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Archive for April, 2010

Christina Hoff Summers of the American Enterprise Institute does a masterful job debunking the feminist notion that discrimination is responsible for wage differences between male and female workers. I’ll just add one observation, which is that genuine discrimination is very costly. If an employer wanted to discriminate against women (or any other group), that would mean deliberately making inefficient choices. This, in turn, would reduce the competitiveness of firms with discriminatory hiring practices. In other words, the market penalizes people who do the wrong thing. This doesn’t mean there is no discrimination. It does suggest, however, that market forces are the right solution, not coercive intervention by government:

Today is Equal Pay Day. Feminist groups and political leaders have set aside this day to protest the fact that women’s wages are, on average, 78 percent of men’s wages. …The American Association of University Women (AAUW) has enlisted supporters to wear red “to represent the way the pay gap puts women ‘in the red.’” There will be rallies, speak outs, mass mailings of equity e-cards, and even bake sales featuring cookies with a “bite” taken out to represent women’s losses to men. …this holiday has no basis in reality. Even feminist economists acknowledge that today’s pay disparities are almost entirely the result of women’s different life choices—what they study in school, where they work, and how they balance home and career. …In January 2009, the Labor Department posted a study prepared by the CONSAD Research Corporation, “An Analysis of the Reasons for the Disparity in Wages Between Men and Women.” It analyzed more than 50 peer-reviewed papers. Labor Department official Charles E. James Sr. summed up the results in his foreword: “This study leads to the unambiguous conclusion that the differences in the compensation of men and women are the result of a multitude of factors and that the raw wage gap should not be used as the basis to justify corrective action. Indeed, there may be nothing to correct. The differences in raw wages may be almost entirely the result of the individual choices being made by both male and female workers.” …Women are not as ready to sacrifice their deep interests in, say, history, psychology, or public policy—“all in order to fix, sell, or distribute widgets” or “to spend the best years of [their lives] planning air conditioning ductwork for luxury condos.” Men also work longer hours and are more willing than women to take dangerous but well-paid jobs as truck drivers, loggers, coal miners, or oil riggers. …And of course women are much more involved with babies than men. According to a 2009 Pew Survey, “A strong majority of all working mothers (62%) say they would prefer to work part time . . . An overwhelming majority [of working fathers] (79%) say they prefer full-time work. …American women are among the freest, best educated, and most self-determining people in the world. It seems unsisterly for NOW or the AAUW to suggest that they are being hoodwinked into college majors, professions, or part-time work so they can spend more time with their children.

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On a more serious level, this isn’t funny, but definitely a well-done cartoon. When I do a post on the article that accompanied this cartoon, there definitely won’t be anything to laugh about.

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 Very funny, though it is also tragic if you really think about it. I recall Reagan using a line like this in his speeches, though perhaps that is just my aging memory playing tricks on me.

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Much of Europe is dealing with a fiscal crisis caused by too much spending and economic stagnation caused by excessive taxation. But for the bureaucratic elite in Brussels, the important business of wasting other people’s money never goes on holiday. So it is quite appropriate that the latest hare-brained scheme from the continent is subsidized vacations. This is not a joke. Or, if it is, many newspapers have fallen for the story. The UK-based Times reports on this vital new addition to the list of human rights financed by other people’s money:

An overseas holiday used to be thought of as a reward for a year’s hard work. Now Brussels has declared that tourism is a human right and pensioners, youths and those too poor to afford it should have their travel subsidised by the taxpayer. Under the scheme, British pensioners could be given cut-price trips to Spain, while Greek teenagers could be taken around disused mills in Manchester to experience the cultural diversity of Europe. The idea for the subsidised tours is the brainchild of Antonio Tajani, the European Union commissioner for enterprise and industry, who was appointed by Silvio Berlusconi, the Italian prime minister. The scheme, which could cost hundreds of millions of pounds a year, is intended to promote a sense of pride in European culture, bridge the north-south divide in the continent and prop up resorts in their off-season. …The European Union has experience of subsidised holidays. In February the European parliament paid contributions of up to 52% towards an eight-day skiing trip in the Italian Alps for 80 children of Eurocrats. Tajani’s programme will be piloted until 2013 and then put into full operation. It will be open to pensioners and anyone over 65, young people between 18 and 25, families facing “difficult social, financial or personal” circumstances and disabled people.

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This image really captures the essence of the issue. Share this with your statist friends and maybe they’ll begin to understand.

 

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 Some of my posts spark debate between Bush supporters and Clinton fans, particularly on my Facebook page. I hate to burst anyone’s bubble, but Clinton wins that contest hands down. I’m only talking about economic issues, to be sure, so I’m not looking to trigger any discussions about foreign policy or abortion.

Regarding economic issues, perhaps the key thing to understand is that there are many factors which determine economic freedom (which, of course, is related to growth and prosperity). Some people look at a high-profile issue such as taxes, and are tempted to rank Bush higher because he cut taxes in 2001 and 2003, whereas Clinton increased taxes in 1993 (he also cut taxes in 1997, but not as much as he raised them four years earlier).

