Archive for December 4th, 2012

Let’s take a break from depressing posts about Obama’s fixation on class-warfare tax policy and the failure of Washington to enact genuine entitlement reform.

It’s time for another edition of “You Be the Judge.” I periodically come across stories that cause me internal conflict. Often my heart gives one answer and my head disagrees. Or I’m genuinely unsure of the right approach.

Previous editions of the game include:

Lots of fun stories, as you can see.

Our latest example is about the Dutch are dealing with the “scum” of society. Here’s some of the story from the UK-based Telegraph.

A potential name for the new Dutch community?

Hollands’s capital already has a special hit squad of municipal officials to identify the worst offenders for a compulsory six month course in how to behave. Social housing problem families or tenants who do not show an improvement or refuse to go to the special units face eviction and homelessness. Eberhard van der Laan, Amsterdam’s Labour mayor, has tabled the £810,000 plan to tackle 13,000 complaints of anti-social behaviour every year. He complained that long-term harassment often leads to law abiding tenants, rather than their nuisance neighbours, being driven out. “This is the world turned upside down,” the mayor said at the weekend. …The new punishment housing camps have been dubbed “scum villages” because the plan echoes a proposal from Geert Wilders, the leader of a populist Dutch Right-wing party, for special units to deal with persistent troublemakers. “Repeat offenders should be forcibly removed from their neighbourhood and sent to a village for scum,” he suggested last year. “Put all the trash together.” …The tough approach taken by Mr van der Laan appears to jar with Amsterdam’s famous tolerance for prostitution and soft drugs but reflects hardening attitudes to routine anti-social behaviour that falls short of criminality. There are already several small-scale trial projects in the Netherlands, including in Amsterdam, where 10 shipping container homes have been set aside for persistent offenders, living under 24-hour supervision from social workers and police.

Part of me thinks this is a good approach. Not the part about expensive social workers, to be sure, but I’m sympathetic to the notion that there are “bad apples” that cause trouble and can ruin neighborhoods.

Why not put them all together and let them stew in their own juices?

On the other hand, this soft version of prison seems inappropriate if people haven’t been convicted of a crime. Surely the government could trump up some sort of charge, and even do it in a semi-legitimate fashion. These sound like the sort of people who could be nailed for all sorts of things, such as disorderly conduct, assault and battery, urinating in public, and so on.

But swinging back in the other direction, it sounds as if the “scum” are inhabitants of public housing. And while I think public housing shouldn’t exist, I have no problem with the government enforcing standards of behavior as a condition of living in one of these Moochervilles. So all that’s really happening is that the riff-raff of society is being shifted from one form of government-provided housing to another.

What do you think?

P.S. The Netherlands is a typical European welfare state in many ways, but it has a good school choice system and a very competitive corporate tax system (as shown in the second video in this post). But those few good policies won’t be enough since the nation’s long-run fiscal outlook is as bad as Greece and worse than Spain and Italy. And if the burden of government spending gets too high, it swamps any good policies in other areas.

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Obama’s main goal in the fiscal cliff negotiations is to impose a class-warfare tax hike.

He presumably thinks this will give the government more money to spend, but recent evidence from the United Kingdom suggests that he won’t get nearly as much money as he thinks.Laffer Curve

Why? Because there’s this thing called the Laffer Curve. It shows that it is naive to believe that there is a linear relationship between tax rates and tax revenue. To accurately predict what will happen to revenues when there is a change in tax policy, you also have to estimate what will happen to taxable income.

And when you’re trying to stick it to the “rich,” you need to understand that they have tremendous control over the timing, level, and composition of their income. So unlike the rest of us, they can respond very easily when the government goes after them.

The Wall Street Journal opines on what recently happened across the Atlantic.

A funny thing often happens on the way to soaking the rich: They don’t stick around for the bath. Take Britain, where Her Majesty’s Revenue and Customs service reports that the number of taxpayers declaring £1 million a year in income fell by more than 60% in fiscal 2010-2011 from the year before. That was the year that millionaires became liable for the 50% income-tax rate that Gordon Brown’s government introduced in its final days in 2010, up from the previous 40% rate. Lo, the total number of millionaire tax filers plunged to 6,000 in 2010-2011, from 16,000 in 2009-2010. The new tax was meant to raise about £2.5 billion more revenue. So much for that. In 2009-2010 British millionaires contributed about £13.4 billion to the public coffers, or just under 9% of the total tax liability of all taxpayers that year. At the 50% rate, the shrunken pool yielded £6.5 billion, or about 4.4%.

In case you think this is just a special case, the United States conducted a similar experiment in the 1980s, except we lowered tax rates instead of raising them. And as you can see in this “lesson” post I wrote for the President, we got the same results as the United Kingdom, except in reverse. More rich people, more taxable income, and more tax revenue.

Here’s a chart showing what happened in the U.K. It shows tax revenue for the 2009-2010 fiscal year, followed by a projection for 2010-2011, and then the real-world numbers.

UK Laffer Curve

Now time for some important caveats. There are lots of things that determine taxable income for the rich, so we have no way of precisely knowing the extent to which the higher tax rate caused taxable income – and therefore tax revenue – to fall. The economy’s weak performance may have played a role, though the recession in the U.K. occurred in 2008 and 2009, so you would expect taxable income to climb for the 2010-2011 fiscal year.

It’s also possible that some of the revenue loss was the result of income shifting rather than a genuine decline in the amount of economic activity.

But we do know that the same pattern keeps appearing in nation after nation, whether we’re looking at Italy, France, or Spain. Or states such as IllinoisOregonFlorida, Maryland, and New York.

You mess with the Laffer Curve and it will get its revenge.

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