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

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

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

First, the good news.

…

…

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Oh, wait, there isn’t any.

Now for the bad news.

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

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

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

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

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

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

What a dismal ending to 2012.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Ummm…shouldn’t they be targeting politicians?

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

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

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Notwithstanding Tea Party Objections, Kicking the Can Down the Road…to Greece

Chuck Asay has produced some great political cartoons, including personal favorites such as the Geithner-Obama tractor, the big-bad-wolf economic climate, and (his all-time best, in my humble opinion) the nothing-left-to-steal warning for statists.

Here’s one that’s quite appropriate for today since the politicians are busy negotiating over how to raise taxes while failing to address the real problem of a federal government that is too big and spending too much.

What makes this cartoon so perceptive is that it shows how many – if not most – Republicans are just as willing and happy as Democrats to exacerbate our fiscal problems.

The only bad news is that the cartoon implies the Tea Party has the ability to stop Obama and the other big spenders from kicking the can down the road.

If only. We’re going to get a tax increase in January and there’s nothing the Tea Party can do to stop that from happening. They can’t force Obama, the Senate, or even the GOP leadership in the House to implement pro-growth spending reforms such as a Swiss-style spending cap.

But at least there are some lawmakers who are fighting to do what’s right. I don’t know if they’ll ever succeed, but at least some folks in Washington understand that something needs to happen to restrain the burden of government spending.

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

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

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

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

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

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

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

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

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

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

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

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

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

Heck, even Russia has abolished its capital gains tax.

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

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

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

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

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

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

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

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A Description of Evolution in which even Creationists Can Believe

Over the past few years, I’ve shared a handful of images that capture the essence of government.

• Like this t-shirt that shows the proper definition of patriotism.
• And this cover of the Economist magazine.
• A Michael Moore t-shirt about capitalism getting blamed for problems caused by government.
• Or this description of the ruling class in Washington.
• How about this poster showing how government operates.
• Last but not least, I should have included this image when making the two-wolves-one-sheep warning about democracy in these posts about statism in Europe and the value of tax havens.

Now I have something new to add to the list – an image showing the evolution of government.

I’m not quite sure what the next-to-last image is supposed to specifically convey, but the clear message throughout is that government means coercion.

And that coercion doesn’t become legitimate merely because 51 percent of the population decides to plunder 49 percent of the population.

Which is perfectly shown by the final image, which accurately portrays today’s system of government and the IRS.

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Obama’s Deadly Plan for the Death Tax

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

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

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

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

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

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

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

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

“Time for your death panel appointment”

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

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

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

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

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

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

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

What’s the bottom line?

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

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

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

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

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

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

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

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Regarding the Fiscal Cliff and Obama’s Class-Warfare Tax Hikes, Let’s Laugh Before We Cry

By the time you read this post, it’s possible that the buffoons in Washington will have announced a deal on the fiscal cliff. Or perhaps we’ll have another month or more of fake drama.

Regardless of when the deal is announced, I fear the final result will be some sort of victory for Obama, with class-warfare tax policy that will undermine the economy’s long-run growth and reduce American competitiveness.

So let’s at least enjoy some good cartoons while taking another step in our journey to Greek-style fiscal collapse.

If you wonder why I’m feeling so glum, this cartoon is a pretty good summary of the debate. Or perhaps I should say bad summary. No wonder I’ve been wearing my red jacket to cheer myself up.

By the way, don’t think the higher taxes will be balanced by any spending restraint. Click here to see a very depressing chart about Obama’s “balanced” proposal.

At the beginning of the month, I posted a bunch of cartoons that portrayed Obama as being very dogmatic and inflexible in the negotiations, while showing Republicans as being clueless and naive. Well, here’s another one with the same message.

So true. If anyone thinks we’ll get something good out of this, such as entitlement reform, get in touch with me because I have some great oceanfront property in Kansas that I’m willing to sell you.

This one targets Congress instead of Republicans, but the idea’s the same.

And in the middle of the month, while speculating why the GOP has been losing the debate, I shared a couple of cartoons illustrating potential explanations. Here’s a Chuck Asay cartoon based on the “co-conspirator” theme in that earlier post.

The part in the final frame about the fiscal cost of Obamacare is a nasty touch, but sadly true.

All told, this is a very unpalatable situation. We’re going to give more of our income to a bunch of spendaholics, and they’re going to use the money to increase the burden of government spending and dig us into a deeper fiscal hole.

Heckuva start to 2013!

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The Bad Results and Unjust Consequences of the United Kingdom’s Gun Ban

I wrote yesterday about a silly proposal in the United Kingdom to ban long kitchen knives.

Some people objected because the story was from last decade, but that misses the point. Proponents of the Second Amendment are vigilant against encroachments in part because we’re worried about the slippery slope.

I predicted in yesterday’s piece that at some point the Brits would resort to banning long knives. I hope I’m wrong, but my prediction is based on what the U.K. government has done with gun control.

Ever since 1920, the government has made it more and more difficult for law-abiding people to possess weapons. And in a perverse example of Mitchell’s Law, the failure of one policy is then used to justify the next policy.

That’s how proposals that sound radical and foolish sometimes get implemented many years later.

We don’t know if this will lead to a knife ban at some point, but we can look at evidence showing that gun control in the U.K. was a precursor for a gun ban. And we also know such policies don’t reduce crime.

Professor Joyce Lee Malcolm of George Mason University has a column in the Wall Street Journal, looking at the impact of anti-gun policies in the United Kingdom.

…the Firearms Act of 1998…instituted a nearly complete ban on handguns. Owners of pistols were required to turn them in. The penalty for illegal possession of a pistol is up to 10 years in prison. The results have not been what proponents of the act wanted. Within a decade of the handgun ban and the confiscation of handguns from registered owners, crime with handguns had doubled according to British government crime reports. Gun crime, not a serious problem in the past, now is. Armed street gangs have some British police carrying guns for the first time.

By the way, it’s not just gun crime that has gone up. The U.K. has become a much more dangerous and violent society – almost surely in part because the thugs don’t have to worry about armed resistance.

Heck, if you are one of the few legal gun owners in the nation and you shoot a burglar, you get arrested instead of a pat on the back.

The U.K.’s draconian restrictions on individual liberty lead to some Orwellian consequences. Professor Malcolm offers up two examples.

Meanwhile, law-abiding citizens who have come into the possession of a firearm, even accidentally, have been harshly treated. In 2009 a former soldier, Paul Clarke, found a bag in his garden containing a shotgun. He brought it to the police station and was immediately handcuffed and charged with possession of the gun. At his trial the judge noted: “In law there is no dispute that Mr. Clarke has no defence to this charge. The intention of anybody possessing a firearm is irrelevant.” Mr. Clarke was sentenced to five years in prison. A public outcry eventually won his release. In November of this year, Danny Nightingale, member of a British special forces unit in Iraq and Afghanistan, was sentenced to 18 months in military prison for possession of a pistol and ammunition. Sgt. Nightingale was given the Glock pistol as a gift by Iraqi forces he had been training. It was packed up with his possessions and returned to him by colleagues in Iraq after he left the country to organize a funeral for two close friends killed in action. Mr. Nightingale pleaded guilty to avoid a five-year sentence and was in prison until an appeal and public outcry freed him on Nov. 29.

Amazing…and nauseating. I already had written about the unjust treatment of Mr. Clarke, but Mr. Nightingale’s legal nightmare is just as absurd.

Gun control laws are utterly perverse. They don’t work, just like prohibition didn’t work in the 1920s, and just like today’s Drug War is an unmitigated failure.

Gun bans turn law-abiding people into criminals, while simultaneously making life easier for the low-life scum of society.

And as the welfare state begins to fall apart and civil unrest becomes more common, the deadly impact of these bad policies will become even more apparent.

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When Gun Control Satire Becomes British Reality

Back in my less sophisticated days (shocking as it may seem, I wasn’t always the mature, statesmanlike figure I am today), I sometimes resorted to silly arguments when debating gun control, such as, “does this mean you want to ban knives since they also can be used to kill people?”

Smarter opponents would scoff and accuse me of knocking down straw men, assuming a non-existent slippery slope, or engaging in reductio ad absurdum.

I wasn’t even sure what the last one meant, but I secretly felt chagrined because I also thought the argument was nonsense. But it’s not like we had the Internet back in those days so I could quickly peruse the writings of John Lott or David Kopel.

Well, I no longer need to feel shame. It turns out that my straw man came to life and he’s sliding down a slope into a big pool of whatever that reductio thing is.

I kid you not. There’s a supposedly civilized nation that is seriously talking about banning long kitchen knives.

I’ll give you a couple of hints to help you figure out what country is considering this bizarre policy.

• It’s the country that wanted to prevent children from watching Olympic shooting events.
• It’s the country that arrested a man for finding a gun in his yard and turning it over to the police.
• It’s the country that imposed a prohibition on the use of starting pistols at races lest children get frightened by the noise.

