The Welfare State Penalizes the Poor with High Marginal Tax Rates

Back in 2016, I shared an image that showed how the welfare state punishes both the poor and rich.

Rich people are hurt for the obvious reason. They get hit with the highest statutory tax rates, and also bear the brunt of the double taxation (the extra layers of tax on saving and investment resulting from capital gains taxes, double taxes on dividends, death taxes, etc).

But I also pointed out that the poor are penalized because they get trapped in dependency.

In large part, this is because they face bad incentives when they work and try to become self sufficient. Not only do they get hit by federal and state taxes, but they also can lose access to various redistribution programs. And the combination of those two factors can produce very high implicit marginal tax rates.

I cited an astounding example of this phenomenon in 2012, showing that a single mother in Pennsylvania would be better off earning $29,000 rather than $57,000. In other words, her implicit marginal tax rate on an extra $28,000 would be 100 percent (thus fulfilling FDR’s odious dream, albeit against a different set of victims).

How pervasive is this problem?

A new study published by the National Bureau of Economic Research gives us the answer. Authored by David Altig, Alan J. Auerbach, Laurence J. Kotlikoff, Elias Ilin, and Victor Ye, it estimates implicit marginal tax rates for various segments of the population.

A plethora of federal and state tax and benefit policies jointly determine Americans’ incentives to work. …complex and often arcane provisions that condition tax payments and benefit receipts on labor income, asset income, total income, and the level of assets. …The myriad features of our fiscal system raise this paper’s central questions: What are the typical levels of marginal net tax rates facing Americans of different ages and resource levels, taking the entire federal and state fiscal system into account? …How much does one’s choice of the state in which to live impact one’s incentive to work? …We address these questions by running 2016 Survey-of-Consumer-Finances (SCF) data through The Fiscal Analyzer (TFA).

The five economists discovered that lower-income people are often hit by very high marginal tax rates on work (τL).

Our main findings, which focus on the fiscal consequences of SCF household heads earning $1,000 more in our base year – 2018, are striking. One in four low-wage workers face lifetime marginal net tax rates above 70 percent, effectively locking them into poverty. Over half face remaining lifetime marginal net tax rates above 45 percent. …marginal net lifetime tax rates are generally higher for those in the lowest quintile than for those in the middle three quintiles… The potential poverty trap arising under our fiscal system is highlighted by the 75th τL-percentile values for the bottom quintiles. Moving from the youngest to the oldest cohorts, these values are 67.4 percent, 75.9 percent, 69.3 percent, 76.5 percent, 74.4 percent, and 73.9 percent. Hence, one in four of our poorest households, regardless of age, make between two and three times as much for the government than they make for themselves in earning an extra $1,000.

This graph from the study shows how poor people can even face marginal tax rates of more than 100 percent (which I’ve highlighted in red). The vertical axis is the tax rate and the horizontal axis is household prosperity.

Subjecting poor people to very high implicit tax rates is horrible economic policy, just like it’s horrible policy to hit any other group of people with high marginal tax rates.

Simply stated, when people are punished for engaging in productive economic behavior, they respond by reducing their work, their saving, their investment, and their entrepreneurship.

Interestingly, some states are better (or less worse) than others.

One’s choice of state in which to live can dramatically affect marginal net tax rates. Across all cohorts, the typical bottom-quintile household can lower its remaining lifetime marginal net tax rate by 99.7 percentage points by switching states! …The typical household can raise its total remaining lifetime spending by 8.1 percent by moving from a high-tax to a low-tax state, holding its human wealth, housing expenses, and other characteristics fixed. …To illustrate how τL varies from state to state, we calculate the median τL for households in the 30-39 age cohort in the lowest resource quintile in each state. …Figure 11 shows the cross-state variation in median lifetime marginal tax rates. …median rates varies between a low of 38.8 percent in South Carolina and a high of 55.0 percent in Connecticut. Clearly, where people live can matter a lot for their incentives to work.

Here’s a map showing the marginal tax rate on people in the bottom 20 percent. The obvious takeaway is that you don’t want to be a poor person in Connecticut, Minnesota, or Illinois.

For what it’s worth, tax rates are still too high in the best states (South Carolina, Texas, Indiana, and South Dakota).

The bottom line is that the welfare state is bad news for both taxpayers and recipients. All of which may help to explain why the poverty rate stopped falling once the government declared a “War on Poverty.”

In One Image, Everything You Need to Know about Blue State Fiscal Problems

Should high-tax states such as California and New York get a bailout?