But while Bush had a better record on taxes, he had a much worse record on spending. And as I wrote in the Washington Examiner a couple of years ago, Bush’s record in other areas was more statist than Clinton’s (and I was writing before the bailouts).

Perhaps the best way of showing the difference between Bush and Clinton is to examine the Economic Freedom of the World annual rankings. Not all the years are available, but the image below clearly shows that economic freedom rose during the Clinton years and fell during the Bush years.

I’m no great fan of Bill Clinton, and I’ll be the first to admit that many of the good things that happened under Clinton were the result of a GOP Congress (in the good old days before they were corrupted by compassionate conservatism). But also keep in mind that Clinton signed into law almost all of the good policies that were enacted during his reign. Likewise, Bush signed into law almost all of the bad policies that were enacted during his reign. If I’m choosing between the economic policies that were implemented by the previous two Presidents, the answer is obvious.

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Tyler Cowen’s recent New York Times column explains how nations as diverse as Ireland, Sweden, and Canada have successfully solved fiscal problems by limiting the growth of government spending:

America’s long-run fiscal outlook is bleak, mostly because of an aging population and rising health care costs. To close the gap between expenditures and revenue, …we’ll need to focus especially on reducing spending, largely because that taxes on the wealthy can be raised only so high. …Higher income tax rates would discourage hard work and encourage tax avoidance, thereby defeating the purpose of the tax increases. …Higher levels of government spending and taxation would also soak up resources that might otherwise foster innovation and new businesses. And sentiment would most likely turn ever stronger against those immigrants who consume public services and make the deficit higher in the short run. …The macroeconomic evidence also suggests the wisdom of emphasizing spending cuts. In a recent paper, Alberto Alesina and Silvia Ardagna, economics professors at Harvard, found that in developed countries, spending cuts were the key to successful fiscal adjustments — and were generally better for the economy than tax increases. …The received wisdom in the United States is that deep spending cuts are politically impossible. But a number of economically advanced countries, including Sweden, Finland, Canada and, most recently, Ireland, have cut their government budgets when needed. Most relevant, perhaps, is Canada, which cut federal government spending by about 20 percent from 1992 to 1997.

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I’ve read several places that Ronald Reagan instinctively understood supply-side economics because Hollywood stars sooner or later learned that making more than a couple of movies per year was pointless when marginal tax rates were 90 percent. The same thing happens in sports. I’ve already posted about soccer stars turning down contracts in places where tax rates are high. Now we have a fascinating little story about taxes and the boxing profession:

For a very long time, boxing was the only really big-money sport for athletes. …At a time when Babe Ruth was being razzed for his $80,000 salary (more than the President of the United States, it was pointed out, to which Babe supposedly replied in 1930, “Well, I had a better year than he [President Hoover] did”), heavyweight champion Jack Dempsey made about nine times as much—over $700,000, for his unsuccessful title defense against Gene Tunney in 1926. …The 1950s was the era of the 90 percent top marginal tax rate, and by the end of that decade live gate receipts for top championship fights were supplemented by the proceeds from closed circuit telecasts to movie theaters. A second fight in one tax year would yield very little additional income, hardly worth the risk of losing the title. And so, the three fights between Floyd Patterson and Ingemar Johansson stretched over three years (1959-1961); the two between Patterson and Sonny Liston over two years (1962-1963), as was also true for the two bouts between Liston and Cassius Clay (Muhammad Ali) (1964-1965). Then, the Tax Reform Act of 1964 cut the top marginal tax rate to 70 percent effective in 1965. The result: two heavyweight title fights in 1965, and five in 1966.

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As usual, some very sound thoughts – on both the value-added tax and the income tax – from George Will:

When liberals advocate a value-added tax, conservatives should respond: Taxing consumption has merits, so we will consider it — after the 16th Amendment is repealed. A VAT will be rationalized as necessary to restore fiscal equilibrium. But without ending the income tax, a VAT would be just a gargantuan instrument for further subjugating Americans to government. …Because the income tax is not broadly based, it radiates moral hazard: Its incentives are for perverse behavior. The top 1% of earners provide 40% of that tax’s receipts; the top 5% provide 61%; the bottom 50% provide 3%. So the tax makes a substantial majority complacent about government’s growth. Increasingly, the income tax is codified envy. A VAT is the political class’s recourse when the resources of the minority that is targeted by the envious are insufficient to finance ravenous government.

