eastern Europe’s former Communist countries, the EU’s rules and standards catalyzed national consensus for reforms to make a clean break with their former malefic and malfunctioning Communist political and economic system. Today, EU support for reform in candidate member states, culminating in their EU membership, is a propellant for freedom and prosperity in these countries.
Notwithstanding my general disdain for the European Union, I agree that membership is good for Eastern European nations.
As we have seen in nations such as Greece and Argentina, voters sometimes cannot resist the temptation to support profligate politicians – a process that can lead to “goldfish government.”
In effect, voters choose fiscal suicide.
There’s even a quote, often mistakenly attributed to Ben Franklin, that this is the Achilles’ Heel of democratic governments (for what it’s worth, it appears that a Scottish historian, Alexander Fraser Tytler, was the real source).
If you think I’m being unduly pessimistic, consider what House Republicans did earlier this week. As Kimberly Strassel explained in her Wall Street Journal column, they decided that the swamp is actually a hot tub.
Self-awareness isn’t one of the modern GOP’s strong suits, as House Republicans proved again this week. …Leader Kevin McCarthy in September unveiled to great fanfare the party’s Commitment to America, which vowed that Republicans would “curb wasteful government spending”… Then came Wednesday’s first test of whether this was all hot air… Rep. Tom McClintock moved to repeal the recent party rule allowing earmarks. The caucus routed his motion, voting it down 158-52. Commitment to America? More like Commitment to Spoils.
She added some historical context.
The GOP swore off earmarks in 2011, when it stood for something… But when a Democratic Congress in 2021 announced intentions to bring them back, GOP trough-feeders rushed to sign up. …And the addicts aren’t interested in rehab.
Her conclusion does not pull punches.
If Republicans can’t muster the backbone to get rid of earmarks that are an affront to spending discipline, good governance and federalism, voters won’t muster the enthusiasm to keep them in charge.
And if you wonder whether earmarks are wrong, here are some excerpts from a column in National Review by Romina Boccia.
Earmarking contributes to excessive spending and is a distraction from more fundamental governing responsibilities, such as reining in deficit spending… Supporters of earmarks insist that they are central to Congress’s exercising its constitutional power of the purse. …To the degree that Congress leaves too much discretion to the executive to determine federal funding allocations, it should address that issue directly… Looking at the details of where the money flows, it becomes clear that earmarks mostly authorize pork-barrel spending. …Such a misdirected focus inevitably invites fraud, waste, and abuse. …The 117th Congress included 4,963 earmarks worth a total of $9.1 billion in fiscal-year (FY) 2022 appropriations bills. From feral-swine management to aquarium subsidies to museum and theater funding to local bike paths, FY2022 earmark spending spanned the gamut of parochial interests.
Needless to say (but I’ll say it anyhow), earmarks are directly linked to corruptions.
P.S. Just in case everything I just wrote did not convince you that earmarks are a problem, then maybe this headline from September will be more compelling.
My views on gridlock were fully captured in the title of a 2015 column, which stated that divided government was “Better than the Alternative of Expanding Government.”
And I followed up with a 2020 column that showed that spending restraint was more likely when the two parties were forced to share power.
To be sure, divided government also can produce very bad results (the country suffered a big expansion in the burden of government during the Nixon years, for instance).
But J.D. Tuccille from Reason explains why Americans should feel happy about gridlock starting in 2023.
…the election results stand as an expression of overwhelming lack of confidence in the major parties, with a resulting breather for the country resulting from the split decision’s ensuing, and quite welcome, gridlock. …The Wall Street Journal‘s Brody Mullins and John D. McKinnon noted last week. “…Washington overall isn’t expected to do much for the next two years.” That’s good news for Americans baffled by Democrats’ insistence on treating the U.S. economy as something between a laboratory experiment and a toy train set, with lawmakers indulging their whims through serial rounds of life-altering policy moves. …Republicans didn’t exactly convince the country that they were the cavalry riding to the rescue. Their main selling point seems to have been that they weren’t Democrats. …gridlock, with all of its faults and instability, is what we have, and we should be thankful for that. …gridlock can give us a bit of a national breather, and that may be the best we can hope for from a destructive political system.
But there are two reasons why gridlock is not a long-run solution.
First, Tuccille points out that we now have presidents claiming autocratic powers.
The gridlock…isn’t total. The increasingly autocratic nature of the presidency allows enormous room for the nation’s chief executive to act unilaterally. Through executive orders and memoranda, presidents enact policy changes that should go through Congress (if they’re permissible at all) in a manner befitting elective monarchs. The only real check on that power is the willingness of the courts to remind the country that, while rule-by-decree is a form of government, it’s not one permitted by the Constitution.
I’ll close with a depressing observation about what to expect from politics. Simply stated, politicians generally have incentives to maximize their short-run status, not to maximize the nation’s long-run health.
So, whether we have gridlock or not, it’s not easy to be optimistic.
There is a real debate about the shape of the Laffer Curve and the ideal point on the curve.
The fifth point recognizes that well-meaning and knowledgeable people can vigorously disagree.
Do changes in tax policy have big effects or small effects on the economy? How much revenue feedback will occur if there is a change in tax rates?
Just a couple of examples of questions that I have endlessly debated with reasonable folks on the left.
But let’s focus today on the unreasonable left. Or, to be more specific, let’s look at an editorial from the St. Louis Post-Dispatch.
Here are some portions of that newspaper’s simplistic screed.
…the deficit explosion…effectively disproved his theory that cutting taxes on the rich would increase government tax revenue. …Laffer continues to be unchastened…, even as Britain reels from a leadership shuffle caused by the catastrophic application of his very theories. Hand it to Laffer: Seldom does someone who is so often proven wrong have the gumption to maintain he’s right… His famous “Laffer curve” presumes to prove that tax cuts for the rich will spur economic investment, causing such strong economic growth that the government’s tax revenue would actually rise instead of falling. …Yes, the economy was robust in the 1980s after Reagan’s historic tax cuts. But that’s also when the era of big budget deficits began. …congressional Republicans and President Donald Trump in 2017 slashed corporate taxes in what they claimed was a necessary economy-booster… Then-Treasury Secretary Stephen Mnuchin’s famous vow that the tax-cut plan would “pay for itself” in growth — the very definition of Laffer’s theory — has since been exposed as the voodoo it always was.
Almost every sentence in the above excerpt cries out for correction.
For instance, Reagan and his team never claimed that the 1981 tax cuts would be self-financing (though IRS data shows that lower tax rates on the rich did produce more revenue).
And it’s absurd to blame the United Kingdom’s political instability on tax cuts that never occurred.
If Secretary Mnunchin claimed the entire tax cut would pay for itself, he clearly deserves to be mocked, but it’s worth noting that the lower corporate tax rate from the 2017 reform is very close to being self-financing.
Not that we should be surprised. Both the IMF and OECD have research showing that lower corporate tax rates do not necessarily lead to lower corporate tax revenues.
