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I have many examples of gun control humor, all of which were created to mock anti-2nd Amendment zealotry.

But nothing I’ve ever read is as funny as this week’s gun buyback scheme by the Baltimore Police Department, which was organized by anti-gun politicians and bureaucrats.

Here’s what the Baltimore Sun reported about the buyback scheme.

Mayor Catherine E. Pugh and Interim Police Commissioner Gary Tuggle announced the launch of the gun buyback program at a news conference Tuesday at police headquarters. Pugh said the program is one strategy to try to reduce violence in the city… “We are coming towards the end of the year and we are doing everything we can to stay under a certain number, but I don’t want to even talk about that,” Pugh said, describing the buyback event as part of the city’s violence reduction initiatives. …Pugh did not say how much the buyback program would cost, but she believes the city has enough money for it. She said nonprofits would be contributing.

So why is this so funny? Shouldn’t I be upset that Baltimore politicians and bureaucrats want law-abiding people to give up guns, which will make life easier for criminals?

After all, that is bad policy.

But there’s a very amusing part of this story. Baltimore is offering $25 for every “hi-capacity” magazine.

And this creates a very interesting opportunity to make a quick buck since a quick online search reveals that one popular magazine (holds 30 rounds, so easily qualifies) can be purchased for about $11-$13.

Before you buy a truckload of magazines in hopes of some easy cash, I must warn you that there is a slight obstacle. If the poster above is accurate, the buyback is only for residents of Baltimore.

That being said, it shouldn’t be too difficult to find a local guy to act as your “straw seller.”

P.S. Some of you might feel guilty about participating since taxpayer money will be squandered on the buyback. That’s a noble sentiment. However, the story in the Sun also noted that some of the financing would come from nonprofits. And that means participants will probably be helping to deplete the bank accounts of George Soros and Michael Bloomberg. More money for you and less money for them is a win-win situation.

P.P.S. To the best of my recollection, my only other example of gun-buyback humor is at the end of this column.

What’s the most inefficient and wasteful part of the federal government?

It’s impossible to answer that question without greater detail.

Are we supposed to identify the worst cabinet-level department? If that’s the case, then bureaucracies such as the Department of Housing and Urban Development or the Department of Education would be high on the list.

Or are we supposed to identify the most counter-productive activity of Washington? If that’s the case, then agriculture subsidies, job-training programs. or subsidies for the Organization for Economic Cooperation and Development come to mind.

But what if we’re simply asked to identify the dumbest single thing our overlords in D.C. have financed? That would generate a very long (and ever-growing) list of options. Today, we’re going to look at an example.

Here’s a story that perfectly symbolizes the waste, ineffectiveness, and corruption of Washington.

Customs and Border Protection hired Accenture to hire and recruit 7,500 agents within the next five years. But just 10 months into the contract, only two accepted job offers have been processed, according to the Department of Homeland Security’s Office of the Inspector General. Accenture, a global management consulting company headquartered in Ireland, was awarded a $297 million contract to achieve the hiring goal. But the report says that $13.6 million has been spent in the last 10 months, and that CBP “risks wasting millions of taxpayer dollars on a hastily approved contract that is not meeting its proposed performance expectations.” …CBP ultimately agreed to the four recommendations in the report, including that the CBP commissioner should assess Accenture’s performance.

This is outrageous on several levels.

  • First, federal employees make much more than folks in the private sector, so I’m mystified why it’s necessary to spend any money to attract applicants.
  • Second, why did Uncle Sam sign a contract to pay Accenture nearly $40,000 for each CBP agent hired, assuming the company fully delivered?
  • Third, it goes without saying (but I’ll say it anyhow) that it is absurd that taxpayers to date have paid $6.8 million each for two new CBP bureaucrats.

Sadly, there won’t be any consequences for this boondoggle, at least if history is any guide.

Nobody at the CBP will get fired.

Nobody at the CBP will be demoted.

Nobody at the CBP will lose a bonus.

Simply stated, people in the government don’t care whether our money is being wasted.

Before concluding, we need to add an additional reason to be outraged.

  • Fourth, this is an all-too-typical example of government contracting, with a “beltway bandit” scamming the system for unearned riches.