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Since the United States is the biggest funder of that bevy of kleptocrats and moochers known as the United Nations, it is especially painful to read stories about the rampant corruption that characterizes that international bureaucracy and its various divisions. Here’s a typical story about waste and fraud from The American:

How pervasive are the problems at the World Food Program, the largest hunger relief agency in the world and the United Nations agency responsible for food aid? It’s a $2.9 billion question—the amount of direct aid disbursed by the WFP. A significant part of its budget comes from U.S. contributors, and USAID coordinates some of its work through the WFP. It’s been a month since the leaking of a scathing evaluation of WFP’s Somalian relief program written by the UN Monitoring Group on Somalia. The body, created by the UN Security Council, alleges that three Somali businessmen who held about $160 million in WFP transport contracts were involved in arms trading while diverting the agency’s food aid away from the hungry. A New York Times report also claimed food was being siphoned off by radical Islamic militants and local UN workers. …Somalia is not the WFP’s only controversy, only its most recent and most public. Its operation in Ethiopia, which is one of the largest recipients of food aid in the word, is reportedly in disarray, with the transport companies controlled by the country’s authoritarian government at the center of the controversy. According to the U.S. State Department, in 2008 only 12 percent of food aid (most of it overseen by the WFP) made it to its intended recipients in the poverty-stricken eastern region. The trucking situation is little better in Afghanistan, where reports suggest that WFP is paying two to three times more than commercial rates, taking large chunks out of the $1.2 billion, three-year relief effort. The WFP has admitted that it inflated its shipping costs in North Korea by funneling business through dictator Kim Jong Il’s government. In each case the WFP has denied the magnitude of the problem. But the responses miss the point. Why hasn’t the WFP, which portrays itself as a model of transparency, opened its books so the international community can exercise appropriate accountability and oversight? …U.S. citizens concerned about the use of their tax dollars abroad may find it equally hard to discover how NGOs awarded grants by USAID are spending their money. I filed a Freedom of Information Act request with USAID in May 2009, requesting copies of all NGO project budgets financed with American taxpayers’ money during the second half of 2008. Almost a year later, USAID has still not released these documents.

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Being an American citizen is an honor in many ways, but it is a huge millstone around the neck for highly successful investors and entrepreneurs because of an oppressive and complex tax system. This is particularly true for those based in and/or competing in global markets. Indeed, because the tax system (and regulatory system) is so onerous and because it is expected to get far worse in the future, a growing number of Americans are actually giving up citizenship and “voting with their feet.” The politicians view these people as “tax traitors” and are trying to erect higher barriers to hinder economic migration, particularly in the form of confiscatory “exit taxes” that are disturbingly reminiscent of the totalitarian practices of some of the world’s most unsavory regimes. The Wall Street Journal recently reported on this issue:

The number of American citizens and green-card holders severing their ties with the U.S. soared in the latter part of 2009, amid looming U.S. tax increases and a more aggressive posture by the Internal Revenue Service toward Americans living overseas. According to public records, just over 500 people world-wide renounced U.S. citizenship or permanent residency in the fourth quarter of 2009, the most recent period for which data are available. That is more people than have cut ties with the U.S. during all of 2007, and more than double the total expatriations in 2008. An Ohio-born entrepreneur, now based in Switzerland, told Dow Jones he is considering turning in his U.S. passport. Mounting U.S. tax and reporting requirements are making potential business partners hesitate to do business with him, he said. “I still do dearly love the U.S., and renouncing my citizenship is not something I take lightly. But more and more it is seeming like being part of a dysfunctional family,” said the businessman, who asked that his name not be used for fear of retribution. “The tax itself is only a small part of the issue,” the Swiss-based entrepreneur said. “It’s the overall regulatory environment.” …”Fifteen or 20 years ago there was a big rush to make sure your kids became U.S. citizens, for access to U.S. schools for example,” said Timothy Burns, a tax lawyer at Withers law firm in Hong Kong. “Now we’re seeing just the opposite.” Last month, the Treasury Department announced more rigorous requirements for Americans living abroad to report information on foreign bank accounts. The reporting requirement has been in place for years, but only in the most recent couple of years has the IRS gotten tough about enforcing penalties. …Others are giving up their U.S. nationality to avoid tax increases in the U.S., as the government struggles under huge budget deficits. The top marginal tax rate is set to rise to 39.6% from 35% at the end of this year. A proposal to tax fund manager pay at ordinary income rates, instead of the 15% capital gains rate, is gaining currency in Congress. “Everybody sees the tax rates are going up. At a certain point, it gets beyond people’s pain threshold,” said Anthony Tong, a tax partner at accounting firm PricewaterhouseCoopers in Hong Kong. Unlike most jurisdictions, the U.S. taxes the income of citizens and green-card holders no matter where in the world it is earned.

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Tax-news.com reports that the French and Italian governments want Europe to impose a tax on imports from nations that don’t adopt misguided climate-change/global-warming rules. This is awful policy, but the good news is that such a policy presumably won’t happen unless all 27 European Union nations agree:

France and Italy have demanded that the European Union (EU) consider the introduction of a carbon tax on imports from outside the EU, where countries do not comply with EU standards on environmental issues. In a joint letter to Jose Manuel Barroso, the head of the European Commission, President Sarkozy of France and Prime Minister Silvio Berlusconi of Italy stressed that: “It would be unacceptable if the ambitious efforts already agreed by the EU to reduce greenhouse gas emissions… were compromised by carbon leaking due to… insufficient action by certain third countries.” The letter went on to say that the tax could be used to pressurize third world countries to adopt measures to reduce their carbon emissions. …The irony is that the French government recently abandoned a plan to introduce a carbon tax in the country following a ruling that it was unconstitutional. The French government’s view is that any new carbon tax would only be viable if it was adopted by all 27 EU member states.

