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Archive for December, 2012

Most of the questions I received were in the past couple of days and almost all of them dealt with gun control. But I think what I wrote earlier today is a good response to those queries.

So let’s deal with a question (actually two questions) from Minnesota, both of which are very simple and direct: “You deal with reporters a lot. Is the media biased? Or are people on the right just whining?”

First, I’m glad that someone else posed the question, because I wouldn’t be sure whether to ask “Are the media biased” or “Is the media biased.” I’m sure there’s a Grammar Nazi out there who knows the answer.

But back to the point of this post, I think the answer to both questions is yes. Conservatives and libertarians are whining, but that’s very understandable because the press does try to help the other side. And I have several examples.

But I want to emphasize a key point. Media bias very rarely involves dishonesty. Deception yes, but not inaccuracies. It’s almost always about story selection and what gets emphasized.

Even when there’s a clear-cut mistake, such as the jaw-dropping New York Times assertion about lower education spending, I suspect it’s the result of group-think rather than a deliberate decision to lie.

But there often are deliberate decisions to steer the debate in a certain direction, and I there’s a very good example in a new expose by the Daily Caller. They caught the folks at Bloomberg highlighting poll data that helped Obama and burying the results that might give aid and comfort to the GOP.

A poll conducted last week by an Iowa-based firm showed Americans are conflicted about whether or not to support raising tax rates on wealthy Americans to avert the so-called “fiscal cliff.” But that’s not how Bloomberg News, which commissioned the poll, reported the results Thursday. In a story headlined “Americans Back Obama Tax-Rate Boost Tied to Entitlements,” Bloomberg emphasized only that the poll showed most Americans support President Barack Obama’s insistence on increasing taxes for high-income earners. “A majority of Americans say President Barack Obama is right to demand that tax-rate increases for the highest earners be a precondition for a budget deal that cuts U.S. entitlement programs,” the story, written by reporter Julie Hirschfeld Davis, began. …But in the same poll, American adults were asked “whether it is better to raise the top tax rate the wealthy pay, or to limit the amount people can claim in tax breaks, such as mortgage interest and charitable contributions, so they end up paying tax on a bigger share of their income.” Fifty-two percent responded that they preferred limited tax breaks to a tax-rate hike. Only 39 percent said they would rather see tax rates on the wealthy increase. Nine percent indicated they weren’t sure. …Bloomberg mentioned the second question in the story’s 20th paragraph, and gave no indication that the results suggested support for Boehner or House Republicans.

Kudos to the Daily Caller for catching the folks at Bloomberg with the hands in the cookie jar.

Notice, though, that there are (presumably) no falsehoods or fabrications in the Bloomberg report. The bias shows up in terms of what gets prominent coverage and what gets buried.

You’ll be happy to know, by the way, that “Bloomberg News editor and political reporter Jeanne Cummings conceded to The Daily Caller that the poll’s results are apparently contradictory.”

Gee, what a big concession to fairness.

P.S. You can see a couple of good cartoons about media bias in this post, and another good one at the bottom of this post.

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I wrote earlier this month about an honest liberal who acknowledged the problems created by government dependency. Well, it happened again.

First, some background.

Like every other decent person, I was horrified and nauseated by the school shootings in Newton, Connecticut.

Part of me wishes the guy hadn’t killed himself so that he could be slowly fed into a meat grinder.

And my friends on the left will be happy to know that part of me, when I first learned about the murders, thought the world might be a better place if guns had never been invented.

Sort of like my gut reaction about cigarettes when I find out that somebody I know is dying of a smoking-related illness or how I feel about gambling when I read about a family being ruined because some jerk thought it would be a good idea to use the mortgage money at a casino.

But there’s a reason why it’s generally not a good idea to make impulsive decisions based on immediate reactions. In the case of gun control, it can lead to policies that don’t work. Or perhaps even make a bad situation worse.

I’ve certainly made these points when writing and pontificating about gun control. But I’m a libertarian, so that’s hardly a surprise. We’re people who instinctively are skeptical of giving government power over individuals.

But when someone on the left reaches the same conclusion, that’s perhaps more significant. Especially when you get the feeling that they would like ban private gun ownership in their version of a perfect world.

That’s why I heartily recommend Jeffrey Goldberg’s article in The Atlantic.

Here are some of the most profound passages in the article, beginning with a common-sense observation that there’s no way for the government to end private gun ownership.

According to a 2011 Gallup poll, 47 percent of American adults keep at least one gun at home or on their property, and many of these gun owners are absolutists opposed to any government regulation of firearms. According to the same poll, only 26 percent of Americans support a ban on handguns. …There are ways, of course, to make it at least marginally more difficult for the criminally minded, for the dangerously mentally ill, and for the suicidal to buy guns and ammunition. …But these gun-control efforts, while noble, would only have a modest impact on the rate of gun violence in America. Why? Because it’s too late. There are an estimated 280 million to 300 million guns in private hands in America—many legally owned, many not. Each year, more than 4 million new guns enter the market. …America’s level of gun ownership means that even if the Supreme Court—which ruled in 2008 that the Second Amendment gives citizens the individual right to own firearms, as gun advocates have long insisted—suddenly reversed itself and ruled that the individual ownership of handguns was illegal, there would be no practical way for a democratic country to locate and seize those guns.

Which is why prohibition was a flop. Which is why the current War on Drugs is so misguided. And so on and so on.

The author then wonders whether the best way of protecting public safety is to have more gun ownership.

Which raises a question: When even anti-gun activists believe that the debate over private gun ownership is closed; when it is too late to reduce the number of guns in private hands—and since only the naive think that legislation will prevent more than a modest number of the criminally minded, and the mentally deranged, from acquiring a gun in a country absolutely inundated with weapons—could it be that an effective way to combat guns is with more guns? Today, more than 8 million vetted and (depending on the state) trained law-abiding citizens possess state-issued “concealed carry” handgun permits, which allow them to carry a concealed handgun or other weapon in public. Anti-gun activists believe the expansion of concealed-carry permits represents a serious threat to public order. But what if, in fact, the reverse is true? Mightn’t allowing more law-abiding private citizens to carry concealed weapons—when combined with other forms of stringent gun regulation—actually reduce gun violence?

He cites examples where armed citizens stopped mass killings.

In 1997, a disturbed high-school student named Luke Woodham stabbed his mother and then shot and killed two people at Pearl High School in Pearl, Mississippi. He then began driving toward a nearby junior high to continue his shooting spree, but the assistant principal of the high school, Joel Myrick, aimed a pistol he kept in his truck at Woodham, causing him to veer off the road. Myrick then put his pistol to Woodham’s neck and disarmed him. On January 16, 2002, a disgruntled former student at the Appalachian School of Law in Grundy, Virginia, had killed three people, including the school’s dean, when two students, both off-duty law-enforcement officers, retrieved their weapons and pointed them at the shooter, who ended his killing spree and surrendered. In December 2007, a man armed with a semiautomatic rifle and two pistols entered the New Life Church in Colorado Springs and killed two teenage girls before a church member, Jeanne Assam—a former Minneapolis police officer and a volunteer church security guard—shot and wounded the gunman, who then killed himself.