The bottom line is that the editorial board of the St. Louis Post-Dispatch obviously puts ideology above accuracy.
P.S. I can’t resist sharing one other excerpt from the editorial.
“The Kansas Experiment,” was a debacle. The state’s economy didn’t skyrocket, but the deficit did, forcing deep cuts to education before the legislature finally acknowledged defeat and reversed the tax cuts.
Once again, the editors are showing that ideology trumps accuracy. Here’s what really happened in Kansas. I hope we can have more defeats like that! Though I’ll be the first to admit that North Carolina is a much better role model.
Biden then wanted to make this entitlement permanent as part of his $5 trillion plan to “build back better.”
Fortunately, that boondoggle sank under its own weight and the slimmed-down (but still bad) version that ultimately was enacted earlier this year did not include any per-child handouts.
That’s the good news, at least relatively speaking.
The bad news is that Congress and the White House have renewed their push for a permanent per-child entitlement.
And, because Republicans will control the House of Representatives starting in January, they are trying to push the policy through next month.
The Wall Street Journaleditorialized today about per-child handouts.
A core Democratic priority in Congress is resurrecting a $3,000 child tax credit for dependents ages six and up, with a $600 bonus for younger children. …The Internal Revenue Service is now another turnstile of the welfare state. That’s because over time Congress made more of the credit “refundable,” which means available to those who don’t owe federal income taxes. …a universal basic income for people with children. …The full Democratic allowance would cost $1.6 trillion over 10 years… Low-income voters are always assumed to support cash benefits, but 46% of those earning less than $50,000 opposed the payments. That may be because Americans understand that poverty in the U.S. is now less about material deprivation and more about idleness, addiction, mental illness and other destructive realities that can’t be cured with a bigger check.
What are some of those consequences? Those are discussed in a column by Scott Hodge, which also is in today’s Wall Street Journal.
He starts with a mea culpa about his role in creating child credits and also warns about the risks of creating a system where the IRS is a dispenser of goodies rather than a tax-collection agency for almost half the population.
I was one of the inventors of the child tax credit, nearly 25 years ago—and I think it’s a bad idea. …Key elements of this plan made their way into the 1994 House Republicans’ Contract with America. Congress enacted the $500 child tax credit as part of the Taxpayer Relief Act of 1997, and it grew from there. …The Bush tax cuts in 2001 temporarily doubled the credit to $1,000… The 2017 Tax Cuts and Jobs Act doubled the credit again, to $2,000… Each expansion meant fewer households on the tax rolls. …The expanded credit…contributed significantly to increasing the number of households with little or no income-tax liability. …some 74 million tax filers—or nearly half (48.3%) of all filers in 2021—had no income tax liability. …Can we have a sustainable tax system if the number of nonpayers continues to grow?
Since I’m mostly worried about the economic consequences, here’s the part of Scott’s column that grabbed my attention.
…recent studies estimating the economic effects of the proposed expansion suggest that it would cause people to leave the workforce, reduce work effort, and lower capital investment, ultimately shrinking economic output. A recent study by economists at the University of Chicago determined that without any changes in behavior, expanding the credit would reduce child poverty by 34% and “deep” child poverty—families whose income is less than half the poverty level—by 39%. But those gains would come at a cost: the diminution of the workforce by 1.5 million people. …A new study by Congress’s Joint Committee on Taxation…determined…the policy would reduce the labor supply by 0.2% and reduce the amount of capital by 0.4%. As a result of the reduced supply of labor and capital investment, gross domestic product would shrink by 0.2%.
I’m guessing that some readers will be shrugging their shoulders because numbers such as 0.2 percent and 0.4 percent don’t sound very big.
But keep in mind that we have dozens of bad policies in Washington that have this type of effect, and their cumulative impact is very big.
And for those who like comparisons, it’s worth observing that living standards in Europe are significantly below American levels precisely because politicians in places such as Greece, France, and Italy have made even more of these mistakes.
Today, I want to underscore why it is important to focus on “the right kind” of reform.
On paper, you can save money with “means testing” of benefits, but that creates an indirect penalty on work, saving, and investment.
You can also, on paper, save money by imposing price controls on health care, but that policy has a long track record of failure.
At the risk of understatement, either of those approaches represents “the wrong kind” of entitlement reform. Indeed, those policies are not really reform. Instead, they are tinkering with systems that are fundamentally broken.
For what it is worth, most politicians do not support good reform or bad reform.
As predicted by “public choice,” their preferred approach is kicking the can down the road.
Which is what Greek politicians did for many years.
But they learned in Greece that ignoring a problem does not make it disappear. Instead, it is a recipe for fiscal crisis (and we will probably have to re-learn that lesson in Italy).
So my other goal today is to show why something needs to be done.
We’ll start with a look at Medicare from Brian Riedl’s chartbook.
That’s a very sobering image, so now I’ll share some very sobering words.
James Capretta of the American Enterprise Institute summarizes America’s grim fiscal future.
In 2001, the Treasury estimated the government’s net unfunded liabilities, in present value terms, at $6.5 trillion, or 61 percent of GDP, with federal debt accounting for $3.3 trillion of the measured obligations. …By 2021, the government’s net position had deteriorated to minus $29.9 trillion, or 128 percent of GDP, with federal debt accounting for $22.3 trillion of the liabilities. The government’s unfunded commitments beyond public debt had grown by $2.9 trillion over ten years. …The financial hole is actually deeper than these numbers reveal because they exclude the dramatic effects of Social Security and Medicare. …with Social Security and Medicare included in the assessment, the federal government’s unfunded liabilities in 2021 are $93.1 trillion, or nearly 400 percent of annual GDP. That compares with $11.1 trillion as calculated in the 2001 Treasury report, which was 105 percent of GDP. …The problem posed by unfunded public liabilities is a relatively new one in U.S. history. It has only been over the past half century that the combination of an aging population and the modern entitlement system has pushed the federal government toward a financial crisis.
Having shared all this depressing data, I’ll now close with a couple of observations.
Second, “funded liabilities” are hardly an improvement over “unfunded liabilities” since that simply means debt-financed spending becomes tax-financed spending. From the frying pan to the fire, or vice-versa.
As I said in the above video, we need the right kind of entitlement reform so that we save money and have better policy for old people and poor people.
Let’s enjoy a third 2022 edition of libertarian humor (earlier versions here and here).
We’ll start with a look at horror movies adapted to a libertarian world.
Given my views on tax policy, this second item warms my heart.
Though I’m not an anarcho-capitalist, so my anti-tax arguments are not based on assertions about theft.
Our next item points out that libertarians and Republicans are not necessarily best buddies.
For our fourth item, we have an example of why homeschooling produces wiser children.
Last but not least, my favorite item comes from the 2020 vice-presidential nominee of the Libertarian Party.
To be fair, it was one of Obama’s CIA Directors who called libertarians terrorists rather than Biden, but I’m nonetheless ready to line up for free guns and money.