Yes, I’m talking about our friends in the United Kingdom.

They make some decent movies and they have cute accents, but they seem totally clueless about how to fight crime and the notion of individual rights appears to be a totally alien concept.

So the nation that once ruled half the world actually has contemplated whether to ban certain kitchen knives. Here are some details from a 2005 BBC report.

A&E doctors are calling for a ban on long pointed kitchen knives to reduce deaths from stabbing. …The research is published in the British Medical Journal. The researchers said there was no reason for long pointed knives to be publicly available at all. …The researchers say legislation to ban the sale of long pointed knives would be a key step in the fight against violent crime. …Home Office spokesperson said there were already extensive restrictions in place to control the sale and possession of knives. “The law already prohibits the possession of offensive weapons in a public place, and the possession of knives in public without good reason or lawful authority, with the exception of a folding pocket knife with a blade not exceeding three inches. … A spokesperson for the Association of Chief Police Officers said: “ACPO supports any move to reduce the number of knife related incidents, however, it is important to consider the practicalities of enforcing such changes.”

Given my low opinion of and low expectations for Britain’s political class, I’m impressed that pocket knives are still legal. It’s probably just a matter of time before than changes. After that, the next step will be fingernail clippers.

And I’m glad that the ACPO person warned that there might be problems enforcing such a silly law.

But I fully expect to see that foolish proposal get enacted at some point. After all, this is the country where a women who was being threatened by thugs got in trouble with the police for brandishing a knife in her own home.

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

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

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

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

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

“Where’s our tax revenue?!?”

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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There’s No Good Outcome to the Fiscal Cliff Fight

We’ve opened all our presents, spent time with family, and enjoyed some tasty food.

Notwithstanding all this good cheer, there’s a a cloud of doom on the horizon. And that horizon is Washington, DC, America’s work-free drug city.

It appears that there’s no way of avoiding a tax increase. Either we go over the cliff, meaning across-the-board hikes for those who pay federal income tax, or Republicans acquiesce to Obama’s class-warfare tax agenda.

No wonder Santa left one unwanted present.

I explain the grim outlook for Fox Business News, though my display of sartorial Christmas splendor somewhat offsets the dour topic.

In the interview, I don’t say what should happen, though I’ve previously argued that it’s better to go over the cliff rather than give Obama a victory that will set the stage for further defeats over the next two years.

Better to have a bigger tax hike now, in other words, than to create a precedent that will lead to even larger losses in 2013 and 2014.

Besides, it’s quite possible that Obama is bluffing and this is the right way to get all the tax cuts extended.

But I admit there’s lots of guessing and speculation in those sentences.

There is one thing, however, that I can say with complete confidence. We don’t need a tax increase to balance the budget. We can get rid of red ink in just 10 years simply restraining spending so that it grows by only 2.5 percent per year.

P.S. Notwithstanding the last sentence, our main fiscal goal should be smaller government, not a balanced budget.

P.P.S. I was glad to have an opportunity in the interview to defend Robin Hood’s reputation. As I’ve explained, he was a Tea Party guy, helping to reclaim and return money that was taken by the tax collectors of Prince John and the Sheriff of Nottingham. Here’s another Ken Catalino cartoon that sort of makes this point.

I’ve also had to correct Cal Thomas on Robin Hood’s philosophical bona fides, so this is a very common mistake.

P.P.P.S. This is my second attempt at creating a video in the absence of the Cato expert. There’s a hiccup around the 2:25 mark, but I think the picture quality is much better than my first effort.

P.P.P.P.S. If you like the red jacket, previous attempts to be on the cutting edge of fashion can be seen here and here.

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Obama Announces New Federal Golf Rules

I’ve never criticized President Obama for playing a lot of golf. As far as I’m concerned, the nation is in much better shape when politicians spend a lot of time goofing off.

But I’m more than happy to use golf as a humor prop to make a serious points about public policy.

Earlier this year, for instance, I shared this golfing cartoon to help emphasize that Obama has been a big spender.

Let’s build upon that cartoon with a bit of humor sent to me by a friend from the Caribbean.

Here’s some new rules for golf, based on Obama’s soak-the-rich/entrap-the-poor approach to fiscal policy.

===========================================================

President B.H.O. has recently appointed a Golf Czar.

Major rule changes in the game of golf will become effective January, 20 2013.

This is only a preview as the complete rule book (expect 2716 pages) is being rewritten as we speak.

Here are a few of the changes:

Golfers with handicaps:
– Below 10 will have their green fees increased by 35%.
– Between 11 and 18 will see no increase in green fees.
– Above 18 will get a $20 check each time they play.

The term “gimmie” will be changed to “entitlement” and will be used as follows:
– Handicaps below 10, no entitlements.
– Handicaps from 11 to 17, entitlements for putter length putts.
– Handicaps above 18, if your ball is on the green, no need to putt, just pick it up.

These entitlements are intended to bring about fairness and, most importantly, equality in scoring.

In addition, a Player will be limited to a maximum of one birdie or six pars in any given 18-hole round.

Any excess must be given to those fellow players who have not yet scored a birdie or par.

Only after all players have received a birdie or par from the player actually making the birdie or par, can that player begin to count his pars and birdies again.

The current USGA handicap system will be used for the above purposes, but the term “net score” will be available only for scoring those players with handicaps of 18 and above.

This is intended to “re-distribute” the success of winning by making sure that in all competitions every Player above an 18 handicap will post only “net score” against every other player’s “gross score”.

These new Rules are intended to CHANGE the game of golf.

Golf must be about Fairness.

It should have nothing to do with ability, hard work, practice, and responsibility.

This is the “Right thing to do.”

So, please remember; if you shot a round of golf under par, you didn’t shoot it yourself. Someone else built that course, and someone else cut the grass so that you could play on it. Someone else built the clubs and the cart.

You need to share with everyone and anyone who made you a successful golfer.

======================================================

The “Entitleist” photo is a great touch.

Though  it’s very dark humor for someone like me who believes in self reliance and favors entitlement reform.

P.S. Have you ever wondered how America’s Declaration of Independence would look if our friends from the left had been in charge?

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Merry Christmas from the Second Amendment

Last year, I shared this heartwarming holiday adoption video.

Keeping with that tradition, here’s a Christmas greeting to warm your heart…and offend the delicate sensibilities of statists.

The extra flash at the end is a nice touch. Sort of reminds me of this joke about the difference between conservatives, liberals, and Texans.

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Merry Christmas from the TSA

Another good job by Remy and the folks at Reason TV.

Last year, they produced this parody about Grandma’s Christmas visit to Gitmo.

Now we see what happens when Santa tries to slip past the Transportation Security Administration.

And if you’ve ever been curious about what a “hooha” is, here are two additional TSA Christmas videos.

P.S. If you’re in the mood for some more holiday humor, we have a couple of videos from Larry the Cable Guy, one featuring slightly modified Christmas carols and the other telling the politically correct version of “Twas the Night Before Christmas.”

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Merry Christmas from President Obama

During previous Christmas seasons, I’ve shared some holiday humor.

• This video showing how the North Pole would function if Obama had control.
• A tragic story of Santa Claus getting arrested by the IRS.
• Another video, this one featuring Santa Claus griping about government red tape.
• The perfect present if you have any Timmy Geithner fans in your family.

This year, let’s enjoy a bunch of good cartoons.

Lisa Benson start our list, with this recognition of Time’s Man of the year. It’s so nice of the President to give away other’s people’s money.

And since Obama’s currently threatening to take the nation over the fiscal cliff unless he gets some class warfare tax policy, this Lisa Benson holiday cartoon from last year is worth sharing as well.

The second cartoon has the same theme.

The magnificent Chuck Asay offers this gem, with a message similar to one he produced earlier this year.

Asay also did a Christmas-themed cartoon last year.

Jerry Holbert provides this funny – but not so funny if you think about it – cartoon.

Here’s a good one from Glenn McCoy. This cartoon is a pretty good summary of how politics really works.

P.S. Here’s a bonus section. I can’t resist being a proud dad and sharing this family photo. It was taken while we had a meal break during some Christmas shopping.

Not a bad brood, if I can offer an unbiased assessment.

My kids have made other appearances on the blog – here, here, here, here, and here.

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While Much of America Suffers with Stagnation, Washington’s Political Class Is Having a Very Merry Christmas

In large part because of an excessive burden of government, the American economy is suffering European-style stagnation, with even the Washington Post now confessing that growth far below the long-run trend.

This helps explain why job creation has been so dismal in recent years, with more than twenty million Americans out of work, underemployed, or dropped out of the workforce.

But there is one pocket of enormous prosperity in America. It will warm your heart to know that our overlords in Washington are living the life of Riley.

Here are some of the highlights of a remarkable Reuters expose about the fat cats of big government, starting with the huge gap between the insider elite and the poor.