I explained last month why that would be a mistake, in large part because bailouts would reward states for irresponsible fiscal policy (similar to my argument that countries like Austria and the Netherlands shouldn’t be bullied into providing bailouts for Italy and Spain).

And I’ve shared two videos (here and here) for those who want more information about how bailouts encourage “moral hazard.” And this is true for banks (think TARP) as well as governments.

Today, though, I want to focus on some numbers that show what’s really causing fiscal problems in some states.

Adam Michel and David Ditch of the Heritage Foundation have generated some startling data on state government finances.

Instead of waiting on a handout from Washington, states should clear the way for a more robust economic recovery by addressing their unsustainable finances. States and local government spending has increased over the recent past… After adjusting for inflation and increases in population, state and local spending (in constant 2019 dollars) has grown from $5,596 per person in 2000 to $7,268 per person in 2019. That amounts to a 30% increase in the real cost of state and local government over just two decades, even without the thousands of dollars per person the federal government sends to states and localities through a wide variety of programs. …not all states spend equally. As of 2017, Florida, Georgia, and Arizona spent about $5,800 per person on state and local governments, but New York spent more than $11,700 per person.

The most important number is the above excerpt is that there’s been a 30 percent increase in per-capita state spending after adjusting for inflation.

That’s a very worrisome trend.

But not all states are created equal. Or, to be more precise, they’re not all equally profligate. Here’s the chart that starkly illustrates why some states are in trouble.

At the risk of understatement, California and New York have not complied with the Golden Rule for fiscal policy.

Needless to say, there’s no justification for the notion that taxpayers in well-run states such as Texas and Florida should be coerced into providing bailouts for politicians in poorly run states.

And now we have a compelling visual that settles the argument.

P.S. Over the past several years, I’ve done multiple columns comparing Texas and California and also several columns comparing New York and Florida, all of which underscore that blue states have created their own problems by taxing too much and spending too much.

P.P.S. Thankfully, people can vote with their feet by moving from high-tax states to low-tax states. Let’s hope that Congress doesn’t enact a bailout so they’re forced to subsidize the states that drove them away.

Riots, Government Failure, and Gun Control

In some cities, legitimate protests about abusive and improper police behavior have degenerated into riots.

One consequence of this mayhem is that police don’t have the manpower to effectively protect households and businesses.

In same cases, as shown by this tweet, a police chief even gave a green light to looters even though taxpayers pay generous salaries to cops because they’re supposed to protect our lives and possessions.

 

This would be a good opportunity to point out how this is another sad example of government being so big and bloated that it can’t fulfill its core roles of protecting life, liberty, and property.

But I want to focus on a more narrow issue, which is why it is vital for citizens to have the right to own firearms so they can protect themselves when there are breakdowns in social order and cops can’t (or won’t) help out.

I wrote about this issue back in 2011, observing that Europeans were largely helpless during that year’s civil unrest because governments had stripped them of the right to self defense.

I also specifically compared helpless British victims of rioting to armed shopkeepers in Los Angeles who were able to protect themselves when there were riots in that city.

Today’s unrest is providing even more evidence. There are already dozens of stories about citizens protecting themselves and their businesses because law enforcement isn’t available.

Here’s one example.

What began as a peaceful protest in Cleveland on Saturday—over the death of George Floyd at the hands of a Minneapolis police officer— turned violent as the day progressed, prompting Mayor Frank Jackson to issue an 8 p.m. curfew and to request National Guard reinforcements to protect the city from rioters. Corbo’s, a tiny family-owned bakery in the city’s historic Playhouse Square district, took matters into their own hands, brandishing their firearms when rioters came calling. …rioters and looters can be seen approaching Corbo’s Bakery, taunting the owners and threatening them with iron rods and a large pylon with a heavy metal base. Three men stood in the doorway of the bakery, defending their property and exercising their Second Amendment rights. A minute later the rioters were gone, having moved on to the business next door, where they shattered a massive storefront window… Rash asks the men protecting Corbo’s whether or not they have insurance that would cover damage from the rioters. “I mean, really, is it worth having someone get shot? Are you shooting someone over an insured place? But why?” “That’s not the point,” one of the armed Corbo’s workers replied. “Well, it is the point,” Rash counters. “But what if someone accidentally got shot?” An African American bystander defended the bakers, saying, “They just trying to defend they’re sh–.” “You’re out here with guns!” Rash exclaims. “I’m on my fu–ing property,” says a baker

Thankfully, there ultimately was no violence in this encounter.

It’s also worth noting that there was no looting. Another successful example of why it’s so helpful to have private gun ownership.