The author also punctures the left’s mythology about concealed carry laws.

In 2003, John Gilchrist, the legislative counsel for the Ohio Association of Chiefs of Police, testified, “If 200,000 to 300,000 citizens begin carrying a concealed weapon, common sense tells us that accidents will become a daily event.” When I called Gilchrist recently, he told me that events since the state’s concealed-carry law took effect have proved his point. …Gilchrist’s argument would be convincing but for one thing: the firearm crime rate in Ohio remained steady after the concealed-carry law passed in 2004.

Goldberg elaborates.

Today, the number of concealed-carry permits is the highest it’s ever been, at 8 million, and the homicide rate is the lowest it’s been in four decades—less than half what it was 20 years ago. (The number of people allowed to carry concealed weapons is actually considerably higher than 8 million, because residents of Vermont, Wyoming, Arizona, Alaska, and parts of Montana do not need government permission to carry their personal firearms. These states have what Second Amendment absolutists refer to as “constitutional carry,” meaning, in essence, that the Second Amendment is their permit.) Many gun-rights advocates see a link between an increasingly armed public and a decreasing crime rate. “I think effective law enforcement has had the biggest impact on crime rates, but I think concealed carry has something to do with it. We’ve seen an explosion in the number of people licensed to carry,” Lott told me. “You can deter criminality through longer sentencing, and you deter criminality by making it riskier for people to commit crimes. And one way to make it riskier is to create the impression among the criminal population that the law-abiding citizen they want to target may have a gun.” Crime statistics in Britain, where guns are much scarcer, bear this out. Gary Kleck, a criminologist at Florida State University, wrote in his 1991 book, Point Blank: Guns and Violence in America, that only 13 percent of burglaries in America occur when the occupant is home. In Britain, so-called hot burglaries account for about 45 percent of all break-ins. Kleck and others attribute America’s low rate of occupied-home burglaries to fear among criminals that homeowners might be armed. (A survey of almost 2,000 convicted U.S. felons, conducted by the criminologists Peter Rossi and James D. Wright in the late ’80s, concluded that burglars are more afraid of armed homeowners than they are of arrest by the police.)

That last bit of info is very powerful. The bad guys are more afraid of armed homeowners than the police. Surely, as I explained here, that tells us that gun ownership lowers crime.

Here’s another no-sh*t-Sherlock observation from the article.

It is also illogical for campuses to advertise themselves as “gun-free.” Someone bent on murder is not usually dissuaded by posted anti-gun regulations. Quite the opposite—publicly describing your property as gun-free is analogous to posting a notice on your front door saying your home has no burglar alarm. As it happens, the company that owns the Century 16 Cineplex in Aurora had declared the property a gun-free zone.

I recently mocked the idea of gun-free zones with several amusing posters. It’s unbelievable that some people think that killers care about such rules.

One place that isn’t likely to see any massacres is Colorado State University.

For much of the population of a typical campus, concealed-carry permitting is not an issue. Most states that issue permits will grant them only to people who are at least 21 years old. But the crime-rate statistics at universities that do allow permit holders on campus with their weapons are instructive. An hour north of Boulder, in Fort Collins, sits Colorado State University. Concealed carry has been allowed at CSU since 2003, and according to James Alderden, the former sheriff of Larimer County, which encompasses Fort Collins, violent crime at Colorado State has dropped since then.

I also recommend this video, which makes fun of those who support gun-free zones.

Here is Goldberg’s conclusion.

But I am sympathetic to the idea of armed self-defense, because it does often work, because encouraging learned helplessness is morally corrupt, and because, however much I might wish it, the United States is not going to become Canada. Guns are with us, whether we like it or not. Maybe this is tragic, but it is also reality. So Americans who are qualified to possess firearms shouldn’t be denied the right to participate in their own defense. And it is empirically true that the great majority of America’s tens of millions of law-abiding gun owners have not created chaos in society.

Goldberg’s article, by the way, doesn’t even mention the value of private gun ownership when government fails to maintain public order, as occurred after Hurricane Sandy and during last year’s British riots.

I have a couple of final things to share, including this this video about a woman who lost her parents because she decided to obey a bad government law. And here’s a great study from Cato about individuals using guns to protect themselves.

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For the record, I will unequivocally state that I would prefer to endure a bloated and wasteful government rather than a nuclear explosion.

But since I’m not a fan of big government and I’ve mocked Detroit’s dysfunctional statism, you will understand why this poster made me laugh.

Hiroshima-Detroit

I suppose I should add another caveat. It’s not Democrats that ruined Detroit. It’s big government. As shown by the Bush years, you get equally bad results when Republicans expand the size and scope of Washington.

So I guess the moral of the story is that if you want prosperity, free markets and small government are a much better combination than big government and nuclear blasts.

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One of the key ways of controlling state and local tax burdens, according to this map from the Tax Foundation, is to not have an income tax.

But that’s not too surprising. States have just a couple of ways of generating significant tax revenue, so it stands to reason that states without an income tax would have relatively low tax burdens.

Light-blue states have no broad-based income tax

The more important question is whether this approach leads to better economic performance. The evidence is pretty clear that zero-income-tax states grow faster and create more jobs.

I’ve already shared some important research on this topic, including this review of research in the Cato Journal by Richard Rahn, as well as this summary of similar analysis in Rich States, Poor States by Art Laffer and Steve Moore.

There’s even some evidence that people in low-tax states are happier than those in high-tax states, though I’m not sure that I trust that kind of subjective research since there’s also a study showing people are happier in high-tax nations.  (at least, unlike Brazil, nobody in the U.S. is talking about making happiness a responsibility of government).

Let’s return to the more substantive topic of taxes and economic performance. There’s a column examining this issue in today’s Wall Street Journal. Authored by two experts from the Kansas Policy Institute, it finds that states with no income tax have a lower burden of government spending.

In the midst of a dismal recovery where every job counts, one fact stands out: States that tax less achieve better economic performance. …The secret to having low taxes is controlling spending, and that’s exactly what low-tax-burden states do. States with an income tax spent 42% more per resident in 2011 than the nine states without an income tax. …Every state has public schools, social-service programs, prisons, etc. Some just find ways to provide essentially the same basket of services at lower prices.

They also reveal that lower taxes and lower spending translate into more growth and prosperity.

States that allow taxpayers and employers to keep more of their earnings are reaping the benefits. States without an income tax have significantly better growth in private sector GDP (59% versus 42%) over the last 10 years. They increased the number of jobs by 4.9% while jobs in the rest of the states declined by 2.6%. States without an income tax gained population (+5.5%) from domestic migration (U.S. residents moving in and out of states) while all other states as a whole lost 1.3% of population between 2000 and 2009.