In the town that launched the War on Poverty 48 years ago, the poor are getting poorer despite the government’s help. And the rich are getting richer because of it. The top 5 percent of households in Washington, D.C., made more than $500,000 on average last year, while the bottom 20 percent earned less than $9,500 – a ratio of 54 to 1. That gap is up from 39 to 1 two decades ago. It’s wider than in any of the 50 states and all but two major cities.

One small but important correction in the previous excerpt. As I have noted many times, the “poor are getting poorer” because of “the government’s help.”

The article then explains that a lot of the redistribution in Washington is from taxpayers to a pampered elite.

…in the years since President Lyndon Johnson took aim at poverty in his first State of the Union address, there has been an increasingly strong crosscurrent: The government is redistributing wealth up, too – especially in the nation’s capital. …Two decades of record federal spending and expanding regulation have fostered a growing upper class of federal contractors, lobbyists and lawyers in the District of Columbia area. …Direct spending by the federal government accounts for 40 percent of the area’s $425 billion-a-year economy. …Roughly 15 cents of every dollar from the entire federal procurement budget stays in or around the government’s hometown, said Stephen S. Fuller, director of the Center for Regional Analysis at George Mason University. Last year, that was about $80 billion out of $536 billion in procurement spending, he said. The 15 percent share is far greater than the region’s 2 percent portion of the U.S. population. “We’re seeing an enormous transfer of wealth from taxpayers to the Washington economy,” said Fuller.

And all this spending leads to an elitist class of cronyists, politicians, contractors, bureaucrats, and lobbyists. No wonder the DC area is home to some of the richest counties in America.

But unlike other well-to-do areas, the wealth in DC is rarely accumulated by honest means.

Instead, it’s the result of perverse form of redistribution to big-government insiders. Check out these horrifying details.

Washington-area workers with incomes above $100,000 rose to 22 percent of the workforce, up from 14 percent in 1990, adjusted for inflation, a Reuters analysis of Census data found. …there are 320,000 federal jobs in the Washington area. Within the District of Columbia, 55 percent pay $100,000 or more. …Nearly 13,000 lobbyists registered with the government last year and reported $3.3 billion in fees, or about $260,000 per lobbyist. That’s 22 percent more lobbyists and 37 percent more inflation-adjusted revenue per lobbyist than in 1998… Times are flush for Washington lawyers as well. The number of attorneys in the area has risen 44 percent, twice the national rate, to 41,000 since 1999. Their average income, adjusted for inflation, rose 35 percent to $156,000.

I guess we know who’s having a merry Christmas.

All these rich bureaucrats, lobbyists, politicians, cronyists, and contractors certainly are living the good life, as revealed in a Washington Post story on the “Region’s Rising Wealth.” Here are some sordid excerpts.

…the D.C. region already has a reputation as one of the most affluent in the country. But the area is fast emerging as a home to the truly rich as well. High-end luxury retailers are responding. Brands such as Aston Martin are expanding their operations into the area — betting, for instance, that there will be plenty of customers who can afford the $280,000 sports car James Bond drives in the movies. …Already there are 500 Aston Martin owners in the area with the potential for more.

I’ve already shared an interview with Andrew Ferguson by Reason TV that should make all taxpayers upset. Why should ordinary taxpayers be coerced to subsidize Washington’s high-flying parasite economy?

Redistribution is a bad thing in most circumstances. But when you redistribute from poor to rich, that’s utterly perverse.

Well, thanks to profligacy by Bush and Obama, that’s exactly what’s happened.

The region’s top one percent of households make more than a half million dollars yearly — far more than the national average for the one percent, according to a study of Census data by Sentier Research, an Annapolis-based data analysis firm. And these top earners — many of whom are from dual-income households and benefit from federal contracting — weathered the recession better than their counterparts in some other metropolitan areas and the nation. More are moving beyond comfortable affluence to a much higher standard of living. “What is unique to D.C. is that there has been a change in the complexion of wealth here. There didn’t used to be much of this ultra-high-net-worth business here and now there is,” said Susan Traver, the regional president of BNY Mellon Wealth Management.

But everyone in the rest of America at least can go to sleep tonight with a warm and fuzzy feeling of joy, knowing that our money has created such comfortable lives for the political elite.

Milton Pedraza, the CEO of the Luxury Institute, a research and consulting firm, said that purveyors of luxury goods are drawn to the area because it has…a stable economy bolstered by the federal government. Government contracting, where some local entrepreneurs and business owners amassed their fortunes, has been a key driver of the region’s economy for three decades. A third of the region’s gross regional product still comes from federal spending… “Let’s face it . . . the only place with money during the recession was Washington, D.C.,” Pedraza said.

Perhaps we should make a slight correction in the previous excerpt. After all, shouldn’t it read “America suffered a recession because the only place with money was Washington, DC.”

Let’s wrap this up. A few years ago, I issued this video about overpaid bureaucrats.

But I now realize my mini-documentary only scratches the  surface. Yes, there are too many paper-pushers on the government payroll, and of course they get far too much compensation.

But what about unofficial government workforce of over-paid contractors? And all the lobbyists, consultants, and cronyists that exist only because we have a bloated federal government?

Our nation is being seriously damaged by this corrupt system, and I fear that the outcome will be Argentinian-style decline.

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Question of the Week: When Will the Economy Suffer the Consequences of the Fed’s Easy-Money Policy?

This is an easy question for me to answer. To be honest, I have no idea.

If I knew such things, I could time the market and I’d be rich beyond my wildest dreams and relaxing on the beach in the Cayman Islands instead of sitting in my kitchen in chilly Virginia.

Heck, I don’t even know whether the Fed’s policy is wrong or just worrisome. It’s possible, after all, that the central bank has provided appropriate liquidity and it will soak it up at the right time.

I don’t think that’s the case. I fear Bernanke is in over his head and that the Fed is engaging in the monetary version of Keynesian economics.

And if that’s true, something bad will happen at some point. If there’s too much liquidity out there, it presumably will show up at some point as either rising prices or an asset bubble.

Then again, we know banks are keeping more than $1 trillion of excess reserves parked at the Fed and maybe it will stay that way forever. In which case the private sector is inadvertently protecting us from bad monetary policy. Thomas Sowell has suggested that something like this is happening.

I can say for sure is that we wouldn’t have to worry if we were in a libertarian fantasy world and the private sector was responsible for money.

You may think that sounds crazy, but that’s the way it used to be, as explained in this short video.

John Stossel has made the same point about competing market-based currencies.

And if you want to see how well money has maintained its value since the Federal Reserve took over, this link has an excellent video.

P.S. I often get asked about the gold standard. It’s good in theory, but the real issue is whether governments can be trusted to operate it prudently and honestly.

P.P.S. Since Christmas is just two days away, we can all wonder whether we will get this present from Ben Bernanke. And if you still have some last-minute shopping to do, here’s a Bernanke t-shirt for your liberal friends.

P.P.P.S. For some laughs, check out Ben Bernanke’s Facebook page.

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How the Welfare State Traps the Poor in Dependency, the British Version

Back in 2011, I linked to a simple chart that illustrated how handouts and subsidies create very high implicit marginal tax rates for low-income people and explained how “generosity” from the government leads to a tar-paper effect that limits upward mobility.

Earlier this year, I shared an amazing chart that specifically measured how the welfare state imposes these high implicit tax rates. Unbelievably, some people would be better off earning $29,000 rather than $69,000.

Simply stated, the multitude of redistribution programs are worth a lot of money, but you begin to lose those goodies if you begin to live a productive and independent life.

And since we know that rich people respond to high tax rates by declaring less income to the government, we shouldn’t be surprised that poor people also respond to incentives.

We also shouldn’t be surprised to learn that other nations have these same perverse policies. Here are some excerpts from a powerful piece for the UK-based Spectator.

…today’s Sunday Times magazine has a long piece asking whether there is a “fundamental difference in our attitudes to work”. It’s still one of the most important questions in Britain today: what’s the use of economic growth if it doesn’t shorten British dole queues? And should we blame these industrious immigrants; aren’t the Brits just lazy? …The quality of the British debate is so poor that we almost never look at this from the point of view of the low-wage worker. Every budget, the IFS will dutifully work out if it has been “fair” – ie, gives the most to the poorest. The LibDems will judge a budget by this metric. That’s a nice, easy, simple graph. But what about destroying the work incentive? Each budget and each change to tax should be judged on how many people are then ensnared in the welfare trap. I adapted the below (nasty, complex) graphs from an internal government presentation, which still make the case powerfully. The bottom axis is money earned from employer and the side axis is income retained. The graphs are complex but worth studying, if only to get a feel for the horrific system confronting millions of the lowest-paid in Britain today.

Here are the two charts. the author is correct. They are quite complex. But they show that there’s no much incentive to work harder, whether you’re a young person or a single parent.

After showing these amazing charts, the author makes some very powerful additional observations.