Maybe I should create a Waste Hall of Fame to augment the Moocher Hall of Fame and Bureaucrat Hall of Fame.

In addition to this squalid Accenture contract, other examples could be the $15 million scam to improve the IRS’s image, the State Department paying 35 times the market price for some Kindles, bonuses for VA bureaucrats who left veterans to die on waiting lists, gold-plated renovations for the CFPB headquarters, and $6,000-a-piece interviews about erectile dysfunction.

I recently wrote about the failed 1990 budget deal. My big complaint was that President George H.W. Bush compounded the mistake of higher taxes by also allowing a big increase in the burden of government spending.

However, I didn’t blame the agreement for that year’s recession for the simple reason that the downturn began in July and the tax hike was signed in November (that would make me like Paul Krugman, who wanted people to think that Estonia’s 2008 recession was caused by spending cuts in 2009).

But maybe I’m not being sufficiently critical. After all, Bush announced he would abandon his no-tax pledge in June, and that was then followed by months of tax-hike negotiations. Isn’t it reasonable to think all that talk would have a negative effect, especially on investors and business owners?

The answer may be yes, at least in part. There’s a very interesting new study by Sandra García-Uribe at Spain’s central bank. She examines how the anticipation of tax changes affects economic performance.

Prior to the approval of laws, there is often widespread information about the progress of bills. This information may be valuable for the forecasts that agents make about the economic environment in the future. …This paper provides a way to account for the economic responses to anticipation of tax shocks… In this paper I introduce a new measure of mass media anticipations of tax bill approvals by exploiting the content of news in the US television during the period 1968-2007. …this is the first paper that exploits a dynamic factor model to account for fiscal policy effects on economic activity. The factor specification considers the dynamics of the factor and the potential effects of tax changes and their anticipation on it.

She’s definitely correct about there being a process for tax legislation, so people (“agents” in economic jargon) have ample warning.

The study includes data on how tax increases harm growth once they are adopted.

Figure 3 presents the implementation effects of exogenous tax liability changes on economic activity, in the period 1948 to 2007…The figure shows the cumulative effects in terms of an increase in tax liabilities of a one percent of QGDP together with the one-standard-error bands. The maximum effects are achieved 29 months after implementation of the tax changes when monthly economic activity growth drops by 99.56%. …the maximum implementation effect of a 1% of QGDP increase of tax liabilities is a reduction of monthly economic activity growth of 0,28%. …For the period that we dispose of television data, 1968 to 2007, immediate implementation effects are -6.6% for monthly economic activity growth. Two months after implementation the effects are -10.7%. Maximum effects are a -69.1% and happen 25 months after implementation.

Here’s a chart showing the negative impact of tax increases.

But does the discussion of tax changes also impact the economy?

According to the research, the answer is yes.

Anticipating tax increases reduces economic activity by 1,36% while anticipating tax cuts stimulates it by 3,04%. …Conditional on the media release of information about a potential tax approval, it is likely that people is aware of what is the net tax liability change associated to the potential approval since media also makes reference to terms like ”increase”, ”rise” or ”cut”. There are 20 episode approvals in the sample and learning how to predict the sign joint to the approval based on 10 approvals per sign resulted in something unfeasible. I construct an indicator variable that captures the mention of ”increase” or ”rise” within the tax news to approximate the possibility of a tax rise approval. …In columns (3) and (4) I control for this indicator and its interaction with media anticipation of tax approvals …A 10% probability of tax approvals conditional on the tax news at t not mentioning tax increases significantly stimulates current monthly economic activity growth by 3.04%. In the case of the media mentioning tax increases the effect is a reduction of monthly economic activity growth by 1.36%.

For economic junkies, here’s the relevant table from the study.

By the way, none of this changes my view that monetary policy is always the first place to look when assigning blame for economic downturns and volatility.

Simply stated, taxation is just one of many factors that determine economic performance. But the fact that it’s not the only thing that matters doesn’t change the fact that it’s a very bad idea to increase the tax burden.

I have a four-part video series on trade-related topics.