The migration data is particularly powerful, and it’s one of the reasons why California’s class-warfare tax policy is so suicidal and why Texas is growing so rapidly. As I’ve said many times before, tax competition is a critical way of disciplining profligate governments and rewarding jurisdictions with more responsible fiscal policy.

Last but not least, if you want a powerful example of why income taxes are economic poison, read this research showing how Connecticut’s economic performance dropped after imposing a state income tax about 20 years ago.

P.S. Here’s a list of America’s greediest state and local governments, as measured by top income tax rates and most onerous sales tax systems.

P.P.S. Here’s the famous Moocher Index of state dependency, and you’ll notice that states with no income tax are more likely to be near the bottom of the list (with Alaska being a notable – but not surprising – exception).

P.P.P.S. And if you like state fiscal data, the Cato Institute’s Fiscal Policy Report Card on America’s Governors shows which states are moving in the wrong direction and right direction.

P.P.P.P.S. According to this map from a left-wing group, it also seems that states with no income tax do a better job of controlling welfare spending.

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Since I want to shut down the Department of Agriculture, that obviously means getting rid of the various subsidy programs that line the pockets of politically connected agri-businesses.

To get an idea of how these corrupt programs operate, I strongly encourage you to read Paul Moreno’s column in National Review. Here’s a sampling of his expose on dairy subsidies, starting with some history.

…Dairy farmers were pioneers in interest-group politics. They have long been adept at using the power of government… The dairy lobby’s first target was margarine… Dairy farmers organized to drive oleo from the market. They claimed that oleo was harmful — manufactured, they charged, from “dead horses, dead hogs, dead dogs, mad dogs, and drowned sheep.” They alleged that an “oleo trust” was not only driving dairy farmers to the wall, but also impairing the marriage market, because “women are no longer a necessary adjunct to the farmer lads to help them create wealth, owing to the oleo-cotton-oil-soap-fat combine.” …The dairymen finally got Congress to enact a two-cent-per-pound excise tax on oleo in 1886. This was the first time that Congress had used its internal taxing power for regulatory purposes, rather than to raise revenue. …Organized dairy’s next target was “filled milk.” This was skim milk to which vegetable oil was added to give the texture of whole milk. Although it provided all of the protein and most of the vitamins of whole milk at a much lower price (and with fewer cardiovascular hazards), the dairy lobby claimed that it was unhealthful. They even resorted to racism, noting that cow’s milk was a pillar of Western civilization, superior to the “oriental” menace of coconut oil. Congress prohibited the shipment of filled milk in interstate commerce in 1923.

But some of those forms of intervention are ancient history, only interesting to those of us who study the corrupt nexus of big government and various sleazy interest groups.

But Paul explains how the current morass of dairy subsidies came about.

Milk baths are good for the skin, but bad for the wallet

Perhaps the most egregious exercise of dairy power was a New York State law of 1933 that declared that milk was a business “affected with a public interest” and allowed the state to set dairy prices. The New York board set 9 cents per quart as the minimum retail price of milk. A Rochester grocer, Leo Nebbia, was prosecuted for selling two quarts of milk and a loaf of bread for 18 cents. Why, in the midst of the distress and privation of the early 1930s, did New York want to raise the price of milk? The idea was that this would raise the income of dairy farmers, who would then purchase more industrial goods, thus stimulating the economy. The Supreme Court accepted this reasoning, giving state governments virtually unlimited power to enact economic regulations. Such counterintuitive trickle-up economic theory helped to turn the 1929 recession into the prolonged Great Depression. Ever since, the federal government has been trying to keep small dairy farmers in business through an elaborate price-support system.

Isn’t that just wonderful. The politicians justified a corrupt form of intervention by citing the crackpot theory of Keynesian economics.

Sort of reminds me of clueless Nancy Pelosi saying the best way to create jobs was paying people not to work.

With every passing day, I realize this famous poster is actually an understatement.

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I recently did a post explaining five policy reasons and five political reasons why Republicans should maintain a firm no-tax-hike position.

Realizing I left out a powerful argument, I then added another political argument in this post.

But the GOP isn’t taking my advice. But why?

Is it because they’re well-meaning doofuses, as suggested by this Chuck Asay cartoon?

Cartoon GOP Poker

Or are they co-conspirators, as suggested by this Michael Ramirez cartoon?

Cartoon GOP Dem Pickpocket

Since I’ve already explained that politicians are a combination of good and evil, I actually think both cartoons are accurate.

All I know is that I would like to force these clowns to spend a couple of minutes watching this video from Mattie Duppler of Americans for Tax Reform. They would then realize there is no legitimate argument for Obama’s class-warfare policy.

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I was very critical of the General Motors bailout since it largely was designed to give undeserved special benefits to the UAW union. I’m also very down of teacher unions because they sabotage reforms that would help poor children trapped in failed government schools.

And I’m definitely opposed to the excessive pay and benefits that politicians grant to bureaucrats in exchange for votes and money from government employee unions (as cleverly depicted in this great Michael Ramirez cartoon).

So why, then, do I have mixed feelings about the recently enacted right-to-work law in Michigan?

Here’s some of what I wrote almost 25 years ago for the Villanova Law Review, beginning with my general philosophy on the role of government in labor markets.

…government should not interfere with certain personal decisions, including the freedom of employers and employees to contract freely, unfettered by labor regulations. …My position is one of strict neutrality. The government should not take side in employer-employee issues. …this is a question of property rights. If another person owns a business, I do not have a right to interfere with his choices as to what he does with his property – so long as he does not interfere with my rights of life, liberty, and property.

That’s all fine and well. Standard libertarian boilerplate, one might even say, and I’ve certainly expressed these views on television (see here, here, and here).

But then I explore some implications. If you believe in a system based on property rights and private contracts, then right-to-work laws are an unjust form of intervention.

…a property rights perspective also would reject so-called right-to-work laws which infringe upon the employers’ freedom of contract to hire only union members which is something employers may wish to do since it can lower transactions costs. …Some would argue that nobody should be forced to join a union as a condition of employment. The relevant issue in this instance, however, is not whether one can be forced to join a union, because a person cannot; if he does not like the union, he can refuse the job. The real issue is whether a business and its employees should have the freedom to choose to sign contracts which have union membership as a condition of employment.

All that being said, I’m glad Michigan just enacted a right-to-work law. I know it’s not ideal policy, but my rationale is that most government labor laws (such as the National Labor Relations Act and the Norris–La Guardia Act) tilt the playing field in favor of unions.

So until that glorious day when we get government out of labor markets, I view right-to-work laws as a second-best alternative. They’re a form of intervention that partially compensates for other forms of intervention.

A good analogy is that I don’t like tax loopholes, but I like the fact that they enable people to keep more of the money they earn. The ideal system, of course, would be a simple and fair flat tax. But in the absence of real reform, I don’t want politicians to get rid of preferences if it means they get more of our money to waste. Deductions should only be eliminated if they use every penny of additional revenue to lower tax rates.

Returning to what happened in Michigan, let’s close with an amusing cartoon that mocks Obama’s dismal record on jobs.