By the way, the same message was featured in one of my columns about gun control humor earlier this year.
As always, feel free to peruse my full collection of libertarian-themed humor.
Looking at reforms at the state level, the past two years have produced very good news on education policy and tax policy.
Regarding the latter, many states have lowered tax rates and several of them have junked so-called progressive tax systems and replaced them with simple and fair flat taxes.
But I’m greedy for even bigger improvements.
I want to see some states move not just to Column 2 in my ranking of state tax policy. I want them to be in Column 1.
And that means they need to get rid of income taxes.
The good news is that some states are having that discussion.
Here are some excerpts from an Associated Pressreport from Mississippi, written by Michael Goldberg.
Mississippi Gov. Tate Reeves promised to push for a full elimination of the state’s income tax during the 2023 legislative session. The move would make Mississippi the 10th state with no income tax. …Mississippi’s Republican-controlled legislature passed legislation in 2022 that will eliminate the state’s 4% income tax bracket starting in 2023. In the following three years, the 5% bracket will be reduced to 4%. …Supporters of the 2022 Mississippi tax cut said it would spur economic growth and attract new residents to Mississippi. …Republican House speaker Philip Gunn has said full elimination of the state income tax is “achievable,” though he hasn’t committed to doing so in the 2023 session. …Tax-cut proposals are a direct effort to compete with states that don’t tax earnings, including Texas, Florida and Tennessee.
And here are portions of an article in National Review about Colorado, authored by Ben Murrey, which also notes that the TABOR spending limit will need to be strengthened if lawmakers are serious about getting rid of the state’s income tax.
When an interviewer recently asked Colorado’s Democratic governor Jared Polis what the state’s income-tax rate should be, he answered without hesitation: “It should be zero.” …The effort to chisel away at the income tax has already gained steam in the state. Last year, voters reduced the tax with Proposition 116 — a ballot initiative that brought the rate from 4.63 percent to 4.55 percent. …Eliminating the tax would provide an enormous direct windfall to Colorado households. …every reduction in income tax will allow Coloradans to keep more of every dollar they earn, and it invites more jobs and opportunities for residents. …To eliminate the income tax entirely, the state would probably need to begin lowering the revenue limit along with the rate reductions in the future. …these two reforms would put the state on a road to zero.
By the way, Colorado voters once again just cut the state’s flat tax in a referendum earlier this month.
Would Mississippi and Colorado be doing the right thing if they joined the zero-income-tax club?
The nine states without an individual income tax are Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming. …What they have in common is providing needed state‐local services to their residents without complex, anti‐freedom, and anti‐growth individual income taxes. Most of the nine run leaner and more efficient governments than most other states. They only partly make up for the income tax revenue gap with other revenues. In terms of overall tax burdens, eight of the nine states are toward the bottom of the 50 states and Washington is in the middle. …Total taxes in the seven states average 8.1 percent of income. The average in the 40 other states is 9.6 percent. Thus, the lack of individual income tax restrains the overall tax burden. …Repealing state individual income taxes is a good goal. …Residents get the state‐local services they need, but at lower cost.
Here’s the chart that accompanied Chris’ article. He separates Alaska and Wyoming because they get so much money from energy taxes and are not realistic role models for other states.
The bottom line is that states without an income tax tend to have smaller government.
This is especially true for Florida, Tennessee, South Dakota, and New Hampshire. And Texas may join those states now that it has strengthened its spending cap.
One should-be-obvious conclusion from this data is that states with no income taxes should not make the mistake of adopting that punitive levy. Unless, of course, they want to repeat Connecticut’s unhappy experience.
Most people I know try to avoid serving on a jury, but I might enjoy the experience if I had the opportunity to engage in “jury nullification.”
For those not familiar, jury nullification occurs when jurors decide that a defendant is “not guilty” simply because they don’t agree with the underlying law.
In my case, I would never vote to convict someone charged with victimless crimes such as drug possession, gun ownership, or prostitution.
Or the supposed crime of using common sense when raising a child.
That’s apparently now a criminal offense in Waco, TX, as documented by Lenore Skenazy for Reason.
Heather Wallace’s oldest son, 8-year-old Aiden, was driving his two brothers crazy in the car as they all returned from karate one afternoon in October 2021. Wallace asked Aiden to walk the rest of the way home—half a mile in quiet, suburban Waco, Texas—so that he could calm down. For this she was arrested, handcuffed, and thrown in jail. She was charged with endangering a child, a felony carrying a mandatory minimum of two years in prison. …She is finally able to speak out after completing a six-month pretrial diversion program to get the charges dropped. But her arrest remains on the books—easily searchable by employers—which is disastrous for someone with a Bachelor’s degree in education. …A woman one block away had called the cops to report a boy walking outside alone. That lady had actually asked Aiden where he lived, verified that it was just down the street, and proceeded to call nonetheless. …Child services had the family agree to a safety plan, which meant Wallace and her husband could not be alone with their kids for even a second. Their mothers—the children’s grandmothers—had to visit and trade off overnight stays in order to guarantee the parents were constantly supervised. …if she went to trial and lost, she faced a minimum of two years behind bars and a maximum of 20. So she took the plea deal.
As you can see from the above excerpts, in this case there was no chance for a jury to engage in nullification.
The possibility of being locked up for a minimum of two years led the mother to cut a deal.
I can understand her choice, but if there’s another episode like this in the future and a parent resists a plea deal, I would very much hope that a Waco jury would do the right thing and immediately come back with a not-guilty verdict.
I’ll close by inviting readers to choose the worst person from this incident.
Was it the Karen who called the cops in the first place?
Was it the cop who arrested the mother?
Was it the local prosecutor who did not immediately drop charges?
All three deserve to be tarred and feathered. Figuratively speaking, of course.
Events like this remind me that every decent human being should be a libertarian.
I normally share this video from Reason every Thanksgiving.
But this year I’m going to recycle instead a video from John Stossel.
The moral of the story is that societies based on collectivism do not succeed.
People don’t work hard when the rewards of their labor go to others. Even in small communities, that approach does not work.
By contrast, they have a much greater incentive to be productive when the benefits accrue to themselves and their families.
In a nutshell, redistributionism does not work. This is why the original Plymouth Colony was failing. And it’s why places such as Cuba today are so miserably poor.
This is a lesson to keep in mind when people on the left or right try to tell you that bigger government is a good idea.
Let’s conclude with some Thanksgiving-themed humor about libertarians.
There are lots of jokes about a Trump-loving uncle causing discord over turkey, but libertarians have similar abilities.
According to the Fraser Institute’s Economic Freedom of the World, New Hampshire was the most economically free state in America in 2017, 2018, and 2019.
But the state famous for “Live Free or Die” has now been replaced by the Sunshine State.
The most-recent edition, which is based on 2020 data, informs us that Florida now enjoys more economic liberty than any other state.
New Hampshire still is ranked very high, coming in at #2, followed by South Dakota at #3. Texas and Tennessee are tied for #4.