…if I was in a position of a British single mother I have not the slightest doubt that I would choose welfare. Why break your back on the minimum wage for longer than you have to, if it doesn’t pay? Some people do have the resolve to do it. I know I wouldn’t. …So let’s not talk about “lazy” Brits. The problem is a cruel and purblind welfare system which still, to this day, strengthens the welfare trap with budgets passed without the slightest regard for its effect on the work incentives on the poorest. …Meanwhile, the cash-strapped British government is still creating still the most expensive poverty in the world.

The final sentence in the excerpt really sums it up, noting that the government is “creating the most expensive poverty in the world.” Sort of like a turbo-charged version of Mitchell’s Law. The politicians create a few redistribution programs. Poverty begins to get worse. So then they add a few more handouts to address the problems caused by the first set of programs. Lather, rinse, repeat.

In other words, this poster applies in all nations.

P.S. If you want some real-world examples of the horrible impact of the British welfare state, you can see how the welfare state destroys lives, creates perverse incentives, and turns people into despicable moochers.

P.P.S. We have the same problems in America, and even leftists are beginning to admit this is bad for poor people. Heck, just look at this chart showing that the poverty rate was falling until the War on Poverty began.

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Some Overdue Abuse for America’s Native Criminal Class

I’m not sure what it says about me – or about readers – that the three most-viewed posts on this blog involve humor.

• The two cartoons that show the rise and fall of the welfare state.
• A joke about California, Texas, and a Coyote.
• This Michael Ramirez cartoon about Obama’s self-imposed headwinds.

The welfare state drawings weren’t even intended as a joke. I wanted to make an important point about how entitlement programs start small, but then balloon in size as politicians buy more votes and create more dependency.

But whenever I share these drawings as part of Powerpoint presentations, audiences laugh. So there’s obviously something amusing about them, even if only because of dark humor – i.e., in a we’re-doomed-if-we-don’t-reform-entitlements-so-we-may-as-well-laugh kind of way.

Anyhow, political humor seems to be very popular, so several readers have sent nagging emails asking why it’s been over a month since I shared any of the jokes from the late-night comics and talk-show hosts.

My last batch was right before the election, so it has been awhile. So, you ask and I deliver.

Jay Leno

• As you know, the Mayans said the world will end tomorrow, and like everybody else, they blame Bush.
• It looks like President Obama is going to pick John Kerry to be our next secretary of state. This is a very strategic move when it comes to foreign policy. Obama plans to use Kerry to bore our enemies to death.
• A 2009 Ford F-150 pickup truck, once owned by President George W. Bush, is going up for auction in a couple of weeks. All the proceeds will go to military families. President Obama should buy this truck because when something goes wrong he can blame it on Bush.
• In what’s being called a stunning literary find, a Danish historian has discovered the last remaining, unpublished fairy tale from Hans Christian Andersen. It’s called “Congress Solves the Fiscal Cliff.”
• Police are now looking for a man who robbed a bank wearing a Mitt Romney mask. He robbed the bank, fled the area, and then stashed the money somewhere in the Cayman Islands.
• The Golden Globe nominations were announced yesterday morning, and “Lincoln” got seven nominations. Finally, a Republican who might win something.
• Federal Reserve Chairman Ben Bernanke said a failure to reach a deal for the fiscal cliff will hurt the recovery. The good news is most Americans will not be affected by this because they had no idea there WAS a recovery.
• The U.S. Census Bureau says that by the year 2043, white people will be in the minority in the United States. By that time, the country will be 15 percent black, 31 percent Hispanic, and 1 percent Republican.
• According to a new study at UCLA, Latinos live longer than non-Latinos. More bad news for Republicans.
• Today in Washington, President Obama met with leaders of the American Indian tribes and they honored the president by giving him his own Indian name: “Running Deficit.”
• There was one really awkward moment with the American Indians. In the middle of the meeting, Joe Biden walked in wearing a Redskins jersey.
• President Clinton and President Obama played a round of golf over the weekend. President Clinton asked Obama what his handicap was, and Obama said, “Joe Biden.”
• There are now reports that President Obama will name Massachusetts Senator John Kerry to be the next secretary of defense. Apparently this is part of America’s new defense strategy to bore our enemies to death.
• The economy is so bad, MSNBC had to lay off 300 Obama spokesmen.
• It was announced today that former General Petraeus has agreed to testify before Congress. I guess he figured, “Why not?” Those questions can’t be any tougher than the ones he’s getting at home right now.

David Letterman

• Secretary of State Hillary Clinton collapsed, passed out, banged her head, got a concussion. She is listed as questionable for Sunday’s game against the Ravens.
• Christmas is just around the corner. It’s just under two weeks away, and today Santa released 10 years of tax returns.
• The Rockefeller Center’s Christmas tree is being put in place this afternoon. They bring it in and hoist it with a crane and steel cables. It’s the same way they get Chris Christie into his pants.

Conan

• New Jersey Democrats say Republican Governor Chris Christie will be impossible to beat. It’s unclear if they’re talking about the 2013 governor’s race or Coney Island hot dog-eating contest.
• According to a new poll, most Americans think Santa Claus is a Democrat — which is really odd because when I think of a fat, old white man who hires unskilled labor, I think Republican.
• Today New Jersey Governor Chris Christie visited the White House. President Obama told him, “I’d invite you to lunch but the deficit is already too high.”

Craig Ferguson

• New Jersey became a state on this day in 1787. New Jersey Governor Chris Christie celebrated with a giant cake and a bucket of ice cream. Then he remembered today was New Jersey’s birthday.
• A list of the world’s best cities came out today and the highest-ranking American city is Honolulu at number 28. They got points taken off for bad public transportation, but apparently it’s a great place to get fake birth certificates.
• To keep this in perspective, the U.S. pays almost a billion dollars to support the first family. Granted, most of that money just goes to making fake birth certificates.

Jimmy Kimmel

• Christmas is on Tuesday, provided that the world doesn’t end on Friday, which is the end of the Mayan calendar. Some believe there will be massive earthquakes and floods. Others think a planet will collide with the earth. I believe the end of the world will come about in a much stupider way, like Joe Biden spilling a Mountain Dew on the nuclear launch panel.
• The U.S. Postal Service announced yesterday they are expecting this year’s holiday season to be their busiest ever and also their slowest ever. That’s probably the only business in America that complains about being busy.

Jimmy Fallon

• There’s a photo going around with President Obama playing with a staffer’s son who’s dressed as Spider-Man. Obama was like, “Shouldn’t you be fighting the Green Goblin?” And the kid was like, “shouldn’t you be working on the fiscal cliff?”
• The kid was really excited to meet the president, while Joe Biden was real excited to meet Spider-Man.
• Yesterday, the Senate floor was reserved for farewell speeches from retiring senators. Each senator received a fitting gift: a gold watch that stopped working years ago.

If you want to enjoy previous editions of these one-liners, click here, here, here, here, here, here, here, here,here, here, here, here, here, here, here, and here.

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Stories Like this Lead Me to Think there’s No Hope for the United Kingdom

I don’t like bloated government. It undermines economic performance by diverting resources from the productive sector of the economy and often leads to destructive tax policy.

But when trying to build support for good fiscal policy, it often helps to cite specific examples of wasteful and foolish government. That’s one of the reasons I’ve been comparing examples of government stupidity and political correctness in the United States and the United Kingdom.

After all, how many people would want to pay more taxes after reviewing these bizarre episodes of government in action?

From the United Kingdom

• A job-placement center got in trouble for discriminating against incompetent people by seeking “reliable” and “hard-working” candidates.
• A women who was being threatened by thugs got in trouble with the police for brandishing a knife in her own home.
• There was a serious proposal to prevent children from watching Olympic shooting events.
• A man got arrested for finding a gun in his yard and turning it over to the police.
• The government wanted to require “competency tests” for pet owners.
• An ID requirement to buy teaspoons.
• The most useless sign in the history of the world.
• A proposal to ban skinny models.
• A prohibition on the use of starting pistols at races lest children get frightened by the noise.
• Denying children a home because the foster family didn’t believe in unlimited immigration.

From the United States

• A Rhode Island boy offended the PC nanny-staters by bringing toy soldiers to school.
• A student in San Diego got in trouble for making a motion detector for a science project, simply because someone decided it resembled a bomb.
• The EEOC hindering trucking companies from weeding out drunk drivers.
• A Florida student was expelled for having a toy gun on school property.
• And how can we omit the politicians in San Francisco, who decided that banning happy meal toys was an appropriate use of government coercion.
• We also have regulations in Maryland governing the application of sunscreen at summer camps.
• A local politician in Maryland wanting a licensing process to be a bum.
• And proposals in Seattle to require life vests on swimmers who are more than five feet from shore.

I’ve even shared some instances of moronic behavior from the private sector, and I have another story that may belong in that category.

In this instance, we’re talking about the critical need to protect people from pudding. I’m not joking. Here are some of the details of a very odd report in the Daily Mail.