Cartoon Right to Work

P.S. Since I’ve written something that might appeal to union bosses, I feel the need to compensate. So feel free to enjoy some good cartoons mocking unionized bureaucrats by clicking here, here, here, and here.

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My Cato Institute colleague, Chris Edwards, put together a remarkable (and depressing) chart showing that federal bureaucrats get almost twice the level of compensation as workers in the productive sector of the economy.

Defenders of the bureaucracy (including a federal pay panel dominated by bureaucrats) claim that government employees actually are underpaid because…well…just because.

My modest contribution to the debate was to put together a chart based on the Labor Department’s JOLTS data, which shows that bureaucrats are far less likely to voluntarily leave their jobs than folks in the private sector, which is very strong evidence that they are being over-compensated.

But all this debate about pay is looking at only one part of the equation. What about the stereotype that bureaucrats don’t work very hard? Well, as anyone who’s ever visited a motor vehicles department or a post office already knows, that’s also true.

And the hard data confirm our personal observations. Here are the main findings of new research by Andrew Biggs of the American Enterprise Institute and Jason Richwine of the Heritage Foundation, which was published in the Wall Street Journal.

…overstaffing is a serious problem in government, and the best evidence is a simple empirical fact: Government employees don’t work as much as private employees. …new evidence from a comprehensive and objective data set confirms that the “underworked” government employee is more than a stereotype. …The time-use survey’s data on work time…allow us to analyze both the number of hours individuals work during a typical workweek and the total number of hours they work during the year. …What we found was that during a typical workweek, private-sector employees work about 41.4 hours. Federal workers, by contrast, put in 38.7 hours, and state and local government employees work 38.1 hours. …Put another way, private employees spend around an extra month working each year compared with public employees.

Here’s the chart Excel generated when I entered the data in a spreadsheet. It must be nice to get paid a lot to work a little.

Bureaucrat Hours Worked

Actually, maybe it’s not a bad thing that bureaucrats are lazy. Do we really want more diligent IRS agents? More hard-charging OSHA inspectors? Do we want Fannie and Freddie regulators burning the midnight oil concocting more affordable leading rules?

I think you understand my concern.

So this brings us back to the fact that they are paid too much. This video has the gory details.

The real issue, as I state at the end of the video, is that most government jobs shouldn’t exist at all.

By the way, Biggs and Richwine include a very important point in their op-ed about the connection between the current budget negotiations and the existence of an over-paid and under-worked bureaucracy.

This fact may hold different lessons for different people, but our own take is simple: Before we ask private-sector employees to work more to support government, government itself should work as much as the private sector.

As noted above, I want government to do less, not for bureaucrats to do more, but their point is still appropriate.

P.S. Here’s a good joke about government bureaucracy. Here’s a similar joke in picture form. And we find the same humor in this joke, but with a bit more build up.

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Earlier this year, I reported on some remarkable research from the World Bank, which found that “big governments are a drag on growth.”

Other international bureaucracies also have begun to admit that the welfare state isn’t conducive to prosperity.

The negative relationship between economic performance and a bloated public sector also has been confirmed by research from other places not often associated with libertarian thought, including Harvard and Sweden.

And now we have some very interesting findings in this new research from the Bank of Finland.

Europe suffers from a growth slowdown. The GDP growth in Europe has lagged behind the GDP growth in the US and has been far worse than the GDP growth in the NIC countries, particularly China… However, what is the reason for slow or rapid economic growth? …In many respects, the labour market plays the key role in the economy because it determines both the use of the labour input and the level of overall competitiveness of a nation. Obviously, the functioning of the labour market is not independent of the public sector. A large government is almost inevitably associated with a large tax wedge, and the functioning of the labour market appears to be critically dependent on the size of the tax wedge. It may be fair to say that the harmful consequences of a high tax wedge are exceptionally well and unambiguously documented in the literature. …On the basis of the estimates derived in this study, the following guide for growth policies appears to be warranted: …Do not over-expand the welfare state. Larger governments are associated with slower growth rates.

Gee, that sounds quite familiar. Where have we come across this notion that big government has a negative impact on growth? Sounds a lot like the Rahn Curve.

Indeed, the paper makes another point that is very consistent with the Rahn Curve.

Rahn CurveAs this simple chart illustrates, the Rahn Curve is sort of the spending equivalent of the Laffer Curve.

Except government spending is on the horizontal axis and economic performance is on the vertical axis.

The ideal outcome is for government to be kept small so that economic output is at its maximum point. The academic literature suggests that prosperity is at its peak level when the burden of government spending is about 20 percent of GDP.

I actually disagree with those numbers, and I think they are the result of data constraints. Researchers looking at the post-World War II data generally find that Hong Kong and Singapore have the maximum growth rates, and the public sector in those jurisdictions consumes about 20 percent of economic output. Nations with medium-sized governments, such as Australia and the United States, tend to grow a bit slower. And the bloated welfare states of Europe suffer from stagnation.

So it’s understandable that academics would conclude that growth is at its maximum point when government grabs 20 percent of GDP. But what would the research tell us if there were governments in the data set that consumed 15 percent of economic output? Or 10 percent, or even 5 percent?

Such nations don’t exist today, but it’s worth noting that the western world became rich when the burden of government spending averaged about 10 percent of GDP.

Rahn Curve A-BBut I’m digressing. Let’s get back to the research from the Bank of Finland. The author makes a very sensible point that even modest reductions in the burden of government can yield positive results – sort of like going from Point A to Point B on the Rahn Curve.

Various nations have done this, achieving better economic performance after shrinking government spending relative to the productive sector of the economy.

Here’s the relevant excerpt from the study.

…a revolution is not required to generate one per cent of additional growth each year: the “welfare state” does not need to be eliminated, wages do not need to be lowered to subsistence income levels, and working hours do not need to be increased to medieval levels. In fact, in most instances, significant improvements in economic growth could be produced by simply reverting to the conditions of approximately one decade ago. …by reducing the growth of the public sector and decreasing tax rates, one may increase both the labour supply and the competitiveness of the private sector. The future development of the public sector is indeed the key aspect of determining the future development of the economy. If the public sector can be maintained in a reasonable fashion, one may manage to achieve low tax rates and low tax wedges in labour markets, and one can also avoid fiscal crises and keep the risk premia (of interest rates) low.

These findings should be read by every glum libertarian and every sad conservative. Yes, there are plenty of reasons to be pessimistic about America’s future, particularly since both the Bank for International Settlements and the Organization for Economic Cooperation and Development estimate that America’s long-run fiscal status is even worse than most of Europe’s welfare states.

But it doesn’t actually take much to move policy back in the right direction. A modest bit of fiscal restraint can solve the short-run challenge and some well-crafted entitlement reform can avert the long-run crisis.

All we really need to do is give the private sector some breathing room, which is the point I make in this interview with Larry Kudlow. I was talking about the regulatory burden, but my argument is equally applicable to fiscal policy.