What’s the one thing they all have in common? No state income tax.
Meanwhile, the report also highlights the states that (predictably) dominate the bottom of the rankings.
For the purpose of comparing jurisdictions within the same country, the subnational indices are the appropriate choice. …In the United States, the most economically free state was Florida at 7.94, followed by New Hampshire at 7.84, South Dakota at 7.75, and Texas and Tennessee at 7.66. (Note that since the indexes were calculated separately for each country, the numeric scores on the subnational indices are not directly comparable across countries.) The least-free state was again New York at 4.25, following California at 4.59, Hawaii at 4.65, Vermont at 4.70, and Oregon at 4.92. For the first time, we have made a preliminary attempt to include the US territory of Puerto Rico in the US subnational index. It came in with a score of 2.04. The next lowest score was more than twice as high.
Here are the full rankings at the subnational level (i.e., measuring the policies that are under the control of state lawmakers).
For the first time, the report assesses Puerto Rico. Hardly a surprise to see where it ranks.
The report also has an “all-government” ranking, which includes the effect of both national and subnational governments.
On that basis, New Hampshire is in first place.
The all-government index includes…comparisons among Canadian, Mexican, and US subnational jurisdictions that take into account national policies affecting all jurisdictions within each country. …The top jurisdiction is New Hampshire at 8.10, followed by Florida (8.05), Utah (8.03), and then Idaho and South Carolina, tied for fourth (8.02).
The all-government scores allow comparison of all the state and provinces in the US, Canada, and Mexico.
The one clear takeaway is that Mexico desperately needs pro-market reforms.
I’ll close by observing that almost every US state ranks above every Canadian province.
In Part I, I wrote about kleptocrats exploiting the issue to shake down western governments for enormous amounts of aid money.
In Part II, I noted how then-Secretary of State Hillary Clinton, using tens of billions of dollars from American taxpayers, wanted to bribe third-world governments into adopting anti-energy measures
In Part III, I explained how the Kyoto Protocol encourages the destruction of jobs in western nations.
In Part IV, I warned that environmental extremists were using government coercion to line their pockets and stifle dissent.
Now we have a fifth installment in the series.
Here are the details, based on a report in the New York Times by Brad Plumer, Max Bearak, Lisa Friedman and Jenny Gross.
Diplomats from nearly 200 countries concluded two weeks of climate talks on Sunday by agreeing to establish a fund that would help poor, vulnerable countries… The decision on payments for loss and damage caused by global warming represented a breakthrough… the United States and other wealthy countries had long blocked the idea… Developing nations — largely from Asia, Africa, Latin America, the Caribbean and South Pacific — fought first to place the debate over a loss and damage fund on the formal agenda of the two-week summit. And then they were relentless in their pressure campaign.
The agreement is the bad news.
The good news is that having some bureaucrats sign an agreement does not automatically mean American tax dollars will wind up in the pockets of corrupt government officials overseas.
…major hurdles remain. There is no guarantee that wealthy countries will deposit money into the fund. …And while American diplomats agreed to a fund, money must be appropriated by Congress. …With Republicans set to take over the House in January, the prospects of Congress approving an entirely new pot of money for loss and damage appear dim. “Sending U.S. taxpayer dollars to a U.N. sponsored green slush fund is completely misguided,” said Senator John Barrasso, Republican of Wyoming. “The Biden administration should focus on lowering spending at home, not shipping money to the U.N.
At the risk of understatement, I agree with Sen. Barrasso.
The Wall Street Journal opined against the proposed wealth transfer.
The use of climate policy to soak Americans keeps getting worse, and the United Nation’s climate conference in Egypt ended this weekend with agreement on a new fund to pay reparations to poor countries. Welcome to the latest climate shakedown. …Details about the reparations fund—such as which countries will pay, how much, and which countries will benefit—will be fleshed out over the next year. Biden officials claim the agreement doesn’t create new liabilities for Americans. But the U.S. and Europe are conceding the principle… American taxpayers are being asked to pay because the U.S. industrialized first and then lifted billions of people out of poverty via investment and trade. …Countries might also shake down U.S. fossil-fuel producers in their own courts. Climate reparations will merely serve as another form of global income redistribution.
There’s one other issue worth mentioning.
As Andrew Follett explains for National Review, China’s getting a sweet deal.
…it is a total shakedown. A major beneficiary of the deal is China, despite the fact that it has much higher emissions than the United States. …That’s because “the United Nations currently classifies China as a developing country. Even though it is now the world’s biggest emitter of greenhouse gasses as well as the second-largest economy,” according to the New York Times. “China has fiercely resisted being treated as a developed nation in global climate talks,” and it makes sense why. …American taxpayers will be forced to directly or indirectly fund Communist China. …Despite emitting far less than our international rival.
For what it’s worth, it seems that major western nations want to make sure the new fund does not provide direct handouts to China.
But so long as China gets to self-classify as a developing nation, any expansion of climate schemes will enhance its competitive advantage over the United States and other western nations.
That’s a lesson everyone should have learned about 50 years ago when the Federal Reserve unleashed the inflation in the 1960s and 1970s (also blame Lyndon Johnson and Richard Nixon for appointing the wrong people).
And we should have learned another lesson when the Fed (with strong support from Ronald Reagan) then put the inflation genie back in the bottle in the 1980s.
But today’s central bankers must have been very bad students.
Writing for National Review, E.J. Antoni explains that we are once again bearing the inevitable cost of bad monetary policy.
…central banks are allowing interest rates to rise in an effort to belatedly respond to a crisis they helped cause. …the global economic downturn has been baked into the cake for months. …central banks around the world laid the groundwork for economic pain when they decided to finance trillions of dollars in unfunded government spending in 2020. As those central banks continued — and in some cases accelerated — their excessive money creation throughout 2021 and into 2022, a global downturn became inevitable. …History shows that high levels of inflation almost always lead to recession …once inflation became apparent central bankers persisted with their earlier course, feeding inflation, rather than starving it. If they had acted earlier, far less drastic treatment would now be required. …there is no way around the harsh reality that the bill is coming due for the last two years of monetary malfeasance.
However, while I agree with the above article, I don’t agree with the title. It should be changed to: “Economies Can’t Avoid the Consequences of Central Bank Actions.”
Why the new title?
For the simple reason that central bankers are actually very capable of dodging responsibility for their mistakes.
For instance, has anyone heard the head of the Federal Reserve, Jerome Powell, apologize for dumping $4 trillion of liquidity into the economy in 2020 and 2021, thus creating today’s big price increases in the United States?
A more glaring example comes from the United Kingdom, where the former Governor of the Bank of England wants to blame Brexit. I’m not joking. Here are some excerpts from a Bloombergstory.