I wonder if the chaos across the nation is a “learnable moment” for some people. Here’s a tweet from a psychologist in New York.

Supporters of the 2nd Amendment often point out that cops are just minutes away when trouble is seconds away. Well, Mr. Kaufman learned that sometimes the police aren’t just minutes away. They can be hours away or not available at all.

Maybe I’m being overly optimistic, but I hope he now realizes that his earlier calls for gun control were misguided. Unless, of course, he plans to defend himself with Tide pods.

I’ll close with two items. First, I’ll recycle my 2011 poll to see why (or if) people support the right to keep and bear arms. Interesting, the coronavirus (which led to the release of criminals and police announcements that some laws wouldn’t be enforced) produced an increase in the number of people (up from 14.43 percent) who answered “To protect myself and my family if we suffer a societal breakdown.”

Given what’s happening each night in our cities, I’m guessing that number will increase.

Second, I’ll also recycle this image that I shared when writing about the looting that occurred after Hurricane Sandy.

It’s amusing, but I like sharing it because it gives me an opportunity to remind people about the role of incentives.

At the risk of stating the obvious, looters are unlikely to go after this neighborhood and they’re going to be far more likely to cause mayhem in a place like New York City, where an incompetent city government basically gives crooks a free pass and there are tragic restrictions on gun ownership.

P.S. As noted above, I hope Mr. Kaufman has an epiphany. Sort of like the one that Justin Cronin experienced when he dealt with a breakdown of civil order.

If We Want Better Policing, Eliminate Qualified Immunity

Yesterday’s column focused on how police unions protect the bad apples who misbehave and therefore cause some people to resent law enforcement, especially in the minority community.

Curtailing the role of those unions would be an important step to create better bonds between the police and the citizenry.

Today’s column will explain the need to repeal or substantially curtail the doctrine of “qualified immunity,” which was created by courts to protect cops who trample on people’s rights.

It’s not a complete answer, just as fixing the union problem isn’t a complete answer. But getting rid of the doctrine at least will give citizens the opportunity to bring lawsuits when cops disregard their civil liberties. This tweet is a good summary for those who don’t have time to dig into the topic.

But hopefully you do have time to investigate this issue.

Here are excerpts from four articles about problems with qualified immunity.

This is not a new issue for libertarians and principled conservatives. Glenn Reynolds pointed out the injustice of the doctrine back in 2013 in a column for USA Today.

And David French condemned the practice in a piece for National Review in 2018.

Judges created qualified immunity, and they can end it. It’s past time to impose true accountability on public servants who violate citizens’ constitutional rights. First, some background. Since 1871, federal law has permitted Americans to file lawsuits against public officials who violate their constitutional rights. It’s a powerful tool that essentially deputizes members of the public to defend their own liberties. …However, after generations of judges have interpreted the statute, the phrase “shall be liable” has come to mean “may occasionally be liable.” …In 1982, …the law changed. In a case called Harlow v. Fitzgerald, the Supreme Court concocted the modern doctrine of qualified immunity. …As the doctrine developed, to prove that a right is clearly established, the plaintiff generally had to find and cite a remarkably similar case, with nearly identical facts, decided by a court of controlling jurisdiction. …the entire notion of “clearly established law” rests on a series of absurd, fantastical premises. Are we really to believe that a police officer doesn’t know he shouldn’t pound on the wrong door and blow away the innocent occupant unless a court said so in a case, say, five years before?

Writing for Reason, Professor Ilya Somin explains how fixing this bad bit of judge-made law could improve policing.

…there is much that can be done to curb police abuses. …The problem is not that police officers are unusually bad people. It’s that they have bad incentives, under which they are rarely held accountable for abuses. Those incentives can and should be altered. An important first step would be to get rid of the legal doctrine of “qualified immunity,” under which law enforcement officers are immune from suits for violating citizens’ constitutional rights… The Supreme Court interprets the term “clearly established” so narrowly that officers routinely get away with horrendous abuses… Qualified immunity is not required by the Constitution or even by a federal statute. It is a purely judge-made doctrine made up by the Supreme Court itself in a misguided effort to protect law enforcement officers from excessive litigation. …Both Justice Clarence Thomas, the Court’s most conservative member, and Justice Sonia Sotomayor, the most liberal, have been severely critical of qualified immunity. There is a real chance they can persuade at least three of their colleagues to take the same view. …state and local governments might respond by indemnifying police officers for the damages they have to pay in such cases. But even if that happens, it would still be a step in the right direction. Indemnification costs money that many local governments will be loathe to pay. They will therefore have an incentive to crack down on abusive officers, particularly repeat offenders who routinely force authorities to pay out large sums…

Thank goodness for Clarence Thomas. Not only is he one of the leaders in trying to address qualified immunity, he’s also a leader in the campaign to get rid of the odious practice of asset forfeiture, which effectively creates an incentive for government to steal private property.