This doesn’t exactly get us to our libertarian Nirvana, of course, so I realize that “breathing room” isn’t the most inspirational motto.

But it should help us understand that the fight isn’t over. I certainly haven’t given up.*

* I reserve the right to defect to the Cayman Islands if the crooks in Washington ever succeed in saddling America with a value-added tax.

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Atlas is shrugging and Dan Mitchell is laughing.

I predicted back in May that well-to-do French taxpayers weren’t fools who would meekly sit still while the hyenas in the political class confiscated ever-larger shares of their income.

But the new President of France, Francois Hollande, doesn’t seem overly concerned by economic rationality and decided (Obama must be quite envious) that a top tax rate of 75 percent is fair.” And patriotic as well!

French Prime Minister: “I’m upset that the wildebeest aren’t remaining still for their disembowelment.”

So I was pleased – but not surprised – when the news leaked out that France’s richest man was saying au revoir and moving to Belgium.

But he’s not the only one. The nation’s top actor also decided that he doesn’t want to be a fatted calf. Indeed, it appears that there are entire communities of French tax exiles living just across the border in Belgium.

Best of all, the greedy politicians are throwing temper tantrums that the geese have found a better place for their golden eggs.

France’s Prime Minister seems particularly agitated about this real-world evidence for the Laffer Curve. Here are some excerpts from a story in the UK-based Telegraph.

“No fair!”

France’s prime minister has slammed wealthy citizens fleeing the country’s punitive tax on high incomes as greedy profiteers seeking to “become even richer”. Jean-Marc Ayrault’s outburst came after France’s best-known actor, Gerard Dépardieu, took up legal residence in a small village just over the border in Belgium, alongside hundreds of other wealthy French nationals seeking lower taxes. “Those who are seeking exile abroad are not those who are scared of becoming poor,” the prime minister declared after unveiling sweeping anti-poverty measures to help those hit by the economic crisis. These individuals are leaving “because they want to get even richer,” he said. “We cannot fight poverty if those with the most, and sometimes with a lot, do not show solidarity and a bit of generosity,” he added.

In the interests of accuracy, let’s re-write Monsieur Ayrault’s final quote from the excerpt. What he’s really saying is: “We cannot buy votes and create dependency if those that produce, and sometimes produce a lot, do not act like morons and let us rape and pillage without consequence.”

So what’s going to happen? Well, I wrote in September that France was going to suffer a fiscal crisis, and I followed up in October with a post explaining how a bloated welfare state was a form of economic suicide.

Yet French politicians don’t seem to care. They don’t seem to realize that a high burden of government spending causes economic weakness by misallocating labor and capital. They seem oblivious  to basic tax policy matters, even though there is plenty of evidence that the Laffer Curve works even in France.

So as France gets ever-closer to fiscal collapse, part of me gets a bit of perverse pleasure from the news. Not because of dislike for the French. The people actually are very nice, in my experience, and France is a very pleasant place to visit. And it was even listed as the best place in the world to live, according to one ranking.

But it helps to have bad examples. And just as I’ve used Greece to help educate American lawmakers about the dangers of statism, I’ll also use France as an example of what not to do.

P.S. France actually is much better than the United States in that rich people actually are free to move across the border without getting shaken down with exit taxes that are reminiscent of totalitarian regimes.

P.P.S. This Chuck Asay cartoon seems to capture the mentality of the French government.

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Notwithstanding the title of this post, perhaps nobody deserves blame.

Sometimes, a good or service rises in price solely as a result of changes in supply and demand. And if the price of something climbs because of market forces, then it’s merely a reflection of unfettered exchanges between buyers and sellers.

But politicians and bureaucrats often distort market forces with subsidies. And even though consumers ostensibly benefit when government helps to pay for something, intervention can have very costly consequences.

I’ve already shared an amazing chart and a very powerful video to help explain how government subsidies in health care have created a third-party payer problem that has resulted in rapidly rising prices and considerable inefficiency in that sector.

Well, the good intentions of government also are causing problems for higher education.

Here’s a superb video from Learn Liberty, explaining why college expenses are skyrocketing.

The first part of the video shows that a college degree has become more valuable, so it’s understandable that the relative price of higher education has risen.

But then, beginning at about 1:55, the video discusses the role of subsidies. Echoing points I’ve made in the past, the professor explains how subsidies have simply generated higher prices. In other words, colleges have captured all the benefits, not students.

Business Week recently published a story that provides some glaring example of how universities have wasted all the additional money. Here are some remarkable excerpts.

“I have no idea what these people do,” says the biomedical engineering professor. Purdue has a $313,000-a-year acting provost and six vice and associate vice provosts, including a $198,000-a-year chief diversity officer. Among its 16 deans and 11 vice presidents are a $253,000 marketing officer and a $433,000 business school chief. The average full professor at the public university in West Lafayette, Ind., makes $125,000. The number of Purdue administrators has jumped 54 percent in the past decade—almost eight times the growth rate of tenured and tenure-track faculty. “We’re here to deliver a high-quality education at as low a price as possible,” says Robinson. “Why is it that we can’t find any money for more faculty, but there seems to be an almost unlimited budget for administrators?” …Purdue is typical: At universities nationwide, employment of administrators jumped 60 percent from 1993 to 2009, 10 times the growth rate for tenured faculty. “Administrative bloat is clearly contributing to the overall cost of higher education,” says Jay Greene, an education professor at the University of Arkansas. In a 2010 study, Greene found that from 1993 to 2007, spending on administration rose almost twice as fast as funding for research and teaching at 198 leading U.S. universities. …Trustees at the University of Connecticut are reviewing administrative salaries at the school’s main campus in Storrs, following a controversy over the compensation of the school’s former police chief, who received $256,000 annually—more than New York City’s police commissioner. …Mitch Daniels, a fiscal hawk who will become [Purdue’s] president when his term expires in January…says he wants to take a look at administrative costs that he suspects are “marbled” throughout the university—beginning with his office. In anticipation of his arrival in January, and without his knowledge, the school renovated the president’s 4,000-square-foot suite. The cost was $355,000, enough to send 15 Indiana residents to Purdue for a year.

Wow. Reminds me of this post about politically correct featherbedding at the University of California at San Diego. I can see why college administrators like this system. But it’s definitely bad news for students who get stuck on a treadmill of higher tuition and more debt.

P.S. At 2:18, the video has a discussion of how subsidies lead to higher costs, which then leads to more demands for additional subsidies. Hmmm…bad government policy leads to more bad government policy. Seems like there’s a term for that phenomenon.

P.P.S. I highly recommend the Learn Liberty videos. Here’s one on protectionism, one on the legality of Obamacare, and here’s another about how excessive federal spending is America’s real fiscal problem.

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Over the years, I’ve shared some outrageous examples of overpaid bureaucrats.

Hopefully we’re all disgusted when insiders rig the system to rip off taxpayers. And I suspect you’re not surprised to see that the worst example on that list comes from California, which is in a race with Illinois to see which state can become the Greece of America.