  • Part I focused on the irrelevance of trade balances.
  • Part II looked at specialization and comparative advantage.

Here’s Part III, which explains how trade (whether domestic or international) leads to creative destruction, which results in some painful short-run costs but also yields immense long-run benefits.

I recently argued that creative destruction is the best part and worst part of capitalism.

It’s bad if you’re a worker in a company that loses out (or if you’re an investor in that company). but it’s also what enables us to become more prosperous over time.

I’m not alone. Writing for CapX, Oliver Wiseman reviewed Capitalism in America, a new book by Alan Greenspan and Adrian Wooldridge. Here are some key observations.

…there was nothing predictable about America’s rise from colonial backwater to world-beating economy. …The fight for independence began a year before the publication of Adam Smith’s The Wealth of Nations; “the new country was conceived in a revolt against a mercantilist regime that believes a nation’s economic success was measured by the size of its stock of gold.” …The Constitution’s limits on the power of the majority set America apart from the rest of the world and “did far more than anything else to guarantee America’s future prosperity…” On top of this fortuitous start is the country’s “greatest comparative advantage”: its “talent for creative destruction”, the driving force of innovation, growth and prosperity that “disequilibriates every equilibrium and discombobulates every combobulation”. Americans realised that “destruction is more than an unfortunate side effect of creation. It is part and parcel of the same thing”. …The result is a system that has squeezed more productive energy out of its human capital than other countries, and generated unparalleled prosperity.

For those interested in economic history, Joseph Schumpeter gets most of the credit for developing the concept of creative destruction.

This Powerpoint slide is a nice summary of Schumpeter’s contribution (notwithstanding the fact that the person misspelled his name).

And here’s a Tweet showing that Schumpeter was under no illusions about the folly of socialism.

The bottom line is that creative destruction is what gives us churning, and churning is what dethrones rich and powerful incumbents. My friends on the left should be cheering for it.

Instead, they push for regulations and taxes that hinder creative destruction. And that means less long-run prosperity for all of us.

Less than 10 years ago, many European nations suffered fiscal crises because of a combination of excessive spending, punitive taxes, and crippling debt.

The crises have since abated, largely because of direct and indirect bailouts. But the underlying policy mistakes haven’t been fixed.

Indeed, the burden of government spending has increased in Europe and debt levels today are much higher than they were when the previous crisis began.

Unsurprisingly, these large fiscal burdens have resulted in anemic economic performance, which helps to explain why middle-class French taxpayers launched nationwide protests in response to a big increase in fuel taxes.

The French President, Emmanuel Macron, capitulated.

But some have suggested that Macron’s problem is that he wasn’t sufficiently bold.

I’m not joking. Led by Thomas Piketty, a few dozen European leftists have issued a Manifesto for bigger government.

We, European citizens, from different backgrounds and countries, are today launching this appeal for the in-depth transformation of the European institutions and policies. This Manifesto contains concrete proposals, in particular a project for a Democratization Treaty and a Budget Project… Our proposals are based on the creation of a Budget for democratization which would be debated and voted by a sovereign European Assembly. …This Budget, if the European Assembly so desires, will be financed by four major European taxes, the tangible markers of this European solidarity. These will apply to the profits of major firms, the top incomes (over 200,000 Euros per annum), the highest wealth owners (over 1 million Euros) and the carbon emissions (with a minimum price of 30 Euros per tonne).

Here are the taxes they propose as part of their plan to expand the burden of government spending.

I’m surprised they didn’t include a tax on financial transactions.

And here’s a video (in French, but with English subtitles) explaining their scheme.

To put it mildly, this plan is absurd. It would impose another layer of government and another layer of tax on a continent that already is suffocating because the public sector is too large.

I’m not the only one with concerns.

In a column for Bloomberg, Leonid Bershidsky points out why he is underwhelmed by Piketty’s proposal.