If you’re lucky enough to look about 18, there’s a good chance you’ll be asked to provide ID at the supermarket to buy alcohol, knives or glue. Now an addition has been made to that list of potentially hazardous items – chocolate pudding. Robert Nemeti was amazed when he was asked for ID while buying a microwaveable pudding at Tesco. Mr Nemeti, 24, was going through the self-service checkout when an on-screen warning announced that his purchase had to be ‘approved’. …‘The woman who was monitoring the self-service checkouts came over and asked me for identification showing I was 18. I asked her why and was stunned when she told me: “It gets hot when you cook it – and you may burn yourself”. Surely the same can be said of many of the products they sell in any supermarket? Health and safety has gone crazy if you now have to prove you can be trusted with a chocolate pudding.’ He added: ‘I explained that I didn’t have any ID. Thankfully she agreed that I looked over 18 and she scanned her staff pass to approve the sale.’ Mr Nemeti managed to cook and eat the dessert that evening without injury.

Gee, I’m glad that Mr. Nemeti managed to eat the pudding without causing a fire or suffering burns.

There’s not much I can add to this story. Is this an example of crazy government over-protectiveness, sort of nanny state run amok? Perhaps somewhat similar to Nurse Bloomberg’s attempt to ban large sodas? I don’t know. There aren’t enough details.

Or maybe it’s the fault of the private sector, with some corporate bureaucrat justifying his job by coming up with idiotic rules? Though, to be fair, that’s less destructive than American corporate bureaucrats who have special skills when it comes to getting bailout money.

No warning label?!? Such reckless corporate irresponsibility!

Could it be because the English are learning about America’s lawsuit culture and businesses are having to defend themselves from preposterous legal claims by imposing equally preposterous rules? That would be the indirect fault of government.

But whatever the cause, it’s a sorry sign for civilization. I’ve previously explained that I’m very pessimistic about the United Kingdom’s fiscal outlook. Based on this story, I also should worry about the nation’s mental outlook.

But I’m not throwing stones blindly. I’m fully aware that the United States is a glass house, whether the metric is reckless fiscal policy or a dearth of common sense.

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What’s the Best Response when Crony Capitalists from Big Business Endorse Higher Taxes on their Small Business Competitors?

I’m a big fan of lower corporate tax rates.

I also want to eliminate worldwide taxation so American companies can be on a level playing field when competing for market share around the world.

And I want to get rid of the double taxation of dividends and capital gains in part because these reforms will boost business investment.

Given this track record, I don’t think anybody could accuse me of being an anti-big-business activist.

But I do get very irritated when politically connected corporations use cronyism to guard their interests at the expense of other taxpayers and the overall economy.

That’s why, in this interview with Larry Kudlow on CNBC, I spend most of the time advocating for pro-growth policies, but near the end I slam corporate CEOs from the Business Roundtable for endorsing higher tax rates for small businesses.

For those who don’t follow the intricacies of business taxation, most small companies – such as sole proprietorships, partnerships, and S-corps – are taxed through the personal income tax.

So it’s a bit outrageous when corporate CEOs endorse higher personal income tax rates, knowing that their smaller competitors will get reamed.

I don’t think they’re doing it just for that purpose. As I say in the interview, it’s more a case of feeding somebody else to the sharks out of a narrow, short-term sense of self preservation.

But this also explains why I am such a strong believer in the no-tax-hike pledge. Once “revenue enhancement” is part of the discussion, taxpayers lose their sense of unity and begin to throw each other overboard.

And this isn’t just something that happens among Washington insiders. I’ve previously explained that ordinary Americans get very tempted to support class-warfare tax hikes once they realize someone is going to be raped and pillaged by Washington.

This is why, to discourage talk of tax hikes (especially by crony capitalists), I am willing to make a special exception and support an excise tax on CEO salaries. Anybody who endorses higher taxes should be first in line for the guillotine.

P.S. I apologize for the poor quality of the video. The guy at Cato who does these things is out for the holidays, and you see the suboptimal results when I dabble in technical things. And since I’m acknowledging my shortcomings, I should have said “obediently” instead of “appropriately” at the 3:44 mark.

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Gun Control Is Not the Answer, Even if You Don’t Like Guns

Last weekend, I wrote a post entitled “An Honest Liberal Writes about Gun Control.” The article was very powerful because the person didn’t like guns, but admitted that more guns in the hands of law-abiding people might be the best way to reduce crime.

Now we have a perfect follow-up article to analyze. It’s from the Wall Street Journal and it’s authored by David Kopel of the Independence Institute. He starts by acknowledging that random shootings have increased, but notes that these killing sprees were almost non-existent when we had no anti-gun laws.

Why the increase? It cannot be because gun-control laws have become more lax. Before the 1968 Gun Control Act, there were almost no federal gun-control laws. …Nor are magazines holding more than 10 rounds something new. They were invented decades ago and have long been standard for many handguns. Police officers carry them for the same reason that civilians do: Especially if a person is attacked by multiple assailants, there is no guarantee that a 10-round magazine will end the assault. The 1980s were much worse than today in terms of overall violent crime, including gun homicide, but they were much better than today in terms of mass random shootings. The difference wasn’t that the 1980s had tougher controls on so-called “assault weapons.” No assault weapons law existed in the U.S. until California passed a ban in 1989. Connecticut followed in 1993. None of the guns that the Newtown murderer used was an assault weapon under Connecticut law.

Kopel then makes the key points that there is no meaningful definition of an “assault weapon.” Oh, in case any morons from the media are reading this, it’s also worth noting that a “semi-automatic” is not a machine gun.

This illustrates the uselessness of bans on so-called assault weapons, since those bans concentrate on guns’ cosmetics, such as whether the gun has a bayonet lug, rather than their function. What some people call “assault weapons” function like every other normal firearm—they fire only one bullet each time the trigger is pressed. Unlike automatics (machine guns), they do not fire continuously as long as the trigger is held. They are “semi-automatic” because they eject the empty shell case and load the next round into the firing chamber.

Since gun controls have become more ubiquitous over time, what could account for the increase in random shootings? In addition to de-institutionalization of the mentally ill, Kopel suspects the media plays a role.

Since gun controls today are far stricter than at the time when “active shooters” were rare, what can account for the increase in these shootings? One plausible answer is the media. Cable TV in the 1990s, and the Internet today, greatly magnify the instant celebrity that a mass killer can achieve. We know that many would-be mass killers obsessively study their predecessors.

This doesn’t mean it’s the fault of the media, and it certainly doesn’t mean that we should undermine the First Amendment right of an unfettered press, but at least it helps to understand what could be causing some of these nutjobs to go on killing sprees.

The most important part of the column is his analysis of how “gun-free zones” are downright idiotic. The Chuck Asay cartoons here and here make the same point, as does this satirical video, but Kopel’s analysis provides substance.

Finally, it must be acknowledged that many of these attacks today unfortunately take place in pretend “gun-free zones,” such as schools, movie theaters and shopping malls. According to Ron Borsch’s study for the Force Science Research Center at Minnesota State University-Mankato, active shooters are different from the gangsters and other street toughs whom a police officer might engage in a gunfight. They are predominantly weaklings and cowards who crumble easily as soon as an armed person shows up. The problem is that by the time the police arrive, lots of people are already dead. So when armed citizens are on the scene, many lives are saved. The media rarely mention the mass murders that were thwarted by armed citizens at the Shoney’s Restaurant in Anniston, Ala. (1991), the high school in Pearl, Miss. (1997), the middle-school dance in Edinboro, Penn. (1998), and the New Life Church in Colorado Springs, Colo. (2007), among others. At the Clackamas Mall in Oregon last week, an active shooter murdered two people and then saw that a shopper, who had a handgun carry permit, had drawn a gun and was aiming at him. The murderer’s next shot was to kill himself. Real gun-free zones are a wonderful idea, but they are only real if they are created by metal detectors backed up by armed guards. Pretend gun-free zones, where law-abiding adults (who pass a fingerprint-based background check and a safety training class) are still disarmed, are magnets for evildoers who know they will be able to murder at will with little threat of being fired upon.

Amen. I offered an IQ test on the issue for liberals and criminals, and this set of cartoons and posters takes an amusing look at the issue of gun-free zones.

But as much as I enjoy political humor, this is not a laughing matter. It appears Obama is trying to lay some groundwork for a new assault on the Second Amendment.

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Time to Get Rid of Tax Preferences for Housing in the Internal Revenue Code

Even though I knew some people would call me Scrooge, I wrote a few days ago about why we should get rid of the tax deduction for charitable contributions in exchange for lower tax rates.

Simply stated, I’m a big advocate of fundamental tax reform, and I would like to scrap the corrupt internal revenue code and replace it with a simple and fair flat tax.

Needless to say, that also means getting rid of tax preferences for housing. I make the case against the home mortgage interest deduction in this interview on the Fox Business Network.

Since a short TV interview doesn’t allow much time for a detailed and wonky analysis of tax policy, this is a good time to explain why tax reform doesn’t really change the tax treatment of housing. But also I’ll explain why it is a big change.