Well, the Golden State has a new über-bureaucrat. Here are some of the jaw-dropping details from a Bloomberg report.

The numbers are even larger in California, where a state psychiatrist was paid $822,000, a highway patrol officer collected $484,000 in pay and pension benefits and 17 employees got checks of more than $200,000 for unused vacation and leave. The best-paid staff in other states earned far less for the same work, according to the data.

Wow, $822,000 for a state psychiatrist. Not bad for government work. So what is Governor Jerry Brown doing to fix the mess? As you might expect, he’s part of the problem.

…the state’s highest-paid employees make far more than comparable workers elsewhere in almost all job and wage categories, from public safety to health care, base pay to overtime. …California has set a pattern of lax management, inefficient operations and out-of-control costs. …In California, Governor Jerry Brown hasn’t curbed overtime expenses that lead the 12 largest states or limited payments for accumulated vacation time that allowed one employee to collect $609,000 at retirement in 2011. …Last year, Brown waived a cap on accrued leave for prison guards while granting them additional paid days off. California’s liability for the unused leave of its state workers has more than doubled in eight years, to $3.9 billion in 2011, from $1.4 billion in 2003, according to the state’s annual financial reports. …The per-worker costs of delivering services in California vastly exceed those even in New York, New Jersey, Illinois and Ohio.

Actually, it’s not just that he’s part of the problem. He’s making things worse, having seduced voters into approving a ballot measure to dramatically increase the tax burden on the upper-income taxpayers.

I suppose the silver lining to that dark cloud is that many bureaucrats now rank as part of the top 1 percent, so they’ll have to recycle some of their loot back to the political vultures in Sacramento.

Cartoon California Promised Land

But the biggest impact of the tax hike – as shown in the Ramirez cartoon – will be to accelerate the shift of entrepreneurs, investors, and small business owners to states that don’t steal as much. Indeed, a study from the Manhattan Institute looks at the exodus to lower-tax states.

The data also reveal the motives that drive individuals and businesses to leave California. One of these, of course, is work. …Taxation also appears to be a factor, especially as it contributes to the business climate and, in turn, jobs. Most of the destination states favored by Californians have lower taxes. States that have gained the most at California’s expense are rated as having better business climates. The data suggest that many cost drivers—taxes, regulations, the high price of housing and commercial real estate, costly electricity, union power, and high labor costs—are prompting businesses to locate outside California, thus helping to drive the exodus.

Yet another example of why tax competition is such an important force for economic liberalization. It punishes governments that are too greedy and gives taxpayers a chance to protect their property from the looter class.

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I’ve written and pontificated about the problem of government-created dependency and how the welfare state traps people in poverty.

I also shared this dramatic chart showing how redistribution programs create shockingly high implicit marginal tax rates for those with modest incomes.

But when a liberal writer for the New York Times basically comes to the same conclusion, that’s a sign that there may finally be some consensus about the need for reform.

Here’s some of what Nicholas Kristof wrote, beginning with an acknowledgement of the welfare state’s perverse incentives.

This is what poverty sometimes looks like in America: parents here in Appalachian hill country pulling their children out of literacy classes. Moms and dads fear that if kids learn to read, they are less likely to qualify for a monthly check for having an intellectual disability. …This is painful for a liberal to admit, but conservatives have a point when they suggest that America’s safety net can sometimes entangle people in a soul-crushing dependency. …Some young people here don’t join the military (a traditional escape route for poor, rural Americans) because it’s easier to rely on food stamps and disability payments. Antipoverty programs also discourage marriage: In a means-tested program like S.S.I., a woman raising a child may receive a bigger check if she refrains from marrying that hard-working guy she likes. Yet marriage is one of the best forces to blunt poverty. In married couple households only one child in 10 grows up in poverty, while almost half do in single-mother households. Most wrenching of all are the parents who think it’s best if a child stays illiterate, because then the family may be able to claim a disability check each month.

Lives ruined by dependency?

He then gives an example of the SSI program for kids and how it has ballooned over time .

About four decades ago, most of the children S.S.I. covered had severe physical handicaps or mental retardation that made it difficult for parents to hold jobs — about 1 percent of all poor children. But now 55 percent of the disabilities it covers are fuzzier intellectual disabilities short of mental retardation, where the diagnosis is less clear-cut. More than 1.2 million children across America — a full 8 percent of all low-income children — are now enrolled in S.S.I. as disabled, at an annual cost of more than $9 billion. That is a burden on taxpayers, of course, but it can be even worse for children whose families have a huge stake in their failing in school. Those kids may never recover: a 2009 study found that nearly two-thirds of these children make the transition at age 18 into S.S.I. for the adult disabled. They may never hold a job in their entire lives and are condemned to a life of poverty on the dole — and that’s the outcome of a program intended to fight poverty.

By the way, you won’t be surprised to learn that the disability program for adults also has expanded dramatically. The simple lesson (though folks in Washington seem oblivious) is that if you subsidize self-destructive behavior, you’ll get more of it.

Kristof is honest enough to recognize the problem, but that doesn’t mean he agrees with libertarians about the solution.

I don’t want to suggest that America’s antipoverty programs are a total failure. On the contrary, they are making a significant difference. Nearly all homes here in the Appalachian hill country now have electricity and running water, and people aren’t starving. …kids…have replaced the elderly as the most impoverished age group in our country. Today, 22 percent of children live below the poverty line. Of American families living in poverty today, 8 out of 10 have air-conditioning, and a majority have a washing machine and dryer. Nearly all have microwave ovens. What they don’t have is hope. …A growing body of careful research suggests that the most effective strategy is to work early on children and education, and to try to encourage and sustain marriage. …Early interventions are not a silver bullet, and even programs that succeed as experiments often fall short when scaled up. But we end up paying for poverty one way or another, and early childhood education is far cheaper than adult incarceration. …Look, there are no magic wands, and helping people is hard.

I don’t think his hopes of early childhood education are a silver bullet, particularly if it results in a program run from Washington. But I’ll also admit that libertarians don’t really have a solution.

To a large extent, this is an intergenerational problem, with kids learning bad habits from adults. And that’s true for inner-city blacks and rural whites, as well as every demographic in between. I’m happy to make the case that the welfare state helped to create the problem (or at least subsidized it and made it worse), but simply ending the welfare state probably won’t make everything better.

It’s a lot easier to squeeze the toothpaste out of the tube than to put it back in. Once social capital erodes, it very difficult to restore it. That’s why it’s a mistake to create new programs in the first place. As this famous set of cartoons illustrates, welfare state programs always start small, but that’s not where they end up.

P.S. When the welfare state destroys the lives of children, there’s no room for any humor. But at least we can laugh about the absurdity of disability programs for adults. This joke captures the perverse incentives of the programs, but these real-world horror stories about Diaper Man and Footless Hans are only funny in a twisted way. And this Greek story about rewarding pedophiles with disability payments is beyond satire.

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I’m non-partisan and non-ideological when it comes to political humor, or at least I try to be.