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Here’s a bit of good news. The Senate is now on record – overwhelmingly – against the value-added tax. To be sure, this doesn’t guarantee that the 85 Senators who voted the right way will continue to vote the right way if they have a real opportunity to take more money from taxpayers (after all, Obama didn’t hesitate to break his promise about no tax hikes on middle-class people), but this symbolic vote does put them on record against the VAT and it would be politically painful to reverse themselves anytime in the near future. The Washington Times reports:

Senators voted overwhelming Thursday to say they don’t want to create a new value-added tax, or VAT, in a vote designed to take the wind out of an idea that had been circulating among policymakers for the last several weeks. The 85-13 vote against a VAT was nonbinding, but it did put one chamber of Congress on record in opposition to adding the new tax just weeks before the first meeting of President Obama’s debt commission, which is supposed to report back this year on how to bring the country’s finances under control. Six senators are part of that commission, and all six voted against a VAT, a type of consumption tax that’s been adopted in Europe. …The VAT vote was spurred by recent comments by Paul Volcker, a former chairman of the Federal Reserve who is now a top economic adviser to Mr. Obama. He said imposing a VAT “was not as toxic an idea” as it once was. Mr. Volcker was answering a question from the audience at an event in New York. …Of the 13 senators who voted to support the possibility of a VAT, 12 were Democrats and one, Sen George V. Voinovich of Ohio, was a Republican.

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Writing for National Review’s Corner, Andrew Stuttaford claims that a value-added tax is a recipe for good policy because income tax rates were reduced under Thatcher and government spending (as a share of economic output) fell – good steps that were enabled, he asserts, by an increase in the VAT.

Stuttaford’s heart is in the right place, but the knock against a VAT has never been that it is impossible to have temporary periods of good policy. Instead, the problem is that an additional revenue source will enable an increase in the overall burden of government over time. And since the U.K.’s top tax rate is now up to 50 percent (a policy Cameron has no intent of reversing if he happens to win) and government spending has now skyrocketed to more than 50 percent of gross domestic product, all the fears of VAT opponents have been realized. Oh, by the way, it is a near-certainty that the VAT will climb to 20 percent regardless of who wins the election.

The VAT is terrible policy for anybody who cares about preserving liberty and restraining government. Period.

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Even though today is tax day, let us not forget that taxation is just one of several ways that government dimishes propserity. Government spending financed by borrowing also is destructive, as is most regulation since red tape imposes substantial inefficiences and generally fails a cost-benefit test.

The folks at the Competitive Enterprise Institute have just released their annual estimate of the regulatory burden. The publication, entitled Ten Thousand Commandments, includes the following depressing factoids:

• A very rough extrapolation from an evaluation of the federal regulatory enterprise by economist Mark Crain estimates that annual regulatory compliance costs hit $1.187 trillion in 2009.
• Given 2009’s actual government spending of $3.518 trillion, the regulatory “hidden tax” stood at 34 percent of the level of federal spending itself. (Because of the recent federal spending surge, this proportion is lower than the near–40 percent level of recent years.)
• The dramatic reality that regulations and deficits now each exceed $1 trillion a year is an unsettling new development for America. In 2008, regulatory costs were more than double that year’s $459 billion budget deficit. Now, the 2009 deficit spending surge has catapulted the deficit well above the costs of regulation ($1.414 trillion compared to $1.187 trillion, respectively).
• The game has changed, with respect to government spending versus government regulation. Although the spending and deficit levels eclipse federal regulatory costs now, unchecked government spending can translate, in later years, into greater regulation as well…
• Regulatory costs dwarf corporate income taxes of $147 billion.
• Regulatory costs exceed estimated 2009 individual income taxes of $953 billion by 25 percent.
• Regulatory costs of $1.187 trillion absorb 8.3 percent of the U.S. gross domestic product (GDP), estimated at $14.253 trillion in 2009.
• Combining regulatory costs with federal FY 2009 outlays of $3.518 trillion implies
that the federal government’s share of the economy now reaches 33 percent.