Former Bank of England Governor Mark Carney pointed to Brexit as a key reason why the UK central bank is now having to hike interest rates in its struggle to contain inflation. Alongside rising energy prices and a tight labor market, Britain’s exit from the European Union added to the economic headwinds for the UK, according to Carney. “In the UK, unfortunately, we’ve also had in the near term the impact of Brexit, which has slowed the pace at which the economy can grow,” Carney said in an interview with BBC Radio 4’s “Today” program on Friday. …“The economy’s capacity would go down for a period of time because of Brexit, that would add to inflationary pressure, and we would have a situation, which is the situation we have today, where the Bank of England has to raise interest rates despite the fact the economy is going into recession.”
This is galling.
Brexit did not cause inflation. The finger of blame should be pointed at the Bank of England.
Like the Fed, the BoE dramatically expanded its balance sheet starting in the spring of 2020.
And, like the Fed (and the European Central Bank), it maintained an easy-money policy for the remainder of the year and throughout 2021 – even after it became very clear that the pandemic was not going to cause an economic crisis.
To be fair, Carney left the Bank of England in early 2020, so it’s possible he might not have made the same mistake as Andrew Bailey, who took his place.
But Carney blaming Brexit shows that, if nothing else, he is willing to prevaricate to protect the BoE’s reputation.
What makes his analysis so absurd is that he almost surely would have made the same claims regardless of what happened after Brexit.
Boris Johnson delivered Brexit, but then proceeded to enact bad policies such as higher taxes and more spending. The economy weakened and Carney says this is why the BoE is being forced to raise interest rates.
But if Johnson had enacted good policy (the Singapore-on-Thames scenario), the economy would be performing much better. In that case, Carney doubtlessly would have claimed interest rates needed to rise because of overheating.
In reality, of course, interest rates are going up because the BoE is trying to undo its easy-money mistake.
Too bad Carney isn’t man enough to admit what’s really happening. Maybe a woman would be more honest.
P.S. The current Governor of the BoE, Bailey, also likes shifting blame since he wants people to think that Liz Truss’ proposed tax cuts were responsible for financial market instability – even though his easy-money policies are the real culprit.
The insult to injury was that some people then blamed free enterprise. Indeed, there are still people who think government actually saved the economy.
Sort of like applauding an arsonist after a fire is extinguished.
Whenever I deal with people who harbor these illusions, I ask them a series of questions, none of which have good answers (at least if the goal if to maintain the illusion).
Was it the fault of capitalism that the Fed pursued bad monetary policy?
Was it the fault of capitalism that Hoover and FDR increased spending?
Today, let’s look at the role of tax policy in the 1930s. Chris Edwards wrote on this topic last week, citing a new book by Art Laffer, Brian Domitrovic, and Jeanne Cairns Sinquefield.
Here are some excerpts from Chris’ article.
Many economists would point to monetary policy mistakes for causing the initial slide into the Great Depression. …But Laffer and coauthors argue that the “chief cause of the Great Depression was taxation.” That is a bold claim because policymakers made many mistakes during the 1930s. …Let’s explore the major tax increases of the 1930s… Herbert Hoover signed the first two laws listed here and Franklin Roosevelt the others.
Smoot‐Hawley Tariff Act of 1930.
Revenue Act of 1932.
Gold Confiscation.
Agricultural Adjustment Act.
National Industrial Recovery Act.
Alcohol.
Revenue Act of 1934.
Revenue Act of 1935.
Social Security Act of 1935.
Revenue Act of 1936.
Revenue Act of 1937.
Revenue Act of 1938.
State and local governments jacked up taxes during the 1930s. …high earners responded strongly to the income tax increases of the 1930s… the reported incomes of high earners got slugged in the early 1930s and remained low the rest of the decade. This suggests major economic damage. …Despite these taxpayer responses to higher tax rates, …governments did manage to squeeze substantially more money out of the public during the 1930s. Tax revenues as a percentage of GDP rose from 10.3 percent in 1929, to 15.4 percent in 1933, and then to 16.6 percent in 1940. Meanwhile, government spending soared from 9.9 percent of GDP in 1929 to 18.0 percent in 1932, and then remained near the higher level the rest of the decade.
Here’s a chart that accompanied the article showing the aggregate increases in the fiscal burden of government.
You’ll notice that aggregate tax revenues increased by about 60 percent during the 1930s.
Yet tax rates increased by a far greater amount. There’s a lesson to be learned, as I explained last year, about the Laffer Curve.
P.S. Our friends on the left like class-warfare tax increases because they hurt the rich, but they don’t seem to care that everyone else suffers collateral damage.
But I am vaguely hopeful that things may get better. More specifically, Argentina almost surely will suffer a major collapse at some point in the future.
When that happens, the only option will be liberalization. Simply stated, politicians no longer will have any ability to pillage the private sector (sort of like the Soviet Union and Eastern Europe when communism collapsed).
Naomi Klein views this scenario as “disaster capitalism,” but it’s the only hope for Argentina.
But there’s a catch. Politicians in Buenos Aires will only be forced to reform if they don’t get another bailout from the International Monetary Fund.
Unfortunately, there are (according to Professor Steve Hanke) 22 reasons to expect the IMF to do the wrong thing.
The bureaucrats at that international bureaucracy have a terrible track record of rewarding Argentina when it gets in fiscal trouble.
I wrote just last month that Italy is getting closer and closer to a fiscal crisis and I warned that the IMF may intervene to prop up that country’s bad policy. And when other European countries get in trouble, IMF bureaucrats will probably try to make a bad situation even worse with further bailouts.
I was going to write about Argentina again today, following up on yesterday’s column.
But the National Association of State Budget Officers has released a new report about spending in the 50 states.
This is an opportunity to see how all the pandemic spending by Washington has encouraged bad fiscal policy at the sub-national level.
To be succinct, the answer is “a lot.”
Figure 1 shows that all the grants and handouts enabled reckless policy. For all 50 states, the burden of spending climbed 24.7 percent between 2020 and 2022.
But not all states are created equal.
So I went to Table 1 of the report to see how much spending increased in various states.
Here are some of the highlights. Special applause for Georgia (home of my beloved Bulldawgs!), which actually reduced the spending burden over the past two years. And honorary mention to North Carolina, which is further enhancing its reputation for sensible fiscal policy.
Colorado also was one of the best states, doubtlessly thanks to TABOR. And New Hampshire also deserves further plaudits for relative frugality.
The big states of Texas and Florida increased spending by less than the 24.7 percent average. As did New York, surprisingly.
I’m sure nobody is surprised to see such bad results from New Jersey and California. And Illinois deserves some sort of Booby Prize for its recklessness.
P.S. I’ll close by shifting to a different topic. As you can see from Figure 5, Medicaid (the government’s health entitlement for poor people) is consuming ever-larger shares of state budgets (and the federal budget).
Today, for only the second time, I’m going to say something positive about Argentina. At least in a back-handed way.
I’m currently in Buenos Aires for a conference. And because Argentinian monetary policy is even worse than U.S. monetary policy, the dollar is very strong and I’m able to enjoy great steak dinners for about $15.