I realize that makes me sound like a politician, talking out of both sides of my mouth, but bear with me.

One of the key principles of tax reform is that there no longer should be any double taxation of income that is saved and invested. As you can see in this chart, people who live for today and immediately consume their after-tax income are basically spared any additional layers of tax. But if you save and invest your after-tax income (which is very good for future growth and necessary to boost workers’ wages), then the government tries to whack you with several additional layers of tax.

The solution is a system that taxes income only one time. And that means all saving and investment should be treated the way we currently treat individual retirement accounts. If you have a traditional IRA (or “front-ended” IRA), you get a deduction for any money you put in a retirement account, but then you pay tax on the money – including any earnings – when the money is withdrawn.

If you have a Roth IRA (or “back-ended” IRA), you pay tax on your income in the year that it is earned, but if you put the money in a retirement account, there is no additional tax on withdrawals or the subsequent earnings.

From an economic perspective, front-ended IRAs and back-ended IRAs generate the same result. Income that is saved and invested is treated the same as income that is immediately consumed. From a present-value perspective, front-ended IRAs and back-ended IRAs produce the same outcome. All that changes is the point at which the government imposes the single layer of tax.

So why am I boring you with all this arcane tax info? Because the home mortgage interest can be considered as a front-ended IRA involving more than one party. The interest paid by the homeowner is deductible, and the interest received by the mortgage company is taxable.

Under a flat tax, the system gets switched to something akin to a back-ended IRA. The homeowner no longer deducts the interest and the recipient of the interest no longer pays tax.

Some of you may be thinking that this is a good deal for financial institutions, but a ripoff for homeowners. But here are two very important points.

• First, homeowners that already have mortgages presumably would be grandfathered, thus allowing them to continue taking the deduction. They made a contract under the old rules and shouldn’t have the rug pulled out from under them.
• Second, people taking out new mortgages would benefit since mortgage interest would get the same tax treatment now reserved for tax-free municipal bonds. And because there’s no federal income tax on municipal bonds, that means there’s no tax wedge built into the interest rate.

In other words, homeowners or homebuyers in the new system won’t be able to deduct mortgage interest, but they’ll benefit from lower interest rates. Six of one, half dozen of another.

So why, then, is the housing lobby against the flat tax?

In part, they don’t know what they’re talking about. But what about the smart ones, the ones who understand that there’s no meaningful change in the after-tax cost of getting a mortgage in a flat tax world? Why are they opposed to tax reform.

The answer is very simple. They understand that housing isn’t directly affected by a flat tax, but they are very concerned about the indirect impact. More specifically, they understand that the flat tax eliminates all forms of double taxation in the tax code, and that would mean a level playing field.

In other words, the housing sector is now taxed rationally, and other investments are taxed punitively. Under a flat tax, by contrast, all would be taxed rationally.  So the housing sector would lose its relative advantage. 

So if your industry or sector is the beneficiary of a tilted playing field, then it’s understandable that you’ll be worried about tax reform even if there’s no real change in how you get taxed.

And I suspect the impact of tax reform wouldn’t be trivial.

To get an idea about the potential impact, let’s look at some academic research. Professor Dale Jorgenson of Harvard and another economist from Yonsei University in South Korea estimate that most of the economic benefit of tax reform occurs because capital shifts out of owner-occupied housing and into business investment.

…progressivity of labor income taxation is another major source of inefficiency in the U.S. tax system. This produces marginal tax rates on labor income that are far in excess of average tax rates. A high marginal tax rate results in a large wedge between the wages and salaries paid by employers and those received by households. A proportional tax on labor income would equalize marginal and average tax rates and would sharply curtail the losses in economic efficiency due to high marginal rates. An important challenge for tax reform is to eliminate the barriers to efficient capital allocation arising from ―double‖ taxation of assets held in the corporate sector and the exclusion of owner-occupied housing from the tax base… If both income taxes and sales taxes are replaced by a Flat Tax, and a lump sum tax is used to compensate for the revenue shortfall, the welfare gains are very substantial, $5,111.8 billion U.S. dollars of 2011 for HR and $5,444.3 billion for AS. …Our overall conclusion is that the most substantial gains from tax reform are associated with equalizing tax burdens on all assets and all sectors and eliminating the progressive taxation of labor income… We have shown that the most popular Flat Tax proposals would generate substantial welfare gains.

I don’t pay much attention to the estimates in the study about an extra $5 trillion-plus of wealth. That number is very sensitive to the structure of the model and the underlying assumptions.

But I do agree that tax reform will generate big benefits and that much of the gain will occur because there will be less tax-induced over-investment in housing and more growth-generating investment in business capital.

But as I note in the interview, that’s a good thing. It means more prosperity for the American people and a more competitive American economy.

Government shouldn’t be trying to lure us into making economically irrational decisions because of tax or regulatory interventions. Didn’t we learn anything from the Fannie Mae-Freddie Mac fiasco?

The clowns in Washington have been mucking around in the economy for decades and they keep making things worse. Perhaps, just for a change of pace, we should try free markets and small government and see what happens.

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A Swiss-Style Spending Cap Would Have Prevented the Current Fiscal Mess in America

I greatly admire Switzerland’s “debt brake” because it’s really a spending cap.

Politicians are not allowed to increase spending faster than average revenue growth over a multi-year period, which basically means spending can only grow at the rate of inflation plus population.

Theoretically, taxes could be hiked to allow more spending, but that hasn’t happened. The Swiss are very good about voting against tax increases, so the politicians don’t have much ability to boost the revenue trendline.

Since the debt brake first took effect in 2003, the burden of government spending has dropped from 36 percent of GDP to 34 percent of economic output – a rather remarkable achievement since most other European nations have moved in the wrong direction.

As part of my self-serving efforts to promote Mitchell’s Golden Rule, I’ve been advocating for spending caps in the United States, and I’ve favorably cited legislation proposed by Congressman Brady of Texas and Senator Corker of Tennessee.

Now I have some new evidence on my side. David Hogberg of Investor’s Business Daily looks at the current fiscal mess in America and discovers – gee, what a surprise – that spending has grown very rapidly since the late 1990s.

President Obama says he wants a “balanced” approach to the fiscal cliff. But critics argue the real problem is spending, which has far outstripped rising tax revenue as well as economic growth. Federal government revenue rose from $1.7 trillion to $2.4 trillion from fiscal 1998 to 2012, slightly exceeding inflation. Revenue growth averaged 2.9% annually, despite two recessions, bear markets — and tax cuts. But federal spending rose nearly twice as fast — 5.7% per year — surging from $1.6 trillion to $3.5 trillion over that same span. The spending spike also exceeds growth in the population.

What’s the solution to this mess? I make the argument for a spending cap.

Dan Mitchell, senior fellow at the libertarian Cato Institute, says the U.S. government needs a spending cap. “It’s an issue of trendlines and that’s everything in fiscal policy,” Mitchell said. “If you are on a path where government spending grows faster than the private sector of the economy, which is your tax base, then in theory there is no level of taxation that will be enough to stabilize the system. … If we had kept government spending down to just increases for inflation and population growth, we wouldn’t be in the trouble we’re in now.” Limiting spending to increases in inflation and population growth over 1998-2012 (an annual average of about 3.3%) would have given dramatically different results. The U.S. would have spent $2.6 trillion in FY 12, about $900 billion less than what it actually did. The latest deficit would be $157 billion, a fraction of the actual $1.089 trillion.

I’ve crunched the numbers to show that we could balance the budget in just 10 years if we just limited spending so that it grew by “only” 2.5 percent annually.

David did the same thing, but looking backwards instead of forward. Here’s the chart included with his article. As you can see, the budget mess would be very manageable today if the Bush-Obama spending binge hadn’t occurred.

But politicians don’t like spending caps for the same reasons that burglars don’t like armed homeowners. As Veronique de Rugy notes, if we imposed a spending cap, they would be forced to reform entitlements.

While a spending cap would help, some analysts contend that it would need to be coupled with entitlement reform. “If you don’t reform Social Security, Medicare and Medicaid, you’ll have a hard time staying within the cap,” said Veronique de Rugy, senior research fellow at the libertarian Mercatus Center. …”To make it feasible and enforceable you’d have to do a constitutional amendment,” said Mitchell. “But even short of that, at least if you start talking about it and set it as your goal it would get people focusing on the real problem … which is government spending growing faster than the private sector.”

This brings us to the real challenge. How do we get politicians to impose reforms when they benefit from the current system. Barring a miracle, they’re not going to tie their own hands.

But I think our chances of success will be much higher if advocates of good fiscal policy kept reminding the crowd in Washington that the real problem is too much spending and that red ink is just a symptom of the underlying disease.

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Everything that’s Wrong with the Tax System, in a Single Picture

I used to think this image was a damning indictment of the internal revenue code. Or here’s another chart showing how the tax system has become more convoluted over time.