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Caroline Baum of Bloomberg has a good column against the value-added tax, in part because she quotes me, but more so because she effectively explains that a national sales tax like the VAT would be an add-on tax that would finance much bigger government:

As Americans awake to the 2009 tax-filing deadline today, they can look forward to working longer and harder for the government in the future — at least the dwindling share that pays individual income taxes. Enter the VAT, or value-added tax, a whole new source of revenue for the government. The VAT, a fixture in Europe for decades, is a broad-based consumption tax levied at each stage of production on the “value added,” as the name implies. Because government starts with a wish-list of new spending and entitlements and works backward to find a way to pay for them (when it’s trying to look responsible), raising more revenue without sinking the economy is an issue right now. “There is no way to finance all this new spending without an additional broad-based tax,” says Dan Mitchell, senior fellow at the Libertarian Cato Institute in Washington. Which is exactly why a VAT should be avoided, he says. “It’s akin to giving the keys to the liquor store to a bunch of alcoholics.” …Somehow I doubt the Obama administration or Congress would propose substituting a VAT for the income tax or lowering individual or corporate tax rates as an offset. The VAT would be an add-on. …Before you conclude that a VAT is the answer to all our fiscal problems, consider some facts. “Greece collapsed in spite of a 19 percent VAT adopted in 2005,” says Veronique de Rugy, a senior research fellow at the Mercatus Center at George Mason University in Arlington, Virginia. The additional revenue from the VAT did nothing to address Greece’s indebtedness. Does anyone think an out-of-control U.S. Congress would devote increased tax revenue to deficit reduction? (If you raised your hand, go back and reread this column from the beginning.)

P.S. Apologies for being out of touch. My laptop has crashed due to some form of virus attack. I am finally able to post again thanks to the kind people at the Montreal Economic Institute.

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I’m sitting in the offices of the Heartland Institute in Chicago, so it is appropriate that I share one of their videos criticizing the radical cap-and-trade plan being pushed on Capitol Hill.

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I have a column in the New York Post this morning explaining that big government is a losing deal for taxpayers in the Empire State. I’m tempted to say they deserve to be over-taxed and over-regulated because they keep electing collectivists like Chuck Schumer, but I grew up in the area and still follow the Yankees, so I hope the people of New York wake up and begin fighting big government. Here’s an excerpt:

Federal spending has approximately doubled during the Bush-Obama years — great news for special-interest groups, but bad news for New Yorkers, who pay a disproportionate share of federal taxes because of higher-than-average incomes. Needless to say, the IRS code allows no compensation for New Yorkers’ higher-than-average living expenses. New Yorkers also lose on the spending side of the ledger. According to the Tax Foundation, the state gets back only about 80 cents for every $1 it sends to Washington. But the harm is actually greater — because Washington takes that dollar from the job-creating private sector and returns the 80 cents in the form of handouts, subsidies and pork of very dubious economic benefit. And things are going to get worse before they get better. President Obama wants higher tax rates on income, higher tax rates on capital gains and increased double taxation of dividends. That will tilt the overall tax burden even further against New York. The taxes on investment, in particular, will hurt Wall Street — on which the city’s economy depends.

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The politicians in Washington act as if businesses are ATM machines that can be fleeced every time there’s a new boondoggle to finance. That is a deeply flawed assumption even in the case of big corporations, but it is utterly absurd when considering the challenges of creating a small business. Here’s a video produced by my Cato colleague Caleb Brown that gives a personal perspective on what it means to be an entrepreneur. And since Caleb has submitted this video for a contest being sponsored by the Chamber of Commerce, do me a favor and share it widely so he gets more views.

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This video from the folks at Reason TV shows how excessive government – especially a bloated government workforce – is debilitating California’s economy. The comparisons with Texas are a powerful example of why good policies are important.

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I have a column in the Washington Times speculating on ways we could lower our tax bills if we could use the same creative accounting that the Congressional Budget Office and Joint Committee on Taxation used to help impose Obamacare on the nation. Lots of tongue-in-cheek sarcasm:

If you’re still struggling over your tax return, wondering why you pay so much to finance a dysfunctional and wasteful government, maybe it’s time you adopted the same rules used by government number crunchers. The Congressional Budget Office (CBO) and Joint Committee on Taxation (JCT) helped push the health bill across the finish line by forecasting that (don’t laugh) a giant new entitlement program for government-run health care would reduce long-run budget deficits. A closer look at what they did suggests that as we approach April 15, taxpayers could save a bundle of money if they used the same creative accounting as CBO and JCT. For example: When CBO and JCT concoct their official scores about increases or decreases in government spending or revenue, they use “base-line” math. So when CBO said Medicare spending would be cut by several hundred billion dollars over the next 10 years, the first thing you need to understand is that Medicare spending actually will be increasing during that time period from $528 billion this year to about $1 trillion in 2020. But CBO says Medicare spending will be “cut” because it is not increasing even faster. Imagine if you got to do the same thing with your tax return. Not many of us received raises last year because of an economy weakened by bad government policy. But let’s say you were one of the lucky ones (a government employee, perhaps?) and you got a $5,000 raise. Unfortunately, Uncle Sam is going to want a big chunk of that additional money. Here’s where CBO accounting would be a big help. Why don’t you assume that you were going to get a raise of $10,000. Because your pay “only” went up by $5,000, you can claim your pay was reduced. The IRS will come down on you like a ton of bricks, but you can tell the agents as they cart you away that you were following official government methodology. (Maybe they’ll go easy on you when you tell them that an identical approach helped push the IRS budget up to $12 billion.)