The reforms proposed by Piketty and a group of intellectuals and politicians — notably Pablo Iglesias, leader of Spain’s leftist Podemos party — include the creation of a European Assembly. It would have the power to shape a common budget and impose common taxes… Piketty advocates four measures that would collect a total equivalent to 4 percent of Europe’s GDP… What is being proposed is essentially a return to the fiscal policies of the 1970s, which provoked Astrid Lindgren to write her satirical essay “Pomperipossa in Monismania.” In 1976, the children’s author was confronted with a tax bill of 102 percent of her income. …Hit them with new taxes and watch them flee to the U.S. and Asia. They won’t stay like patriotic Lindgren, whose essay helped to topple the Swedish government in 1976. And no amount of government funding…will repair the damage that envy-based taxation can wreak on economies already finding it hard to innovate.

Let’s not forget, by the way, the many thousands of French households who also have suffered 100 percent-plus tax rates.

But let’s not digress.

Writing for CapX, John Ashmore explains why Piketty’s plan will make Europe’s problems even worse.

…a group of politicians, academics and policy wonks spearheaded by…French economist Thomas Piketty…have put their names to a new Manifesto for the Democratisation of Europe. …For the most part, the manifesto reads like a souped up version of the kind of policies we’ve heard time and again from leftwing politicians. …The details of today’s ‘manifesto’ make Labour’s Marxist Shadow Chancellor John McDonnell look like a moderate centrist. Where Labour advocate putting corporation tax back up to 26 per cent, Piketty and co want it hiked to 37 per cent. And while we Brits spent plenty of the Coalition years discussing whether income tax should be 45p or 50p in the pound, the Manifesto goes all guns blazing for a 65 per cent top rate… these measures are projected to raise 800bn euros, equivalent to four times the current EU budget. …that would be a huge transfer of power, not from the rich from the poor, but from taxpayers to politicians.

A 65-percent top tax rate? At the risk of understatement, that’s a recipe for less entrepreneurship and less innovation.

Moreover, based on America’s experience during the Reagan years, it’s safe to say that actual tax receipts would fall far, far short of the projection.

But the higher spending would be real, as would the inevitable increase in red ink. And it’s worth noting that the Manifesto proposes to subsidize the debt of bankrupt welfare states. Very much akin to the eurobond scheme, which I pointed out would be like cosigning a loan for an unemployed alcoholic with a gambling addiction.

P.S. During my recent trip to London, I repeatedly warned people that a real Brexit was the only sensible choice because the European Union at some point will fully morph into a transfer union (i.e., a European budget financed by European taxes). It was nice of Piketty to issue a Manifesto that confirms my concerns. Simply stated, the United Kingdom will be much better off in the long run if it escapes.

P.P.S. Let’s not forget that Piketty’s core argument for class warfare has been thoroughly and repeatedly debunked. Indeed, only 3 percent of economists agree with his theory.

Since I’m a proponent of tax reform, I don’t like special favors in the tax code.

Deductions, exemptions, credits, exclusions, and other preferences are back-door forms of cronyism and government intervention.

Indeed, they basically exist to lure people into making decisions that otherwise aren’t economically rational.

These distortionary provisions help to explain why we have a hopelessly convoluted and deeply corrupt tax code of more than 75,000 pages.

And they also encourage higher tax rates as greedy politicians seek alternative sources of revenue.

This current debate over “tax extenders” is a sad illustration of why the system is such a mess.

Writing for Reason, Veronique de Rugy explains how special interests work the system.

Tax extenders are temporary and narrowly targeted tax provisions for individuals and businesses. Examples include the deductibility of mortgage-insurance premiums and tax credits for coal produced from reserves owned by Native American tribes. …These tax provisions were last authorized as part of the Bipartisan Budget Act of 2018, which retroactively extended them through the end of 2017, after which they have thus far been left to remain expired. If Congress indeed takes up extenders during the current lame-duck session, any extended provisions are likely to once again apply retroactively through the end of 2018, or perhaps longer. There are several problems with this approach to tax policy. Frequently allowing tax provisions to expire before retroactively reauthorizing them creates uncertainty that undermines any potential benefits from incentivizing particular behaviors.

To make matters more complicated, a few of the extenders are good policy because they seek to limit double taxation (a pervasive problem in the U.S. tax system).

…not all tax extenders are a problem. Some are meant to avoid or limit the double taxation of income that’s common in our tax code. Those extenders should be preserved. Yet others are straightforward giveaways to special interests. Those should be eliminated.