That’s why I shared these two cartoons making fun of Fox News and the GOP. And this Todd Akin “legitimate rape” humor had me chuckling as well.

Not surprisingly, my Democrat friends very much liked this bit of R-rated anti-Romney humor.

So when someone sent me an email of this video, with “Secret GOP Budget Plan” in the subject line, I knew it was destined for the blog. It’s actually a bit of British humor and not about Republicans, but I think you’ll see why I was amused.

If you like British humor, you’ll also want to see this letter-to-the-editor from an unhappy taxpayer, this modern glossary of financial terms, and this example of politically incorrect terrorism humor.

Now let’s enjoy a couple of cartoons. This first one, from Mike Lukovich, accurately captures the tax debate. Obama is saying “higher taxes for everybody unless the GOP agrees to higher taxes for the rich,” while Republicans are saying “no tax cuts for anybody unless there are tax cuts for everybody.”

Cartoon GOP Reindeer

But what really makes the cartoon funny is the petulant stance of the elephants. Very effective artwork, mush as I praised Ramirez for the visual genius of his recent cartoon.

This next cartoon also is funny because there’s an element of truth. There’s always a temptation to exaggerate the bad things that supposedly will happen if one’s opponents succeed. Democrats, for instance, look silly for saying the Reagan tax cuts for the “rich” would starve the government of revenue when we now know the rich paid far more when the top tax rate fell from 70 percent to 28 percent.

Likewise, some Republican types got egg on their face for claiming that Clinton’s 1993 tax hike would cause a recession, when they should have made the more modest point that higher tax rates would undermine the economy’s potential growth rate. Anyhow, enjoy the cartoon.

Cartoon GOP Secret Fear

In closing, here’s a link for those of you who want to enjoy some anti-libertarian humor, and it includes links to some other jokes targeting people like me.

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Having dealt with queries about whether I hate Republicans and whether my views have changed on anything, the newest edition of “Question of the Week” asks for my opinion about Senator DeMint moving over to become President of the Heritage Foundation.

Variants of this question came from several people, perhaps because folks know that I spent more than 15 years working for Heritage.

The short answer is that I think DeMint’s move generally is a good thing.

But first, the bad news. It is unfortunate that Senator DeMint no longer will be in the Senate. We need as many “Tea Party” lawmakers as possible since they are willing to fight for small government even when it means causing friction with establishment-oriented, go-along-to-get-along Republicans.

But DeMint’s departure won’t be too painful if Governor Haley of South Carolina appoints an equally strong advocate of small government to replace him.

Moreover, Senator DeMint no longer is a  lone voice for liberty. There are now some very strong defenders of small government in the Senate, including Rand Paul, Marco Rubio, Mike Lee, Ron Johnson, and (beginning in January) Ted Cruz. You can get a pretty good idea of which Senators fight for freedom, coincidentally, by looking at the Heritage Action for America vote rating.

So hopefully Senator DeMint won’t be missed too much.

But what about the implications for Heritage?

Josh Barro thinks DeMint’s selection is a mistake because it means Heritage will be less of a think tank and more of “a political pressure organization with a policy research arm.”

But I disagree with Josh’s concern. Think tanks fill various niches in the battle of ideas. Heritage (even when I disagree with the organization) has an unparalleled outreach program to folks on Capitol Hill and it also has a very impressive capacity to bring information to the grassroots.

Those are good features. In other words, think tanks shouldn’t all fit the same mold, featuring wonky guys with thick glasses publishing 50-page papers. Nothing wrong with that, of course, particularly since I’m a bit of a wonk myself. But just as diversity among governments is a good thing, so is diversity among think tanks.

What matters to me is whether DeMint will guide Heritage in the right direction. At times in recent history, it seems Heritage lost sight of its Reaganite roots. The organization, for instance, got some unfavorable publicity for supporting healthcare mandates (for friends of Heritage, this leftist video is very painful to watch). The Heritage Foundation also was far too timid last decade about criticizing Bush’s reckless record of excessive federal spending.

Given DeMint’s principled opposition to statism on Capitol Hill, I suspect he will lead the way in restoring Heritage’s bona fides as a proponent of small government. That’s very good news, especially at a time when congressional Republicans seem to be losing their nerve.

It’s also worth noting that DeMint has some libertarian sympathies, as Nick Gillespie explains for Reason.

All things considered, Senator Jim DeMint seems like a very solid pick for the top job at the Heritage Foundation. Particularly since he presumably will be an effective fundraiser, which is one of the main jobs for the leader of a non-profit organization.

And since this post is about think tanks, let me take this opportunity to say some nice things about my employer. More specifically, I want to congratulate Michael Cannon, one of my colleagues at the Cato Institute.

He was just featured in the New Republic, a left-wing magazine, as the leading opponents of Obamacare. Here’s a bit of what they wrote about him.

Obamacare’s leading critic

Can one very determined libertarian and one very distorted version of history keep millions of people from getting health insurance? We’re about to find out. The determined libertarian is Michael Cannon of the Cato Institute. He was among the most vocal opponents of the Affordable Care Act, going back to the time when it was still a glint in the eyes of Ted Kennedy. The idea of universal coverage is so antithetical to Cannon’s principles that he actually started an “Anti-Universal Coverage Club.” Once the law passed and took on the moniker “Obamacare,” Cannon became a leading advocate for its repeal. And since he understood the law might survive both the courts and the 2012 elections, as it eventually did, he also made the case that states should avoid complicity in its implementation—and, if possible, actively thwart it. He made that case in his writing and speeches, sometimes directly to the officials with responsibility for implementing the law. …And no single individual has done more to make the case for state resistance to Obamacare than Cannon.

Kudos to Michael. You know you’re doing a good job when your enemies are attacking you. Michael’s also done great work on entitlement reform, and you’ll recognize his mug if you watch my videos on Medicare and Medicaid reform.

At the risk of bragging, Cato is filled with people who make a difference. I’ve noted how Cato organized the first attack against Obama’s faux stimulus when others were sitting on their hands. And it was Cato scholars who helped rejuvenate the constitutional case for limited government.

So I’m glad that Heritage is moving in the right direction, and it was great working there for many years, but there shouldn’t be any confusion about the best think tank in Washington.

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It’s never a good idea to display weakness during negotiations. Your opponent will sense your fear and up his demands.

That’s certainly what we’re seeing in Washington. The cartoon at this link captures the GOP’s wobbly attitude on taxes, and this interview is about the ever-increasing demands of the Obama Administration.

It’s rather galling, by the way, to be lectured on taxes by a tax cheat like Tim Geithner.

But my key point is that the GOP’s preemptive surrender emboldened the White House, and helped move the debate even further to the left.

Let me elaborate on two points from the interview.

  1. We don’t need a tax increase. We can balance the budget simply by limiting spending so that it grows by “only” 2.5 percent annually. As I say to Cavuto, the White House is pushing higher taxes in order to enable a bigger burden of government spending.
  2. It’s important to define austerity correctly. To provide an analogy, we have to drink liquid to survive, but that doesn’t mean it would be a good idea to guzzle paint thinner. Likewise, we need austerity, but that shouldn’t mean higher taxes. We need to be like Estonia and tighten the belts of the public sector, not the private sector.