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Clemson University was a big rival when I was at the University of Georgia, so it seems natural that I am locking horns with someone from that school as we debate whether we should have a flat tax or the current system. You can see both arguments at this link, and there also is a chance to cast an online vote. At the time this was posted, the flat tax was winning with 65 percent of the vote.

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A great column in the Wall Street Journal explains how FDR’s policies hurt the economy. That is true, but the really interesting part of the column for me is that it explains how Roosevelt (and then Truman) were convinced the economy would return to depression after World War II unless there was another giant Keynesian plan. Fortunately, Congress said no. This meant there was no repeat of the Hoover-Roosevelt mistakes of the 1930s and the economy was able to recover and enjoy strong growth:

FDR did not get us out of the Great Depression—not during the 1930s, and only in a limited sense during World War II. Let’s start with the New Deal. Its various alphabet-soup agencies—the WPA, AAA, NRA and even the TVA (Tennessee Valley Authority)—failed to create sustainable jobs. In May 1939, U.S. unemployment still exceeded 20%. European countries, according to a League of Nations survey, averaged only about 12% in 1938. The New Deal, by forcing taxes up and discouraging entrepreneurs from investing, probably did more harm than good. …His key advisers were frantic at the possibility of the Great Depression’s return when the war ended and the soldiers came home. The president believed a New Deal revival was the answer—and on Oct. 28, 1944, about six months before his death, he spelled out his vision for a postwar America. It included government-subsidized housing, federal involvement in health care, more TVA projects, and the “right to a useful and remunerative job” provided by the federal government if necessary. Roosevelt died before the war ended and before he could implement his New Deal revival. His successor, Harry Truman, in a 16,000 word message on Sept. 6, 1945, urged Congress to enact FDR’s ideas as the best way to achieve full employment after the war. Congress—both chambers with Democratic majorities—responded by just saying “no.” No to the whole New Deal revival: no federal program for health care, no full-employment act, only limited federal housing, and no increase in minimum wage or Social Security benefits. Instead, Congress reduced taxes. Income tax rates were cut across the board. …Corporate tax rates were trimmed and FDR’s “excess profits” tax was repealed, which meant that top marginal corporate tax rates effectively went to 38% from 90% after 1945. Georgia Sen. Walter George, chairman of the Senate Finance Committee, defended the Revenue Act of 1945 with arguments that today we would call “supply-side economics.” If the tax bill “has the effect which it is hoped it will have,” George said, “it will so stimulate the expansion of business as to bring in a greater total revenue.” He was prophetic. By the late 1940s, a revived economy was generating more annual federal revenue than the U.S. had received during the war years, when tax rates were higher. Price controls from the war were also eliminated by the end of 1946. …Congress substituted the tonic of freedom for FDR’s New Deal revival and the American economy recovered well. Unemployment, which had been in double digits throughout the 1930s, was only 3.9% in 1946 and, except for a couple of short recessions, remained in that range for the next decade.

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Here’s a new Economics 101 video about the cost of the tax code from the Center for Freedom and Prosperity. I won’t spoil the surprise by giving the details, but you if you’re not angry now, you will be after watching.

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The overall fiscal burden in the United States may be lower than it is in Europe, but there are some features of the internal revenue code that are far worse than what can be found on the other side of the Atlantic. America has a “worldwide” tax system, for instance, which means that our government interferes with the sovereignty of other nations by taxing income earned by Americans inside their borders. Good tax policy, by contrast, relies on the “territorial” principle of only taxing income earned inside national borders – and every other developed nation uses this system. Not surprisingly, both the flat tax and national sales tax are based on this common-sense approach. If an American earns income in Hong Kong, it should be up to Hong Kong to decide how that money gets taxed. Likewise, if a German earns money in the United States, then he is fair game for the IRS. There’s an old saying that good fences make good neighbors, and territorial taxation is the fiscal policy equivalent of this sound rule. Not surprisingly, however, other nations want to mimic this horrible feature of the American tax code. The Financial Times is even urging European nations to jointly make that misguided choice. Fortunately, it is almost certain that some nations will refuse to join in such a statist cartel:

The US is unique in using citizenship in determining whether a person’s worldwide income is subject to taxation. Most countries do not impose tax on their citizens who are not resident within their borders – apart from any income that is sourced in that country. But the US system has much to commend it. After all, any citizen of a country enjoys the implicit legal and physical protection it affords. …provision is made to avoid double taxation. Moreover, there is an exit for individuals who do not accept it as they can renounce their citizenship and move elsewhere. But perhaps the best thing about it is that a worldwide system linked to citizenship is simple and easy to understand. Most American citizens do accept it, although more have handed back their passports recently. It would be hard for, say, the UK or Germany to introduce such a system unilaterally. There would be the risk of citizens jurisdiction-hopping by swapping one passport for another within a common economic area. But all European Union states could introduce the same rule. That would not be impossible. After all, EU countries already co-ordinate their policies on savings taxes and their tax authorities exchange information.