Writing for the Bulwark, Clark Neilly adds his two cents to the discussion.

In determining the relationship between government and governed, one of the most important decisions a society can make is how accountable those who wield official power must be to those against whom that power is wielded. Congress made a clear choice in that regard when it passed the Enforcement Act of 1871, which we now call “Section 1983”… Simply put, Section 1983 creates a standard of strict liability by providing that state actors “shall be liable to the party injured” for “the deprivation of any rights.” Thus, if a police officer walks up to your house and peeks inside one of your windows without a warrant—a clear violation of your Fourth Amendment right against unreasonable searches—he is liable to you for the violation of that right. …many conservatives…abandon their stated commitment to textualism and embrace an “interpretation” of Section 1983 that is utterly divorced from its text. The vehicle for this…“living statutory interpretivism” is the Supreme Court’s qualified immunity doctrine, which judicially amends Section 1983 to provide that the standard for liability will no longer be the deprivation of “any rights”—as Congress expressly provided—but rather the deprivation of any “clearly established” rights. …the only avenue of accountability for most victims of police misconduct is a civil rights lawsuit that they themselves can initiate without the largesse of some prosecutor or citizen review board.

Last but not least, in a new column for USA Today, Patrick Jaicomo and Anya Bidwell of the Institute for Justice explain some of the legal issues.

The Supreme Court created qualified immunity in 1982. With that novel invention, the court granted all government officials immunity for violating constitutional and civil rights… Although innocuous sounding, the clearly established test is a legal obstacle nearly impossible to overcome. It requires a victim to identify an earlier decision by the Supreme Court, or a federal appeals court in the same jurisdiction holding that precisely the same conduct under the same circumstances is illegal or unconstitutional. If none exists, the official is immune. …When the Supreme Court conceived qualified immunity, it promised that the rule would not provide a “license to lawless conduct” for government officials. Plainly, it has.

And here are some examples they cite.

And let’s not forget the examples of misbehavior I’ve cited in the past (examples here, here, here, here, here, and here).

The point of this column is not to criticize or condemn cops as a group, but to highlight a bad policy that causes citizens to feel hostility against (what I assume to be) the vast majority of cops who do their jobs the right way.

If We Want Better Policing, We Need to Curtail Police Unions

Since I’m a “right libertarian” according to the political compass test, it’s no surprise that I’m generally sympathetic to cops (notwithstanding my undesired encounters).

But with important caveats.

• I want fewer foolish laws so police can concentrate on protecting life, liberty, and property.
• I favor oversight so that good cops aren’t tarnished by the behavior of bad cops.
• I want local governments to control budgets so cops aren’t pressured to generate revenue.
• I favor civil disobedience and jury nullification as safety valves to guard against bad behavior.
• I want to get rid of horrific policies such as asset forfeiture that incentivize bad behavior.

And it goes without saying that I want a range of reactions – from scorn to punishment – when individual police officers make dumb choices (examples here, here, here, here, here, and here).

But there’s one issue that I haven’t addressed, and it’s very relevant considering the civil unrest and rioting caused by George Floyd’s death in Minnesota – and that issues is the degree to which overly powerful police unions enable bad behavior.

Professor Alex Tabarrok explains how police officers who misbehave get special privileges not available to the rest of us.

…union contracts and Law Officer “Bill of Rights” give police legal privileges that regular people don’t get. In 50 cities and 13 states, for example, union contracts “restrict interrogations by limiting how long an officer can be interrogated, who can interrogate them, the types of questions that can be asked, and when an interrogation can take place.” In Virginia police officers have a right to at least a five-day delay before being interrogated. In Louisiana police officers have up to 30 days during which no questioning is allowed and they cannot be questioned for sustained periods of time or without breaks. In some cities, police officers can only be interrogated during work hours. Regular people do not get these privileges. …how do you think complainants feel knowing that the police officer they are complaining about “must be informed of the names of all complainants.” I respect and admire police officers but frankly I think this rule is dangerous. …In the United States if you are arrested–even for a misdemeanor or minor crime, even if the charges are dropped, even if you are found not guilty–you will likely be burdened with an arrest record that can increase the difficulty of getting a job, an occupational license, or housing. But even in the unlikely event that a police officer is officially reprimanded many states and cities require that such information is automatically erased after a year or two. The automatic erasure of complaints makes it difficult to identify problem officers or a pattern of abuse.