Unfortunately, my gain is Argentina’s loss.
In a column for the Wall Street Journal, Dave Seminara discusses that nation’s long-run decline.
Argentina was one of the world’s seven richest countries at the turn of the last century thanks to its agricultural abundance. “People used to say someone is as rich as an Argentine.” …But bad governance has taken a heavy toll. More than a third of Argentines live in poverty and tens of thousands of small businesses closed during the pandemic. …nearly every young person…is plotting an escape to Europe or North America. …Argentina ranks 126th in the World Bank’s ease of doing business index and 96th on Transparency International’s corruption perception index, behind developing countries like Ethiopia, Tanzania and Kosovo. A bloated public sector weighs down Latin America’s third-largest economy. Roughly half the country either works for the government or depends on it for social welfare benefits. …The left’s mistakes in Argentina…profligate social spending, high taxes, and too many restrictions on commerce—are eerily similar to the priorities of the American left.
The most important passage in the above excerpts is that “Roughly half the country either works for the government or depends on it for social welfare benefits.”
How can you save a country when such a high percentage of the population has a direct incentive to vote for more government?
But it’s possible the outlook is even worse if you compared private sector workers to government bureaucrats.
Writing for National Review, Antonella Marty is very dismayed by Argentina’s trajectory.
Argentina’s annual inflation rate now exceeds 70 percent — a 30-year high. Its monthly inflation (just under 8 percent) is comparable to the U.S.’s annual inflation… Argentina is starting to resemble Venezuela — and no country wants to resemble Venezuela. How did things get this bad? The answer is actually quite simple: a big government that loves printing money. For decades, government intervention in Argentina’s economy has ballooned to such an extent that the state basically dictates the overwhelming majority of private-sector activity either directly or indirectly. The public sector’s meddling is notorious, crowding out the entrepreneurship, innovation, and job creation that keeps markets free and healthy. While Argentina’s population exceeds 45 million people, only about six million Argentines are employed in the private sector, while 55 percent of the country’s registered workers are employed by the government.
I don’t know which factoid is more depressing. Is it that “only about six million Argentines are employed in the private sector” or is it that “55 percent of the country’s registered workers are employed by the government”?
For what it’s worth, I assume “registered workers” does not include people in the underground economy. And because taxes and red tape are such a nightmare in Argentina, a lot of economic activity has been forced into the shadows.
But that does not change the fact that the country has a far-too-heavy burden of government. Politicians have turned a rich country into a basket case. And the situation seems to get worse every year, even when supposedly right-leaning governments occasionally get elected.
Last week, I explained that “supply siders” need to be ardent advocates of spending restraint. After all, there is no chance of good tax policy in the future if the burden of federal spending continues to expand.
In an article for National Review, Philip Klein speculates whether there is any appetite for spending restraint, even among self-described conservatives.
For much of the history of the American conservative movement, limiting the size and scope of government has stood as one of its central goals. …In 2022, such messages were barely anywhere to be found on the campaign trail…conservatives have largely moved on from making the case for reducing the size and power of Washington. In some cases, this shift has been passive. …It has become popular in some circles on the right to mock “zombie Reaganism” and insist that while it may have made sense back in the 1980s to argue for smaller government, such a message is now outdated. …the argument that the battle to limit government has already been lost also neglects to recognize that things could always get worse. That is, even though the federal government has gone through extraordinary growth since the New Deal, it would have grown even larger had there been no conservative movement to push back. One need only look at Europe, where conservative parties long ago made their peace with the welfare state, to see how government agencies have crowded out civil society… There is no way in which a nation with…a ballooning welfare state will be an accommodating place for conservatives in the long run, no matter how much some may fantasize about seizing the dragon and precisely aiming its fire at their enemies during the relatively brief windows in which Republicans have power. Conservatives…should not abandon the fight for limited government.
Those are easy columns to write since it is the same argument I’ve been making my entire life. But what is depressing now is that there is opposition from Republicans as well as Democrats.
Maybe they should all be forced to watch my video series on the economics of government spending.
The Wall Street Journaleditorialized last month about this unfortunate similarity. Here are some of the highlights…or lowlights would be a better term since the net result of protectionism is to hurt taxpayers and consumer.
President Biden has rolled back some of Donald Trump’s destructive tariffs, but not enough, and they’re still doing economic harm. New analyses of Mr. Trump’s Section 232 steel and aluminum tariffs show how consumers and manufacturers are still paying for the border taxes that benefit only a few companies. A study by Harbor Aluminum for the Beer Institute finds that the 10% tariff on imported aluminum cost U.S. beverage manufacturers $1.7 billion from March 2018 through August 2022. About 93% of the $1.7 billion has been pocketed by domestic aluminum producers and smelters in the U.S. and Canada. …By raising the cost of production, tariffs constrain manufacturers, who cut jobs and pass costs to consumers. …Repealing the Trump Section 232 tariffs could reduce prices at the margin. The longer they stay in place the more they deserve to be called the Biden-Trump tariffs.
Since the above column mentioned the Section 232 tariffs, this would be an opportune moment to cite the Tax Foundation’s research on the topic.
…economists have reached…negative conclusions regarding the impacts of the recent Section 232 tariffs on the economy. Lydia Cox and Kadee Russ, using an estimate derived from a Federal Reserve Board paper, calculated that the Section 232 tariffs reduced manufacturing employment by about 75,000 jobs. Kyle Handley and other economists looked at the impacts of the import tariffs on export growth in the U.S. and found that companies exposed to the Section 232 tariffs experienced reduced export growth. This occurred because the cost of their inputs rose due to the tariffs, which hindered firms’ ability to increase their exports. For each 1 percent increase in the tariffs on steel and aluminum, export growth fell by 0.11 percent. …The aluminum tariffs in particular have disproportionately harmed certain industries. …Ford and General Motors estimated that the tariffs cost them about $1 billion each the first year they were in effect—roughly $700 per vehicle produced.
And here’s the Tax Foundation’s estimate of how the economy would benefit if these taxes on trade were repealed.
Since I’ve been criticizing Biden for being a protectionist, I’ll close by speculating whether Republicans have learned from Trump’s protectionist mistakes.
Here are some excerpts from a column in the Wall Street Journal by former Congressman Jeb Hensarling.
Numerous studies have shown that almost all the costs of tariffs initiated under the Trump administration were paid by American consumers and businesses. …According to the American Action Forum, Mr. Trump’s tariffs combined have increased consumer costs by approximately $51 billion a year. …Republicans love to talk about “draining the swamp” in Washington. But the tariffs imposed by the Trump administration empowered hundreds of bureaucrats at the Commerce Department and the Office of the U.S. Trade Representative to grant waivers under what can at best be described as an opaque process with discretionary standards. …A schedule of tariffs doesn’t drain the swamp. It fills it with well-connected lawyers and lobbyists who know how to work the system.
The bottom line is that protectionism does not work if Republicans do it, and protectionism does not work if Democrats do it.