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The quote in the last gun control poster apparently was an urban legend, but it did reflect an essential truth that armed societies are harder to enslave. I don’t know if the specific numbers in this poster are accurate, but it does emphasize another fundamental truth. Many leftist politicians are insulated from the dangers of ordinary life and this may be one of the reasons that they have little regard for Second Amendment rights.

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The serial mendacity that characterizes Washington is on full display today in David Border’s column entitled “Without higher taxes, the national debt will be crushing.” Yes, this is the same David Broder who did not write columns about the threat of deficits and debt when politicians were bailing out their friends on Wall Street. Moreover, this is the same David Broder who did not fret about red ink when politicians were enacting a so-called stimulus. And this is the same David Broder who was peacefully oblivious to the long-term fiscal nightmare of Obamacare. But now that higher taxes are on the agenda, debt is somehow a crisis that must be addressed. Like Bernanke, Broder is part of the Washington establishment that thrives when more money is seized from the productive sector of the economy, so it is appropriate to always remember that his tired words reflect a statist agenda:

With every passing day, it is becoming clearer that next year the issue of paying for the government will be back at the center of political debate. There will be a head start on the discussion this summer or fall, because some of the expiring Bush tax cuts must be extended. But the hangover from the Great Recession and the lagging unemployment numbers will make it impossible to focus on improving the Internal Revenue Code. Come 2011, however, the demand to start dealing seriously with the overhang of deficits and debt threatening the nation’s future will become irresistible. …The forces converging to make taxes a top agenda item in 2011 can also make it a year of opportunity — if legislators and the president step up.

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A former White House speechwriter, Mark Thiessen, has jumped to the defense of his former boss, writing for the Washington Post that George W. Bush “established a conservative record without parallel.” Even by the loose standards of Washington, that is a jaw-dropping assertion. I’ve been explaining for years that Bush was a big-government advocate, even writing a column back in 2007 for the Washington Examiner pointing out that Clinton had a much better economic record from a free-market perspective. I also groused to the Wall Street Journal the following year about Bush’s dismal performance.

“Bush doesn’t have a conservative legacy” on the economy, said Dan Mitchell, a senior fellow at the libertarian Cato Institute. “Tax-rate reductions are the only positive achievement, and those are temporary … Everything else that has happened has been permanent, and a step toward more statism.” He cited big increases in the federal budget, along with continuing subsidies in agriculture and transportation, new Medicare drug benefits, and increased federal intervention in education and housing.

Let’s review the economic claims in Mr. Thiessen’s column. He writes:

The thrust of their argument is that Bush expanded the size of government dramatically — and they are absolutely right. Federal spending grew significantly on Bush’s watch, and this is without question a black mark on his record. (Federal spending also grew dramatically under Ronald Reagan, though he was dealt a Democratic Congress, whereas Bush had six years of Republican leadership on Capitol Hill.)

Since federal spending almost doubled in Bush’s eight years, it’s tempting to summarily dismiss this assertion, but let’s cite a few additional facts just in case someone is under the illusion that Bush was on the side of taxpayers. And let’s specifically compare Bush to Reagan since Mr. Thiessen seems to think they belong in the same ball park. This article by Veronique de Rugy is probably a good place to begin since it compares all Presidents and shows that Bush was a big spender compared to Reagan…and to Clinton. But the most damning evidence comes from the OMB’s Historical Tables, which show that Reagan reduced both entitlements and domestic discretionary spending as a share of GDP during his two terms.  Bush (and I hope nobody is suprised) increased the burden of spending in both of these categories.That’s the spending side of the ledger. Let’s now turn to tax policy, where Thiessen writes:

Bush enacted the largest tax cuts in history — and unlike my personal hero, Ronald Reagan, he never signed a major tax increase into law.

Using the most relevant measures, such as changes in marginal tax rates or comparing the impact of each President’s tax changes on revenues as a share of GDP, Bush’s tax cuts are far less significant than the Reagan tax cuts. But there presumably is some measure, perhaps nominal revenues over some period of years, showing the Bush tax cuts are larger, so we’ll let that claim slide. The more relevant issue to address is the legacy of each President. Reagan did sign several tax increases after his 1981 Economic Recovery Tax Act, but the cumulative effect of those unfortunate compromises was relatively modest compared to the positive changes in his first year. When he left office, he bequeathed to the nation a tax code with meaningful and permanent tax rate reductions. The Bush tax cuts, by contrast, expire at the end of this year, and virtually all of the pro-growth provisions will disappear. This doesn’t mean Bush’s record on taxes was bad, but it certainly does not compare to the Gipper’s. But what about other issue, such as trade? Driessen writes:

Bush enacted free-trade agreements with 17 nations, more than any president in history.