In an article for National Review, Theodore Kupfer has a searing indictment of police unions.

Public-sector employees who belong to unions are used to special treatment, and police officers, apparently, are no different. There are little or no private alternatives to the services schoolteachers, air-traffic controllers, police officers, and prison guards provide. Their unions negotiate directly with politicians, and can demand policies that benefit them — if not the taxpayers who foot the bill — because no elected official wants to risk a catastrophic strike. The result is a tacit, unsavory bargain in which politicians and civil servants join together to direct public funding and exclusive privileges to the most favored of all interest groups: politicians and civil servants. …This is a shame. Law-enforcement unions shape our criminal-justice policies for the worse and encourage irresponsible public spending to achieve their own ends. …police unions…insist that their members have special “bills of rights” that shield them from accountability for misconduct. With a voting base that traditionally respects first responders, such concessions can be a political winner for Republicans. But they also have pernicious effects which ought to worry conservatives not comfortable with increasing the power of the state at the expense of the citizenry. …Researchers at the University of Chicago have even found that allowing law-enforcement officials collective-bargaining rights increases the risk of misconduct.

Let’s look at an astounding example of how powerful police unions generate absurd results.

This tweet tells you everything you need to know.

Great moments in public employee unionism. https://t.co/vrln9wy31x

— Walter Olson 😷 (@walterolson) May 14, 2020

If you want more information about that tragic debacle, Robby Soave is a must-read writer for Reason, and here’s some of what he wrote about the reactions of law enforcement.

It’s the story of catastrophic failure at every level of law enforcement, beginning with a corrupt and incompetent sheriff’s office warned on multiple occasions about the specific threat posed by Cruz. The Broward County sheriff’s office received at least 18 tips between 2008 and 2017 concerning Cruz. A November 2017 caller described him as a “school shooter in the making.” Despite knowing that Cruz was in possession of a cache of weapons, the sheriff’s office passed the buck… On the day of the shooting, …Officer Scot Peterson, an employee of the sheriff’s office, refused to enter the school and confront Cruz, as did three Broward County Sheriff’s deputies who had arrived on scene. These were stunning indictments of Broward County Sheriff Scott Israel, a man who responded to accusations of corruption by comparing himself to Abraham Lincoln, Ghandi, and Martin Luther King. …law enforcement’s spectacular failure before, during, and after the Parkland shooting should be a more pressing topic of discussion. …many of these agencies prove themselves to be wildly incompetent for reasons ranging from arrogant leadership and individual cowardice, to toxic workplace culture and shoddy internal systems.

In other words, the problem was government, not a lack of gun control.

But I’m digressing.

Let’s close with a final observation about the perverse effect of collective bargaining for cops.

I disapprove when police unions conspire with local politicians to get excessive pay and special protections (a very common outcome for other types of government employees).

And I definitely don’t like it when cops are turned into overly aggressive deputy tax collectors because of greedy local governments.

But it’s presumably far worse for society when police officers use excessive force against citizens like George Floyd and Eric Garner because unions shield them from adverse consequences.

P.S. My limited collection of police-related humor can be found here, here, and here.

P.P.S. Here’s my two cents on how to most effectively protest for better police behavior.

P.P.P.S. And here’s my quiz to gauge everyone’s reaction to a unique form of protest.

Economic Liberty and the Constitution

In this interview from last March, I groused that the Supreme Court – largely thanks to statist Justices appointed by one of America’s worst presidents – basically decided, starting in the 1930s, that it would no longer be bound by the Constitution’s provisions that protect economic liberty.

I’m not a lawyer, much less an expert on the Constitution, but I know how to read.

The Constitution very clearly is a document to constrain rather than enable government. It was designed to produce what I’ve referred to as Madisonian constitutionalism.

When Justices ignore their responsibility to protect our rights, however, they’re basically acting like this satirical image of President Obama.

Let’s look at two very tragic legal cases from that era.

Professor John McGinnis, writing for Law & Liberty, discusses the wretched Supreme Court case that undermined the Constitution’s Contract Clause.