Veronique suggests a sensible approach.

It’s time for a new approach under which tax extenders are evaluated and debated on their individual merits. The emphasis should be on eliminating special-interest handouts or provisions that otherwise represent bad policy. Conversely, any and all worthy provisions should be made permanent features of the tax code. …The dire need to fix the federal budget, along with the dysfunctional effects from extenders, should provide the additional motivation needed to end this practice once and for all.

Needless to say, Washington is very resistant to sensible policies.

In part, that’s for the typical “public choice” reasons (i.e., special interests getting into bed with politicians to manipulate the system).

But the debate over extenders is even sleazier than that.

As Howard Gleckman explained for Forbes, lobbyists, politicians, and other insiders relish temporary provisions because they offer more than one bite at the shakedown apple.

If you are a lobbyist, this history represents scalps on your belt (and client fees in your pocket). If you are a member of Congress, it is the gift that keeps on giving—countless Washington reps and their clients attending endless fundraisers, all filling your campaign coffers, election after election. An indelible image: It is pre-dawn in September, 1986. House and Senate tax writers have just completed their work on the Tax Reform Act.  A lobbyist friend sits forlornly in the corner of the majestic Ways & Means Committee hearing room. “What’s wrong,” I naively ask, “Did you lose some stuff?” Oh no, he replies, he got three client amendments in the bill. And that was the problem. After years of billable hours, his gravy train had abruptly derailed. The client got what it wanted. Permanently. And it no longer needed him. Few make that mistake now. Lawmakers, staffs, and lobbyists have figured out how to keep milking the cash cow. There are now five dozen temporary provisions, all of which need to be renewed every few years. To add to the drama, Congress often lets them expire so it can step in at the last minute to retroactively resurrect the seemingly lifeless subsidies.

In other words, the temporary nature of extenders is a feature, not a bug.

This is a perfect (albeit depressing) example of how the federal government is largely a racket. It enriches insiders (as I noted a few days ago) and the rest of us bear the cost.

All of which reinforces my wish that we could rip up the tax code and replace it with a simple and fair flat tax. Not only would we get more growth, we would eliminate a major avenue for D.C. corruption.

P.S. I focused today on the perverse process, but I can’t help but single out the special tax break for electric vehicles, which unquestionably is one of the most egregious tax extenders.

EV tax credits…subsidize the wealthy at the expense of the lower and middle classes. Recent research by Dr. Wayne Winegarden of the Pacific Research Institute shows that 79 percent of EV tax credits were claimed by households with adjusted gross incomes greater than $100,000. Asking struggling Americans to subsidize the lifestyles of America’s wealthiest is perverse… Voters also shouldn’t be fooled by the promise of large environmental benefits. Modern internal combustion engines emit very little pollution compared to older models. Electric vehicles are also only as clean as the electricity that powers them, which in the United States primarily comes from fossil fuels.

I was hoping that provisions such as the EV tax credit would get wiped out as part of tax reform. Alas, it survived.

I don’t like when politicians mistreat rich people, but I get far more upset when they do things that impose disproportionate costs on poor people. This is one of the reasons I especially dislike government flood insuranceSocial Security, government-run lotteries, the Export-Import Bank, the mortgage interest deduction, or the National Endowment for the Arts. Let’s add the EV tax credit to this shameful list.

I’m not a fan of President Bush. The first one or the second one.

Both adopted policies that, on net, reduced economic liberty.

Today, let’s focus on the recently deceased George H.W. Bush (a.k.a., Bush 41). By all accounts, he was a very good man, but that doesn’t mean he was a very good president. Or even a mildly good one.

Steve Moore’s column in the Washington Times is a damning indictment of his infamous read-my-lips tax betrayal.