Those are some positive steps, to be sure, but they are offset by the protectionist moves on steel and lumber. I’m not a trade expert, so I don’t know if Bush was a net negative or a net positive, but at best it’s a muddled picture and Driessen certainly did not present the full story. And speaking of sins of omission, his section on health care notes:

Bush created Health Savings Accounts – the most important free-market health-care reform in a generation. And he courageously stood up to Congressional Democrats when they sought to use the State Children’s Health Insurance Program (SCHIP) to nationalize health care — and defeated their efforts.

Conveniently missing from this analysis, though, is any mention of the utterly irresponsible prescription drug entitlement. There is no doubt that Bush’s net impact on healthcare was to saddle America with more statism. Indeed, I’d be curious to see some long-run numbers on the impact of Bush’s prescription drug entitlement and the terrible plan Obama just imposed on America. I wouldn’t be surprised to find out that the negative fiscal impact of both plans was comparable. Shifting gears, let’s now turn to education policy, where Driessen writes:

Bush won a Supreme Court ruling declaring school vouchers constitutional and enacted the nation’s first school-choice program in the District of Columbia.

Bush deserves some credit on school choice, but his overall education record is characterized by more spending and centralization. Thanks in part to his no-bureaucrat-left-behind plan, the budget for the Department of Education grew signicantly and federal spending on elementary, secondary, and vocational education more than doubled. Equally worrisome, federal bureaucrats gained more control over education policy. Finally, Thiessen brags about Bush’s record on Social Security reform:

Bush fought valiantly for a conservative priority no American president had ever dared to touch: Social Security reform, with private accounts that would have given millions of our citizens a stake in the free market system. His effort failed, but he deserves credit from conservatives for staking his second term in office on this effort.

This is an area where the former President does deserve some credit. So even though the White House’s failure to ever put forth a specific proposal was rather frustrating, at least Bush did talk about real reform and the country would be better off today if something had been enacted.

This addresses all the economic claims in Driessen’s article, but we can’t give Bush a complete grade until we examine some of the other issues that were missing from the column. On regulatory issues, the biggest change implemented during the Bush year was probably Sarbanes-Oxley – a clear example of regulatory overkill. Another regulatory change, which turned out to be a ticking time bomb, was the expansion of the “affordable-lending” requirements for Fannie Mae and Freddie Mac.

And speaking of Fannie and Freddie, no analysis of Bush’s record would be complete without a discussion of bailouts. Without getting too deep in the issue, the most galling part of what Bush did was not necessarily recapitalizing the banking system (a good chunk of which was required by government deposit insurance anyhow), but rather the way it happened. During the savings & loan bailout 20 years ago, at least incompentent executives and negligent shareholders were wiped out. Government money was used, but only to pay off depositors and/or to pay healthy firms to absorb bankrupt institutions. Bush and Paulson, by contrast, exacerbated all the moral hazard issues by resucing the executives and shareholders who helped create the mess. Last but not least, let’s not forget that Bush got the ball rolling on auto-industry bailouts.

If all of this means Bush is a “conservative record without parallel,” then Barack Obama must be the second coming of Ronald Reagan.

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I saw this odd story about wasteful government spending in James Taranto’s Best of the Web email. The bureaucrats at Britain’s National Health Service are sqandering thousands of dollars to create a giant “Burger Boy” as part of a government propoganda program against obesity. But what’s really odd is that local taxpayers (if there are any) are upset not about tax money being wasted, but about hurting the feelings of overweight kids. The Daily Mail reports:

As the latest weapon in the war on obesity it may seem a little extreme. But after fat camps, intense diets and gastrobands meet the ‘Bye Bye Burger Boy’. The 40ft giant effigy – which will cost several thousands to make – is to be paraded through the streets of Barnsley as part of a healthy eating drive. …The controversial idea was dreamt up by NHS and council bosses in the town to fight some of the highest obesity rates in the UK. But residents and campaign groups have reacted with fury and condemned the effigy. Local Slimming World co-ordinator Christine Meluish, who runs weight loss groups for 11 to 15-year-olds, branded it ‘a disgrace’. ‘It’s humiliating for anyone who is overweight,’ she said yesterday. ‘I was a fat kid and it’s hard enough. …The giant sculpture – of an obese boy standing in an ash tray beneath a mountain of fast food – was designed by theatre company Dodgy Clutch. The Newcastle-based company said it was recruited by Barnsley County Council and the NHS to ‘explore the role that the arts can play in healthy living and encouraging a healthier lifestyle’. …An NHS Barnsley spokesman refused to say how much the sculpture would cost but insisted it was ‘within the budget to promote active lifestyles’.

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I’ve always thought it would be nice to inherit a big pile of money, but whenever I debate some trust-fund collectivist, it makes me wonder whether there’s too much risk that unearned wealth causes…well, let’s just say causes strange opinions. Here’s my recent debate on Kudlow’s show with a rich guy who wants to pay more tax to the crooks in Washington.

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