…the Contract Clause…was the most litigated provision of the Federal Constitution in the 19th century, but today it has become a shadow of its former self because the Court has abandoned its original meaning. …The Contract Clause provides: “No State shall… pass any… Law impairing the Obligation of Contracts.” …in The Federalist, Madison argued that the Clause was a “bulwark in favor of… private rights.” …It is designed to protect an important aspect of the rule of law: a prohibition on the government changing specific plans that autonomous individuals have made. …For the 19th and early 20th centuries, the Supreme Court was relatively faithful in interpreting the Clause. In Home Building & Loan Association v. Blaisdell, however, the Court departed from its role as a faithful agent of the Constitution. …influenced by the Depression and the growing discontent with the jurisprudence of substantive due process with which it confused the clear command of the Contract Clause, the Court upheld the law. It is true that times were hard, but as Justice George Sutherland’s dissent noted, legislation protecting debtors against creditors is passed precisely at such times, and yet such legislation was exactly the kind of evil which the Clause was designed to prohibit. The case is striking as an example of one of the most express rejections of originalism. Chief Justice Hughes stated explicitly that the Court was not bound by the original understanding of the Clause.

Writing for FEE, Professors Antony Davies and James Harrigan explain the terrible 1942 decision by the Supreme Court to remove any meaningful restriction on the power of the central government.

They start by pointing out that the 18th Amendment (imposing prohibition) was an example of how to expand the power of government in the proper way.

The Constitution creates a government of enumerated powers, which means the federal government is only authorized to do things that are specifically listed in the Constitution. And that list is relatively short. The list appears in Article One, Section Eight and enumerates the proper objects of congressional legislation.  …Consider the United States’ ill-advised flirtation with Prohibition—which was enacted almost exactly 100 years ago. Nowhere in the Article One, Section Eight powers does one see the authority to “ban the manufacture, transport, or sales of alcohol within the United States.” When Americans decided that they wanted a coast-to-coast ban on alcohol, they amended the Constitution to give the federal government this authority. Fourteen dry years later, Americans came to their senses and revoked this authority by amending the Constitution again.

Alcohol prohibition was a mistake, of course, just like today’s drug prohibition, and the American people went through the proper process of adopting the 21st Amendment (to repeal the 18th Amendment).

Davies and Harrigan then explain that it was about that time that the Supreme Court decided that it would no longer uphold the Constitution’s restrictions on the powers of the central government.

As of 1933, when the 21st Amendment was ratified, Americans still had a constitutionally limited federal government and what Justice Louis Brandeis famously called “laboratories of democracy” in the states. …But who ended up being tasked with deciding what Article One, Section Eight actually meant? Herein lies the wrinkle that enables all manner of constitutional mischief in the United States. The institution that ended up deciding what the federal government is empowered to do is itself a branch of the federal government. And it should come as no surprise that when push comes to shove, the Supreme Court routinely finds in favor of empowering the federal government.

One of the most horrifying examples of judicial failure occurred in 1942.

In 1942, the Supreme Court decided a case, Wickard v. Filburn, in which farmer Roscoe Filburn ran afoul of a federal law that limited how much wheat he was allowed to grow. …A careful reader might, and should, ask where the federal government’s right to legislate the wheat market is to be found—because the word “wheat” is nowhere to be found in the Constitution. …The Agricultural Adjustment Act of 1938 put an upper limit on how much wheat farmers were allowed to grow, which would serve to keep prices high by limiting supply. Roscoe Filburn had grown 12 more acres of wheat than the law allowed. But not only did he not sell the excess wheat outside of his home state, but he also didn’t sell it at all. He used the wheat from those 12 acres to feed his cattle. …yet the Supreme Court found (unanimously) that because Congress had the authority to regulate interstate commerce, Congress also had the authority to prohibit Filburn from growing those 12 acres of wheat for his own use. …Filburn’s non-commercial activity was, according to the Supreme Court, interstate commerce. …Filburn’s non-commercial activity was, according to the Supreme Court, interstate commerce.

And here’s the result.

A century ago, we amended the Constitution when we wanted the federal government to exercise a new authority—that of banning alcohol. Today, we allow Congress to exercise almost any authority it likes. …We have progressed so far down the path of reinterpreting the Constitution as a document that empowers government, rather than one that limits it… The sad result has been a government nearly limitless in its power.

By the way, the Obamacare case may be as odious as Wickard v. Filburn since it marked another unfortunate expansion of Washington’s ability to control our lives, in violation of the clear language in Article 1, Section 8.

Though I don’t want to be too glum. The good news is that the Supreme Court occasionally does defend economic liberty, as the Wall Street Journal recently opined.