P.S. A big problem is that politicians genuinely don’t understand that a “trade deficit” is automatically and necessarily offset by a capital surplus. Helping them to understand this fact is key to renewing support for free trade.
In the Wall Street Journal, Andy Kessler explains that smaller government is the recipe for more growth.
Winston Churchill…said: “We contend that for a nation to try to tax itself into prosperity is like a man standing in a bucket and trying to lift himself up by the handle.” The U.S. should heed that advice… economic growth is going to come from efficient supply chains and productivity in manufacturing in the U.S. Tax and spending cuts are the cure. …Republicans must resist the urge to subsidize higher energy costs and instead help slay inflation and bring back a strong, productive economy.
Let’s look at some new academic research bolstering Kessler’s argument.
Megha JainAishwarya Nagpal, and Abhay Jain published a study last year in the South Asia Journal of Macroeconomics and Public Finance.
The key findings deal with the Armey-Rahn Curve and can be found in the abstract.
The current study attempts to examine the linkage between government (public) spending and economic growth in the broader framework of selected South Asian Nations (SANs), BRICS and other emerging nations by using two sets of empirical modelling over the period 2007–2016 by using inverted U-shaped hypothesis, propounded by Armey curve (1995). …The key findings signify the existence of an inverted U-shaped relationship for the selected data set of emerging nations and, therefore, support the Armey curve hypothesis. The projected threshold (tipping) levels (as a percentage of GDP) are 24.31% for the government total expenditures (GTotExp), 12.92% for consumption spending (GConExp) and 7.11% for investment spending (GInvExp). It has been observed that a rise in the public spending (size) resulted in a substantial…decrease…in the growth rate when the public spending was…after…the optimal threshold level, indicating a non-monotonic association.
For what it’s worth, I think the study is wrong and that the growth-maximizing level of government spending is much lower than 24.3 percent of economic output.
But since total government spending in the United States now consumes about 40 percent of GDP, at least we can all agree that there will be more prosperity if America’s fiscal burden is dramatically reduced.
If we ever bring the spending burden back down to 24.3 percent of economic output, we can then figure out whether the ultimate goal is even lower (as it was for much of America’s history).
There is one point from the study that merits further attention. The authors estimated not only the growth-maximizing level of total spending, but also how much the government should spend on “consumption” and “investment” outlays (an issue I addressed last month).
Here’s a chart from the study showing that consumption outlays should be less than 13 percent of economic output.
P.S. If you want to watch videos that address the growth-maximizing size of government, click here, here, here, here, and here.
P.P.S. Ironically, the case for smaller government is bolstered by research from normally left-leaning international bureaucracies such as the OECD, World Bank, ECB, and IMF.
In the past couple of months, I’verepeatedlyaddressed the fiscal and economic mess in the United Kingdom.
Today, we’re going to zoom out and identify the main cause of all the problems.
If you look at the annual budget numbers published by the Treasury Department in the United Kingdom, the first thing to notice is that there was a big surge of spending for the pandemic.
One can certainly argue that pandemic-related spending was necessary to deal with a one-time emergency.
This second chart, however, shows the real problem with fiscal policy in the United Kingdom. Politicians have used the one-time emergency has an excuse to impose a permanent increase in the country’s spending burden.
Johnson was then replaced by the short-lived Liz Truss, who proposed lower taxes but offered no plan to restrain spending.
And now the new Prime Minister, Rishi Sunak, seems committed to an ongoing policy of higher taxes to finance permanently larger government.
In an article for Reuters, William Schomberg reports that the Chancellor of the Exchequer (akin to the U.S. Treasury Secretary) apparently thinks higher taxes are needed to save the economy.
British finance minister Jeremy Hunt said he will have to raise taxes in next week’s budget plan in order to fix the public finances and soften a potentially long recession… “This is going to be a big moment of choice for the country and we will put people ahead of ideology,” Hunt told the Sunday Times in an interview. …Hunt and Sunak are trying to prepare their Conservative Party for the tax increases which could reignite tensions in the party… Hunt was also considering a multi-billion-pound package of support to shield pensioners and benefit claimants from higher power bills, the newspaper said.
At the risk of understatement, Jeremy Hunt knows nothing about economics. Or history.
I wish a reporter would ask him to name a single country, at any point in world history, that achieved more prosperity by raising taxes and increasing the burden of government spending.
I’ll close with a couple of additional observation.
To understand why I’m concerned, look at the most-recent edition of the Congressional Budget Office’s long-run fiscal forecast.
It shows that the burden of government spending is going to substantially increase over the next three decades – largely due to the unchecked growth of entitlement programs such as Medicare and Medicaid.
Failure to control spending will mean two bad things – either huge tax increases or staggering levels of debt. Probably both.
And if politicians add more spending (as Biden has already done), then those long-run trend lines will get even worse.
My concern is that some national conservatives are unwilling to confront this problem and/or they support policies to make matters worse.
But first, in the interest of fairness, bigger government is not an inherent part of the national conservatism platform. At least based on the statement of principles published by The American Conservative.
That document, signed by the key advocates of national conservatism, lists 10 concepts, most of which are good from a libertarian perspective and only one of which is overtly troubling.
National independence (I cheer for anyone opposed to global governance)
Rejection of imperialism and globalism (they’re opposed to the bad form of globalism)
But don’t believe me. Bill McGurn of the Wall Street Journalmakes similar points.
Mr. Cass’s movement insists (rightly) that purely economic and material measures are limited. But whenever they move beyond rhetoric to specifics, their preferred solutions almost always turn out to be economic interventions, from child tax credits to industrial policy. …Even a cursory glance at the record of the past half-century shows government often doing the most harm to people precisely when it is trying to help them. Federal efforts to promote homeownership ended up encouraging banks to lend people more than they could afford and feeding a housing bubble. Federal college loans helped drive up tuition while leaving Americans $1.6 trillion in debt. As we ought to have learned from the Great Society, well-intentioned government policies can do immense damage to families and communities. Unfortunately, when it comes to getting the toothpaste back in the tube, government has shown much less success.
The bottom line is that national conservatives always seem to advocate bigger government when they develop or endorse specific policies.
And, to the best of my knowledge, none of them have put forth any agenda to deal with the spending problem that already exists.
That’s an agenda that guarantees future tax increases. And, for what it’s worth, one of the advocates already has embraced a tax-the-rich agenda to help finance the national conservative agenda.
That means some things that Trumpies want, such as lower tax rates, but it also means genuine spending restraint. Which we didn’t get during the Trump years.
In part II, let’s contemplate whether this is a realistic hope, at least once we get past the Biden years.
If history is any guide, the answer is yes. Here’s another video, from more than 10 years ago, that shows the fiscal discipline the nation enjoyed under both Reagan and Clinton.
If you want more recent evidence, we also had a five-year spending freeze after the so-called Tea Party Republicans took power in 2010.