But this new image may be the most effective of all of them. We don’t know what’s in the other 72,000 pages of tax code, but we’re all familiar with the basic 1040 tax form. Look at what the politicians have done to it over the past several decades.

The only answer, needless to say, is to throw the entire mess in the trash can and replace it with a simple and fair flat tax.

Here’s my brief explanation of how the flat tax would work and why it’s a good idea.

Tax reform would give us more growth, but it also would reduce one of the major source of corruption in Washington.

It’s also based on the notion that discrimination is wrong and that class-warfare policy should be rejected.

So what’s not to like?

P.S. I always get a lot of email and comments from people who wonder whether we should adopt a national sales tax instead. That’s fine with me, for reasons I explain here, but you better make sure to first amend the Constitution so that scheming politicians don’t pull a bait-and-switch and saddle us with both an income tax and a sales tax.

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Portugal May Become the First of Europe’s Bankrupt Welfare States to Stumble upon a Genuine Recovery Formula: Less Spending AND Lower Tax Rates

There aren’t many fiscal policy role models in Europe.

Switzerland surely is at the top of the list. The burden of government spending is modest by European standards, in part because of a very good spending cap that prevents politicians from overspending when revenues are buoyant. Tax rates also are reasonable. The central government’s tax system is “progressive,” but the top rate is only 11.5 percent. And tax competition among the cantons ensures that sub-national tax rates don’t get too high. Because of these good policies, Switzerland completely avoided the fiscal crisis plaguing the rest of the continent.

The Baltic nations of Estonia, Lithuania, and Latvia also deserve some credit. They allowed spending to rise far too rapidly in the middle of last decade – an average of nearly 17 percent per year between 2002 and 2008! But they have since moved in the right direction, with genuine spending cuts (unlikely the fake cuts that characterize fiscal policy in nations like the United States and United Kingdom). Yes, the Baltic countries did raise some taxes, which undermined the positive effects of spending reductions, but at least they focused primarily on spending and preserved their attractive flat tax systems. No wonder growth has rebounded in these nations.

The situation in the rest of Europe is more bleak, particularly for the so-called PIIGS. To varying degrees, Portugal, Italy, Ireland, Greece, and Spain have lost the ability to borrow, received bailouts, and been mired in recession.

The silver lining is that the fiscal crisis has forced them to finally cut spending. All of those nations implemented real spending cuts in 2011 according to European Commission data, bringing spending below 2010 levels. Final figures for 2012 aren’t available, of course, but the International Monetary Fund estimates that spending will drop in every nation other than Italy (where it will climb by less than 1 percent).

That’s the good news. The public sector finally is being subjected to some long-overdue fiscal discipline.

The bad news is that politicians also imposed very significant tax increases on the private sector. Income tax rates have been increased. Value-added taxes have been hiked, and other taxes have climbed as well. These penalties on productive activity undermine potential growth.

The politicians say that this is a “balanced approach,” but this view is misguided, First, as Veronique de Rugy has shown, it generally means lots of new taxes and very little spending restraint. Second, it is based on the IMF view of “austerity,” which mistakenly focuses on the symptom of red ink rather than the underlying disease of too much spending.

What Europe really needs is a combination of lower spending and lower tax rates.

Portugal may actually be moving in that direction, according to a report in the Wall Street Journal.

The Portuguese government is seeking to cut its corporate tax rate for new businesses to one of the lowest in Europe as part of a plan to attract investment and revitalize ailing industries, the minister of economy said. The government is in talks with the European Commission’s competition agency in Brussels to get approval to cut the tax on corporate income for new investors to 10% from the current 25%, the minister, Alvaro Santos Pereira, said in an interview. …”We want to make Portugal one of the most attractive countries in Europe for new investment,” Mr. Santos Pereira said. “We believe that by providing very strong fiscal incentives to new investments we will safeguard the budget side and at the same time become a lot more competitive,” he added. …While wealthy euro-zone countries and the IMF are beginning to recognize the need for measures to boost growth in austerity-hit countries, they have been reluctant to endorse tax cuts in countries under bailout programs. If implemented, the proposed tax cut would be a departure from a series of tax increases that countries including Portugal, Greece and Spain were forced to take as part their bailout conditions.

Before getting too excited, it’s important to note that the Portuguese proposal is a bit gimmicky. It’s not a corporate tax rate of 10 percent, it’s a special rate of 10 percent for new investment, however that’s defined.

But at least it might be a small step in the right direction. As the article indicates, it “would be a departure from a series of tax increases.” And Portugal definitely has been guilty in recent years of raping and pillaging the private sector.

To be fair, though, this chart shows that government spending in Portugal did decline last year. And the IMF is projecting that it will fall again this year and next year.

But the key to good fiscal policy is reducing government spending as a share of economic output. And if tax increases keep the private economy in the dumps, then the actual burden of government spending doesn’t change much even when nominal outlays decline.

A pro-growth policy is needed to boost economic performance. Portugal’s corporate tax rate proposal, by itself, won’t make much of a difference. But if it’s the start of a trend, that could be significant.

By the way, it’s amusing to see that one of the bureaucrats from the European Commission is pouring cold water on the plan, implying that a decision to take less money from a company somehow is akin to government assistance.

“We would want to be sure that anything proposed would help the competitiveness of the economy,” said spokesman Simon O’Connor, “but at the same time it would have to be in line with state aid rules,” referring to EU regulations that limit the assistance governments can give to the private sector. “There really isn’t any scope for them to reduce revenue,” he added.

But I guess that’s not too surprising. Along with their tax-free colleagues at the Organization for Economic Cooperation and Development, the European Commission has been trying to undermine tax competition and make it easier for nations to impose bad tax policy.

Returning to our main topic, what’s next for Portugal?

Your guess is as good as mine, but Portugal’s leaders already have acknowledged that Keynesian fiscal policy is ineffective. Perhaps they’ve gotten to the point where they realize punitive tax systems also are destructive.

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Gerard Depardieu Meets John Galt

Another Frenchman has “gone Galt.”

First, it was France’s richest entrepreneur.

Now, it’s the nation’s most famous actor. Gerard Depardieu has officially announced – in a letter to France’s thuggish Prime Minister – that he is tired of paying 85 percent of his income to finance the vote-buying actions of France’s kleptocratic political elite.

Instead, he is going to move to Belgium (which is hardly a tax haven, but there’s an old line about how you should surround yourself with fat people if you want to look skinny).

Here are some of the amusing details from the UK-based Telegraph.

The French actor whose eccentric personality has come to symbolise a certain, old fashioned form of Gallic love for good food and the pleasures in life, also known as a “bon vivant,” said he is finished with the country, in a letter published in the Journal du Dimanche.It is addressed to Jean-Marc Ayrault, the French prime minister, who called Depardieu “pathetic” for wanting to move just over the French border to the wealthy Belgian town of Néchin, where he will evade the current Left-leaning government’s tax hikes.”I am handing over to you my passport and social security, which I have never used,” he said. …The actor asserts he has always been an upstanding citizen, deserving “respect,” and who has employed 80 people, always paid his taxes, and “never killed anybody.” He said he paid 85 per cent of his income in taxes in 2012, and over 45 years, has paid 145 million Euros – or £118 million – in taxes. …”I leave because you consider that success, creation, talent, difference, in fact, should be sanctioned,” he writes.

Gee, why is Depardieu complaining? In an act of generosity and mercy, France’s President has said he doesn’t want anybody to pay more than 80 percent of their income to the state. So if Gerard is paying 85 percent this year, he’ll get a tax cut!

Methinks that Depardieu doesn’t trust Hollande, Ayrault, and the rest of the thieves. In any event, it’s obvious – and understandable – that he resents the French government’s attack on “success, creation, talent.”

So we’re going to see the Laffer Curve in action. Depardieu has pad nearly $200 million to the French tax authorities over the past several decades. Now that the French government has tightened the screws even further, he’s going to pay them a lot less.

Maybe there’s a lesson there for Obama. But I’ve already tried to educate our taxer-in-chief about these issues, so I doubt this new evidence from France will make any difference.

“Dan, you are such a giver!”

P.S. Going Galt is a bit of a national pastime in France. In 1999, Laetitia Casta was chosen to be “Marianne,” the symbol of France. A couple of years later, as my friend Veronique de Rugy wrote, she decided to move to the United Kingdom to escape confiscatory taxation.

Because I’m a selfless person and a bit of an expert on tax havens, I hereby offer Laetitia my services to help with her tax planning.

I’m even willing to work 24/7 to help her protect her earnings, even if it requires an overnight stay.

No sacrifice is too great, after all, to help the cause of freedom.

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Taking a Logical Step to Protect Students, a Texas School District Allows Armed Teachers

There’s a lot to like about Texas. The state has no income tax, for instance, which we know is a good recipe for faster growth and more prosperity.

That’s one of the reasons why the Lone Star State kicks the you-know-what out of California in the battle to attract jobs and investment.