One goal of the U.S. Constitution was to form a union that allowed interstate commerce unencumbered by state protectionism. The Supreme Court reinforced that principle on Wednesday by striking down a two-year residency requirement to get a liquor license in Tennessee. …a business lobby known as Tennessee Wine and Spirits Retailers Association argued that the 21st Amendment that repealed Prohibition also gave the states broad authority to regulate alcohol. The association knows that if people can move to a state and open up liquor stores, it means more potential competition for those who already have licenses. The law is commercial protectionism and thus violates the Constitution’s Commerce Clause, the High Court ruled in Tennessee Wine and Spirits Retailers Assn. v. Thomas. “Because Tennessee’s 2-year residency requirement for retail license applicants blatantly favors the State’s residents and has little relationship to public health and safety, it is unconstitutional,” wrote Justice Samuel Alito for a 7-2 majority… the 21st Amendment doesn’t override the rest of the Constitution’s principles. As recently as 2005 (Granholm v. Heald), the Court ruled that New York state couldn’t discriminate against out-of-state wineries.

Some judges resent any protections against government power.

In an article for Reason, Damon Root properly castigates a judge for objecting to the economic liberties guaranteed by the 14th Amendment.

Does the U.S. Constitution protect economic liberty, such as the right to work in an occupation of one’s choosing free from unreasonable government regulation? Pennsylvania Supreme Court Justice David Wecht thinks not. …in Ladd v. Real Estate Commission of the Commonwealth of Pennsylvania, Wecht faulted his colleagues in the majority for their “judicial intrusion into the realm of legislative value judgments” after that court allowed a legal challenge to proceed against a state occupational licensing scheme. “I cannot endorse a constitutional standard that encourages courts,” he declared, “to second-guess the wisdom, need, or appropriateness” of duly enacted economic regulations. …”For many years, and under the pretext of protecting ‘economic liberty’ and ‘freedom of contract,’ the Supreme Court routinely struck down laws that a majority of the Court deemed unwise or improvident,” Wecht wrote of Lochner and several related cases. …I would encourage Justice Wecht to read some more legal history. …Rep. John Bingham (R–Ohio)…served as the principal author of Section One of the 14th Amendment… As Bingham told the House of Representatives, “the provisions of the Constitution guaranteeing rights, privileges, and immunities” includes “the constitutional liberty…to work in an honest calling and contribute by your toil in some sort to the support of yourself, to the support of your fellow men, and to be secure in the enjoyment of the fruits of your toil.” …even those who opposed the passage of the 14th Amendment agreed that it was designed to protect economic liberty from overreaching state regulation… The “right to contract” was of course later secured by the Supreme Court in Lochner.

Let’s close by detouring into the world of fantasy and contemplating how we should amend the Constitution today?

Rory Magraf lists five ideas in a piece for the Foundation for Economic Education, one of which I find especially tempting.

…the conversation always gets the cerebral juices flowing for legal enthusiasts; the idea of amending the US Constitution, something done only twenty-seven times in history, is about as close as one will get to actually sitting among the Founders in Philadelphia. With that in mind, here are some ideas.

The Sixteenth Amendment to the Constitution of the United States is hereby repealed.

In short, abolish the income tax. This is usually a crowd-pleaser among libertarians and probably a handful of Republicans during an election year, but it is also a bit of a challenge, on the same level as chasing the moon. Still, it would be worthwhile to have the conversation.

Since I’m definitely not a fan of the income tax, I certainly endorse this notion.

However, I think we would need much stronger language. The key 1895 case that struck down the income tax was decided by a the narrow margin of 5-4, and that was back when Justices presumably cared more about the Constitution.

I fear that a similar case today would not lead to the right result (which is one of the reasons I’m skeptical of a national sales tax).

In any event, the federal government’s broad power to tax does not translate into a broad power to spend. At least if we care about the Constitution.

And that means much of the federal government is (or, to be more precise, should be) unconsitutional.

P.S. Here’s some of what Thomas Sowell wrote about Wickard v Filburn.

P.P.S. Here’s some of what Walter Williams wrote about the Constitution’s limits of Washington.

P.P.P.S. If you want to read more, the Constitution was designed to protect against majoritarianism and to ensure “negative liberty.”

P.P.P.P.S. Readers may also be interested in this discussion of whether libertarians should prefer Hamilton or Jefferson.

Will Biden’s Class-Warfare Tax Plan Lead to an Exodus of Job Creators?

After Barack Obama took office (and especially after he was reelected), there was a big uptick in the number of rich people who chose to emigrate from the United States.

There are many reasons wealthy people choose to move from one nation to another, but Obama’s embrace of class-warfare tax policy (including FATCA) was seen as a big factor.

Joe Biden’s tax agenda is significantly more punitive than Obama’s, so we may see something similar happen if he wins the 2020 election.