Liberals love George H.W. Bush for the very tax increase betrayal that destroyed his presidency. …This was not just the political blunder of the half-century, it was a fiscal policy catastrophe. …What the history books are writing is that Mr. Bush showed political “courage” in breaking his “Read my lips: No new taxes” pledge, and he was thrown out of office for doing the right thing. Wrong. The quick story is that the Reagan expansion — in no small part due to the reduction of the highest tax rates from 70 percent to 28 percent — was shrinking deficit spending dramatically by the end of Ronald Reagan’s presidency. The budget deficit had fallen in half down to 2.9 percent of GDP by 1988. It was headed to below 2 percent if Mr. Bush simply had did nothing. …the 1990 budget deal became a license for Democrats to spend and spend. …Government expenditures accelerated at a faster pace than at any time in 30 years. In two years time, the domestic budget grew by almost 20 percent above inflation. …The tax increases either caused the recession or exacerbated it — ending the Reagan expansion. The economy lost 100,000 jobs and the unemployment rate rose and the unemployment rate rose from 5.5 percent to 7.4 percent. Real disposable income fell from 1990 to the eve of the 1992 election. If this tax hike was a success, so was the Hindenburg.

There’s a lot of good analysis in Steve’s column.

But I want to emphasize the part about the budget deficit being on a downward trajectory when Reagan left the White House. That’s absolutely accurate, as confirmed by both OMB and CBO projections.

All Bush needed to do was maintain the Gipper’s pro-market policies.

Unfortunately, he decided that “kinder and gentler” meant putting Washington first and giving politicians and bureaucrats more power over the economy.

And not just on fiscal policy.

Jim Bovard points out in USA Today that Bush 41 also had some very unseemly bouts of protectionism.

Bush was the most protectionist president since Herbert Hoover. Like Trump, he spoke of the need for level playing fields and fair trade. But Bush-style fairness gave federal bureaucrats practically endless vetoes over Americans’ freedom to choose foreign goods. Bush’s Commerce Department ravaged importers with one bureaucratic scam after another, using the dumping law to convict 97 percent of imports investigated, claiming that their prices were unfairly low to American producers (not consumers). Bush also ordered the U.S. International Trade Commission to investigate after ice cream imports threatened to exceed one percent of the U.S. market. And he perpetuated import quotas on steel and machine tools. …he slapped new textile import quotas on Nigeria, Indonesia, Egypt, the Philippines, Burma (now Myanmar), Costa Rica, Panama, Pakistan and many other nations. Mexico was allowed to sell Americans only 35,292 bras in 1989 — part of a byzantine regime that also restricted imports of tampons, typing ribbons, tarps, twine, table linen, tapestries, ties and thousands of other products.

To be fair, George H.W. Bush played a key role in moving forward NAFTA and the WTO/GATT, so his record on trade is mixed rather than bad.

Let’s return to the tax issue. Alan Reynolds explains that the Bush 41 tax hike was a painful example of the Laffer Curve in action.

The late President G.H.W. Bush famously reneged on his “no new taxes” pledge… The new law was intended to raise more revenue from high-income households and unincorporated businesses.  It was supposed to raise revenue partly by raising the top tax rate from 28% to 31% but more importantly by phasing-out deductions and personal exemptions… Treasury estimates expected revenues after the 1990 budget deal to be higher by a half-percent of GDP.  What happened instead is that revenues fell from 17.8% of GDP in 1989 to 17.3% in 1991, and then to 17% in 1992 and 1993.  Instead of rising from 17.8% of GDP to 18.3% as initial estimates assumed, revenues fell to 17%. …A recession began in October 1990, just as the intended tax increase was being enacted.  To blame the weak revenues of 1991-93 entirely on that brief recession begs the obvious question: To what extent was a recession that began with a tax increase caused or at least worsened by that tax increase?  …When discussing tax increases (or tax cuts), journalists and economists must take care to distinguish between intended effects on revenue and actual effects.

We’ll never know, of course, how the 1990 tax increase impacted the economy. As a general rule, I think monetary policy is the first place to look when assigning blame for downturns.

But there’s no question that the tax increase wasn’t helpful.

That being said, my biggest complaint about Bush 41 was not his tax increase. It was all the new spending.

Not just new spending in general. What’s especially galling is that he allowed domestic spending to skyrocket. Almost twice as fast as it increased under Obama and more than twice the rate of increase we endured under Clinton and Carter.

The opposite of Reaganomics, to put it mildly.

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