What about today? Can Republicans sober up and once again become fiscal hawks, morphing into good supply-siders who want better tax policy and spending restraint?
Or are they the bad supply-siders, meaning they spout rhetoric about tax cuts but don’t take the tough steps (such as entitlement reform) that are needed to make lower tax rates realistic?
I’ll close with a very depressing observation. The current fiscal situation is bad, but remember that things will get much worse because of demographic changes such as population aging.
Today I’m going to change hats and pretend to be a political pundit so I can offer some unsolicited advice to my Republican friends.
If they like to win elections, they need to realize that Donald Trump is bad news.
Yes, he beat a very unpopular Hillary Clinton in 2016, but every subsequent election has produced Republican disappointment.
The 2018 midterm elections.
The 2020 presidential election.
The 2022 midterm elections.
What should most upset the GOP is that Trump has given Democrats control of the Senate twice. First, by depressing Republican turnout in the two Georgia runoff contests with his sore-loser routine about stolen elections in the 2020 cycle. Second, by convincing Republican voters to nominate inferior candidates in the 2022 cycle.
But the fault is not entirely with Trump.
As illustrated by this cartoon, a significant share of Republican voters like Trump and this gives him enormous power over the GOP.
The interesting question to answer is why many rank-and-file Republicans feel so loyal to Trump – even though he often supported bad policies and has helped Democrats gain power in Washington.
One thing that surprised me over the past four yeas is that I found strong support for Trump from grassroots conservative Republicans. Yes, they didn’t like his fiscal profligacy and they mostly didn’t like his protectionism, but they did like the fact that he was a “fighter,” unlike so many (but not all) Republican politicians who get cozy with the DC establishment. They also figured he was worth supporting because he was so reviled by the establishment media (i.e., the enemy of my enemy is my friend).
I think that analysis still applies, but let’s dig deeper. Another problem is that Republican voters think anti-Trump GOP politicians must be bad (closet Democrats, or something like that).
But that binary analysis – the Trump camp vs the every-other-Republican camp – is woefully inadequate.
I think it’s more accurate (though obviously simplified) to look at the Republican Party as having three camps. And here’s a Venn diagram with my amateur depiction of what unites and divides them.
I’m sure many of you already know my conclusion, which is that the Republican Party should opt for Reaganism.
I’ve written many times why it is good policy, so I’ll conclude by elaborating on why it is good politics.
Simply stated, Trump voters don’t trust establishment Republicans. They view them as proponents of things they don’t like such as bailouts, globalism, and amnesty.
And establishment Republicans obviously don’t like Trump and Trumpie candidates, even if only for stylistic reasons.
Most election watchers are focused on whether Republicans will take control of the House and/or the Senate in today’s midterm election in the United States.
That’s an interesting topic, and I’ll close today’s column with my predictions, but I’m going to continue my long-standing tradition (2010, 2012, 2016, 2018, 2019, 2020, 2021) of highlighting the year’s most important initiatives and referendums.
1. Regular readers already know that the class-warfare initiative in Massachusetts is at the top of my list. The left-controlled state legislature has placed an initiative on the ballot to replace the state’s 5 percent flat tax with a class-warfare system with a top rate of 9 percent. The Wall Street Journal recently warned, “A proposed millionaire tax would accelerate the exodus of wealth to New Hampshire and Florida” and National Reviewadded that “The Bay State’s economic future is on the ballot.”
2. It has not attracted much attention, but my sentimental favorite is Proposition 132 in Arizona, which would strengthen the state’s constitution by requiring a 3/5ths vote to approve any ballot initiative to increase the tax burden. This would augment the 2/3rds supermajority that already exists for legislatively enacted tax increases.
3. Speaking of taxes, I can’t imagine that anyone is surprised to learn that there’s an initiative to (further) increase California’s top tax rate. The Tax Foundation explained that, “California Proposition 30 would create a 1.75 percentage point surtax on income above $2 million, which would bring the top marginal rate to 15.05 percent. (Separately, the scheduled uncapping of a 1.1 percent payroll tax in 2024, combined with the passage of Proposition 30, would yield a 16.15 percent top rate on wage income.)” This is so extreme that I’m predicting even California’s crazy voters will vote no.
4. Sticking to taxes, there’s a referendum in Colorado, Proposition 121, to lower the state’s flat tax. The Tax Foundation summarizes what’s at stake: “Colorado Proposition 121 would reduce the state’s flat statutory income tax rate from 4.55 percent to 4.4 percent, effective retroactively for tax year 2022.” Not a huge reduction, but a welcome step in the right direction.
5. For those who follow labor issues, there are two initiatives that merit attention. In Illinois, Amendment 1 would further empower and entrench the power of government bureaucrats. As noted by the Illinois Policy Institute, “Amendment 1 would allow government unions to pass their most unpopular demands at the bargaining table, and voters would have no way to hold them accountable.” By contrast, Tennessee voters will get to vote on whether to enshrine “right-to-work” in the state’s constitution.
6. Last but not least, voters in a couple of California communities will have the opportunity to demonstrate whether they understand economics. To be more specific, an article in Reason explains, “The most sweeping rent control initiative up for a vote next Tuesday is Measure H in Pasadena, California. It would cap rent increases at 75 percent of inflation as measured by the Consumer Price Index…A handful of other California cities have ballot initiatives that would tighten pre-existing rent caps.”
P.S. My predictions for Congress (which occasionally are accurate) are for Republicans to take the Senate by a 52-48 margin and the House by a 246-189 margin.
As reported by Alex Gangitano for the Hill, the president asserted that only “idiots” thought he was a socialist.
President Biden on Saturday said people holding signs calling him a socialist were idiots…he said in remarks at Jones Elementary in Joliet, Ill…“I love those signs when I came in — socialism. Give me a break, what idiots,” the president added. …The Illinois stop is another on a list of typically blue strongholds the president is visiting in the days before Election Day on Tuesday. He also traveled to New Mexico and California this week and will make stops in New York on Sunday and Maryland on Monday.
If you read the entire article, at no point does Biden explain why the signs were wrong. Or idiotic. Instead, he did his usual political routine, attacking Republicans for wanting to make changes to Social Security and Medicare (I wish!).
Since Biden dodged the issue, let’s look at whether the critics are right.
Is the president a socialist?
The answer depends on who is answering. For economists, socialism has a very specific definition. It does not simply mean big government.
But “usually” does not means “always.”Marc Coopwood retired last year as assistant police chief in Beverly Hills after 4 years and 7 months in the role… As part of his separation agreement, he was issued a final payment that included 12 months’ salary and benefits, as well as compensation for unused leave, the city said in a statement. …The top 10 highest-paid list includes city managers in West Hollywood, Artesia and Fremont, two fire captains in the city of Los Angeles and a firefighter, as well as a load dispatcher at the Los Angeles Department of Water & Power who booked $400,000 in overtime compensation.
Or is it the bureaucrat who fleeced taxpayers for $400K of overtime?
International Liberty 