Given the economic importance of innovators, entrepreneurs, and inventors, this would be not be good news for the American economy.

The New York Times reported late last year that the United States could be shooting itself in the foot by discouraging wealthy residents.

…a different group of Americans say they are considering leaving — people of both parties who would be hit by the wealth tax… Wealthy Americans often leave high-tax states like New York and California for lower-tax ones like Florida and Texas. But renouncing citizenship is a far more permanent, costly and complicated proposition. …“America’s the most attractive destination for capital, entrepreneurs and people wanting to get a great education,” said Reaz H. Jafri, a partner and head of the immigration practice at Withers, an international law firm. “But in today’s world, when you have other economic centers of excellence — like Singapore, Switzerland and London — people don’t view the U.S. as the only place to be.” …now, the price may be right to leave. While the cost of expatriating varies depending on a person’s assets, the wealthiest are betting that if a Democrat wins…, leaving now means a lower exit tax. …The wealthy who are considering renouncing their citizenship fear a wealth tax less than the possibility that the tax on capital gains could be raised to the ordinary income tax rate, effectively doubling what a wealthy person would pay… When Eduardo Saverin, a founder of Facebook…renounced his United States citizenship shortly before the social network went public, …several estimates said that renouncing his citizenship…saved him $700 million in taxes.

The migratory habits of rich people make a difference in the global economy.

Here are some excerpts from a 2017 Bloomberg story.

Australia is luring increasing numbers of global millionaires, helping make it one of the fastest growing wealthy nations in the world… Over the past decade, total wealth held in Australia has risen by 85 percent compared to 30 percent in the U.S. and 28 percent in the U.K… As a result, the average Australian is now significantly wealthier than the average American or Briton. …Given its relatively small population, Australia also makes an appearance on a list of average wealth per person. This one is, however, dominated by small tax havens.

Here’s one of the charts from the story.

As you can see, Australia is doing very well, though the small tax havens like Monaco are world leaders.

I’m mystified, however, that the Cayman Islands isn’t listed.

But I’m digressing.

Let’s get back to our main topic. It’s worth noting that even Greece is seeking to attract rich foreigners.

The new tax law is aimed at attracting fresh revenues into the country’s state coffers – mainly from foreigners as well as Greeks who are taxed abroad – by relocating their tax domicile to Greece, as it tries to woo “high-net-worth individuals” to the Greek tax register. The non-dom model provides for revenues obtained abroad to be taxed at a flat amount… Having these foreigners stay in Greece for at least 183 days a year, as the law requires, will also entail expenditure on accommodation and everyday costs that will be added to the Greek economy. …most eligible foreigners will be able to considerably lighten their tax burden if they relocate to Greece…nevertheless, the amount of 500,000 euros’ worth of investment in Greece required of foreigners and the annual flat tax of 100,000 euros demanded (plus 20,000 euros per family member) may keep many of them away.

The system is too restrictive, but it will make the beleaguered nation an attractive destination for some rich people. After all, they don’t even have to pay a flat tax, just a flat fee.

Italy has enjoyed some success with a similar regime to entice millionaires.

Last but not least, an article published last year has some fascinating details on the where rich people move and why they move.

The world’s wealthiest people are also the most mobile. High net worth individuals (HNWIs) – persons with wealth over US$1 million – may decide to pick up and move for a number of reasons. In some cases they are attracted by jurisdictions with more favorable tax laws… Unlike the middle class, wealthy citizens have the means to pick up and leave when things start to sideways in their home country. An uptick in HNWI migration from a country can often be a signal of negative economic or societal factors influencing a country. …Time-honored locations – such as Switzerland and the Cayman Islands – continue to attract the world’s wealthy, but no country is experiencing HNWI inflows quite like Australia. …The country has a robust economy, and is perceived as being a safe place to raise a family. Even better, Australia has no inheritance tax

Here’s a map from the article.

The good news is that the United States is attracting more millionaires than it’s losing (perhaps because of the EB-5 program).

The bad news is that this ratio could flip after the election. Indeed, it may already be happening even though recent data on expatriation paints a rosy picture.

The bottom line is that the United States should be competing to attract millionaires, not repel them. Assuming, of course, politicians care about jobs and prosperity for the rest of the population.

P.S. American politicians, copying laws normally imposed by the world’s most loathsome regimes, have imposed an “exit tax” so they can grab extra cash from rich people who choose to become citizens elsewhere.

P.P.S. I’ve argued that Australia is a good place to emigrate even for those of us who aren’t rich.