But Texans also have a more sensible approach to thwarting crime. Some of them apparently took my IQ test, which asks whether murderers prefer armed victims or unarmed victims, and they wisely concluded that the ability to shoot back is a lot better than cowering in a corner (you can see the California mentality in the third image in this post).

So one school district allows teachers and staff to carry concealed weapons. Here’s some of what’s reported in the Fort Worth Star Telegram.

David Thweatt, superintendent of the tiny Harrold school district in northwest Texas, believes his staff is ready. Besides special locks and security cameras, an undisclosed number of staff members and teachers carry concealed handguns. Thweatt said the “guardian plan,” which drew international attention when it was implemented in 2008, definitely enhances student safety. “Is that 100 percent? No,” Thweatt said Friday in a telephone interview. “Nothing is 100 percent. But what we do know is that we’ve done all we can to protect our children.” At the time the plan was put in place, Harrold, about 150 miles northwest of Fort Worth, was the only known public school district in Texas and the U.S. that allowed staff members and teachers to carry concealed weapons. Thweatt said he knows of some other district that have since adopted similar policies, but declined to name them. …Board members approved the measure because the district is at least 20 minutes from the nearest station of the Wilbarger County Sheriff’s Department. …Thweatt said he wanted to minimize casualties that could quickly increase while waiting for deputies. He didn’t want a plan where you “lock yourself in your closet and hope that an intruder won’t hurt you.” …There has not been an incident on his campus, and Thweatt doesn’t expect one.

The last part of the excerpt tells you all you need to know. There have been no mass shootings and the superintendent doesn’t expect any.

Some leftists doubtlessly will fret that a crazy teacher might bring a gun to school and start shooting people. What they apparently don’t understand, though, is that a crazy teacher already has that ability. Or, as we tragically witnessed in Connecticut, some other nutjob can come to a school and engage in a killing spree.

But in Harrold, Texas, at least there are people who can shoot back.

I know I would rather send my kids to school in Harrold than to someplace that advertises itself as a gun-free zone.

And if this poster is correct, Israel puts common sense above anti-gun ideology.

You can enjoy some humor about so-called gun-free zones by clicking here.

And since this post is about Texans and the second amendment, this bit of humor is always popular. As is this example of a Texas police exam and this story of Texas, California, and a coyote.

Speaking of California, let’s engage in a bit more mockery of the Golden State.

P.S. Let’s allow Alabama to make a cameo appearance in this post since this image is entertaining in more  ways than one.

(h/t: Ben Domenech, via Erick Erickson)

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The Grinch Who Stole Prosperity

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

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

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

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

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

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

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We Need More Growth and Prosperity to Boost Charitable Contributions, not Bribery in the Tax Code

I’m a strong believer in fundamental tax reform. We need a system like the flat tax to improve economic performance.

No tax system is good for growth, of course, but the negative impact of taxation can be reduced by lowering marginal tax rate(s), eliminating double taxation of saving and investment, and getting rid of loopholes that encourage people to make decisions for tax reasons even if they don’t make economic sense.

While the general public is quite sympathetic to tax reform and would like to de-fang the IRS, there are three main pockets of resistance.

1. The class-warfare crowd is opposed to the flat tax for ideological reasons. They want high tax rates and punitive double taxation – even if the government winds up collecting less money.
2. The lobbyists and special interest groups also are opposed to tax reform, along with the politicians that they cultivate. The tax code is a major source of political corruption, after all, and there would be a lot fewer opportunities to game the system and swap loopholes for political support if the 72,000 page tax code was tossed in a dumpster.
3. Beneficiaries of certain tax preferences such as the mortgage interest deduction, the charitable deduction, and the state and local tax deduction are worried about tax reform, either because they are taxpayers who utilize the preferences or because they represent interest groups that benefit because the government has tilted the playing field.

This post is designed to allay the fears of this third group, specifically the folks who worry that tax reform might be bad news for charities.

The Wall Street Journal today published a pro-con debate on the charitable deduction. As you might expect, my role is to argue in favor of a simple and fair system that would eliminate all tax preferences.

Here’s some of what I wrote on the charitable deduction, beginning with the key point that economic growth is key because the biggest determinants of charitable giving are disposable income and net wealth.

…the best way to help charities is to boost economic growth, which leaves people with more money to donate. And I think the best way to do that is to replace our current system with a simple and fair flat tax. …I don’t think there’s a compelling argument for the charitable deduction. …Over the decades, there have been major changes in tax rates and thus major changes in the tax treatment of charitable contributions. At some points, there has been a big tax advantage to giving, at others much less. Yet charitable giving tends to hover around 2% of U.S. gross domestic product, no matter what the incentive.

The final sentence in the above excerpt is key. The value of a tax deduction is determined by the tax rate. So in 1980, when the top tax rate was 70 percent, it only cost 30 cents to give $1 to charity. By 1988, though, the top tax rate was down to 28 percent, which means that the cost of giving $1 had jumped to 72 cents.

Yet charitable giving rose during the 1980s. Why? Because Reagan implemented reforms – such as lower tax rates – that produced a healthier economy.

Some may wonder whether the example I just cited is appropriate since it focuses on the tax rate (and therefore the value of the tax deduction) for upper-income taxpayers.

But there’s a good reason for that choice. The charitable deduction overwhelmingly goes to the rich.

Upper-income households are the biggest beneficiaries of the deduction, with those making more than $100,000 per year taking 81% of the deduction even though they account for just 13.5% of all U.S. tax returns. The data are even more skewed for households with more than $200,000 of income. They account for fewer than 3% of all tax returns, yet they take 55% of all charitable deductions.

I’m not against rich people, or against them lowering their tax liabilities. But I do want a tax system that generates more prosperity because that’s good news for the entire economy – including the nonprofit sector.

Speaking of which, I think tax-deductible groups will become better and more efficient without the deduction.

Charities, meanwhile, get fatter and lazier because of that dynamic. Think of all the exposés in recent years about charities that devote an overwhelming share of their budgets to administrative costs and marketing expenses. No system will create perfect nonprofit groups, but cutting back or cutting out the deduction would break the cycle of inefficiency that now exists.

My debating partner is Diana Aviv, the head of Independent Sector, which is basically a trade associate in DC for charities. Here are the most relevant excerpts from her piece.

…more than 80% of those who itemized their tax returns in 2009 claimed the charitable deduction and were responsible for more than 76% of all individual contributions to charitable organizations.

That’s all fine and well. What she’s basically saying is that almost all rich people itemize and those rich people get the lion’s share of the benefit from the deduction.

But that’s not the key issue. What matters is whether the deduction makes  a big difference for the amount that people contribute. Diana addresses that point.

According to a 2010 Indiana University survey, more than two-thirds of high-net-worth donors said they would decrease their giving if they did not receive a deduction for donations.

I don’t put complete faith in public opinion data, but let’s assume that this poll is a completely accurate snapshot of how rich people think they would react. But let’s balance that off with the real-world evidence from the 1980s, which shows that rich people gave more money in the 1980s after Reagan cut tax rates and dramatically lowered the value of the tax deduction.

I’m not saying the lower tax rates caused the increase in giving, but I am saying that the lower tax rates and other reforms helped boost the economy. And I’m saying that rich people gave more to charity because they had more income and more wealth.

I also can’t resist a comment about this excerpt.

Finally, there’s another important consideration. The charitable deduction is unique in that it’s a government incentive to sacrifice on behalf of the commonweal. Unlike incentives to save for retirement or buy a home, it encourages behavior for which a taxpayer gets no direct, personal, tangible benefit.

Huh?!? Diana’s entire article is based on the notion that people need to be bribed in order to contribute, yet she simultaneously says that taxpayers get “no direct, personal, tangible benefit.”

Let me close by tying this debate to the fiscal cliff negotiations. There is some discussion of capping itemized deductions as a way of extracting more money from the rich. That creates a bit of a quandary. Here’s something else I wrote for my part of the debate.

I don’t want to give more revenue to Washington. That’s like putting blood in the water with hungry sharks around. But if politicians are going to extract more money from the private sector anyway, reducing or eliminating the deduction is much less damaging to growth than imposing higher marginal tax rates.

That being said, that type of change – while not as bad for the economy – probably would have a negative impact on charitable giving.

My argument is that real tax reform can benefit the nonprofit sector because the loss of the deduction is more than offset by the pro-growth impact of lower tax rates, less double taxation, etc.

But if all politicians are doing is limiting the deduction as part of a money grab, then nonprofits get some pain and no gain.

Incidentally, this is why the nonprofit community should join the rest of us in fighting against an ever-climbing burden of government spending. If we don’t rein in Leviathan, it’s just a matter of time before politicians get rid of the deduction as part of a relentless search for more revenue.

I think it would be better for nonprofits – and for the rest of us – if we limit the size and scope of government and enact a tax system that produces the kind of prosperity that is beneficial for all sectors of the economy.

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