It’s not my job to give Republicans political advice, but I also want to expand upon the arguments I made a couple of days ago, when I wrote a post giving five policy reasons and five political reasons why the GOP shouldn’t surrender on tax increases.

A couple of readers correctly pointed out that I forgot to mention that tax increases are political poison because middle-class voters turn against the GOP once “revenue” is on the table. They are completely right, and my oversight is inexplicable since I’ve actually made that point in the past. Here’s some of what I wrote last year.

If Republicans put tax increases on the table, however, the politics get turned upside down. Instead of being united against all tax increases, voters realize somebody is going to get mugged and they have an incentive to make sure they’re not the ones who get victimized. That’s when soak-the-rich taxes become very appealing. Democrats, for all intents and purposes, can appeal to average voters by targeting the so-called rich. And even though voters will be skeptical about what Democrats really want, they don’t want to be the primary target of the political predators in Washington. Think of it this way. You’re a wildebeest running away from a pack of hyenas, but you know one member of your herd will get caught and killed. You despise hyenas, but at that critical moment, you’re main goal is wanting another member of the herd to bite the dust. This is why surrendering to tax increases put Republicans in a no-win situation. They oppose class-warfare taxes because they understand the disproportionately damaging impact of higher top income tax rates and increased double taxation of dividends and capital gains. So when GOPers get bullied into agreeing to raise taxes, they want to target less destructive sources of revenue. But that usually means…taxes that are more likely to hit the middle class. Needless to say, Democrats almost always win if there is a fight on whether to tax the middle class or to tax the rich.

I have to pat myself on the back for that passage, particularly the analogy that equates politicians with hyenas (though in the past I’ve apologized to hyenas for that unfair comparison).

Let’s close with a very good cartoon, which points out the foolishness of the media for wanting to send more money to Washington when even they understand that the town is filled with clowns and buffoons. That’s actually a very serious point, as I note about halfway through the interview included in my five-political-reasons-five-policy-reasons post.

Cartoon Beat the Press Tax Hikes

But it’s hard to laugh when you contemplate what’s happening. Obama is bullying the GOP, and the Republicans are in the process of surrendering to his class-warfare demands.

That will lead to bad policy, but it will also result in an emasculated, compliant, and house-broken GOP for at least the next two years, and perhaps even Obama’s entire second term. So even though the fiscal cliff tax hike is bigger than what Obama’s currently demanding, the long-run policy damage of surrender almost surely will be far greater.

Republicans don’t have many options in this fight. But they can show some cojones and tell Obama that the only way he’ll get a tax hike is if he wants to take the nation over the cliff.

P.S. If you like the Henry Payne cartoon in this post, you can enjoy some of his other work here, here, here, herehereherehere, and here.

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A regular feature on this blog is the government-stupidity contest between bureaucrats and politicians from the United States and the United Kingdom.

You can click here to peruse some of the most outrageous examples, including a couple of contestants from the private sector.

This has been a nip-and-tuck race for a long time, but the United Kingdom recently jumped into the lead with two jaw-dropping examples of moronic government behavior.

First, British bureaucrats took some kids away from their foster family because the parents didn’t believe in unlimited immigration, and, second, the U.K. government created a subsidy program that was so convoluted that not one single household in the entire country signed up for the goodies.

You know you’ve reached a special level of incompetence when a government is so bloody stupid that it can’t even give away money.

I was beginning to think the United States was doomed to also-ran status in this race.

But I should have known better. When it comes to finding creative ways to piss away other people’s money and make bone-headed choices, American politicians and bureaucrats are ready to meet the challenge.

This isn’t empty patriotism on my part. For proof, check out this Washington Examiner story about the federal government sending bureaucrats to a posh, $1,000-per-person conference, where they learned…I’m not making this up…how to respond to zombie attacks.

“Give…me…your…wallet”

When zombies attack, the Department of Homeland Security will be prepared. …money from the DHS’s Urban Areas Security Initiative went to buy snow cone machines in Michigan. Places like Fargo, N.D., and Keene, N.H., now have armored vehicles at their disposal, as do many other small towns. Keene said the vehicle was needed to protect its annual Pumpkin Festival. Arizona used $90,000 in DHS funding to install a video monitoring system at the Peoria Sports Complex, because apparently it is in the taxpayers’ interest to monitor the Seattle Mariners and San Diego Padres during spring training. …But if you think that’s waste, you need to know about the extraordinary training that the DHS was able to provide to first responders this year. They made attendance at the HALO Corp.’s 2012 Counter-Terrorism Summit an allowable expense for federal grant money. Yes, the California-based security company’s five-day event was held at a posh island resort and spa just outside of San Diego and cost $1,000 per person to attend, but that’s not even the best part. The showpiece event of the summit made was a live war game of a zombie apocalypse, complete with 40 actors in full zombie makeup as well as “state-of-the-art structure, pyrotechnic battlefield effects, medical special effects, vehicles and blank-firing weapons” according to a promotional video by HALO President Brad Barker. This enabled first responders to participate in a real-life “Dawn of the Dead” scenario and to know precisely what to do when their neighbors start trying to eat their human flesh.

As the Boy Scouts say, it’s best to “be prepared.” And thanks to federal tax dollars, the Department of Homeland Security is ready to defend us from a zombie attack.

I’m basically at a loss for words. Is anybody minding the store back in DC?

“Must…waste…more…money”

Why did this federal contractor think this was a good idea? Why did the Department of Homeland Security think it should be an allowable expense? Why did bureaucrats think it was a worthwhile way of spending their time?

There are no good answers – other than the fact that folks are far more likely to be frivolous and wasteful when they’re spending other people’s money. And that applies to the other examples cited in the excerpt above.

An armored vehicle to protect a pumpkin festival?!? If the taxpayers of Keene, NH, actually think the Canadians are about to sneak over the border and swipe some pumpkins, they should kick in a few bucks and hire an extra cop.

But so long as the kleptomaniacs in Washington are giving away our money, local governments have every reason to dream up ridiculous wish-lists.

No wonder the burden of government spending has reached record levels.

P.S. Don’t forget that the Department of Homeland Security was created during the Bush years. Another black mark on that statist period.

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I’ve been very critical of Obama’s class-warfare ideology because it leads to bad fiscal policy. But perhaps it is time to give some attention to other arguments against high tax rates.

Robert Samuelson, a columnist for the Washington Post, has a very important insight about tax rates and sleaze in Washington.

His column is mostly about Obama’s anti-tax reform agenda, but it includes this very important passage.

…many politicians support tax breaks for favored groups (the elderly, the poor, small business) and causes (homeownership, attending college, “green” industries). This enhances their power. The man who really pronounced the death sentence for the Tax Reform Act of 1986 was Bill Clinton, who increased the top rate to 39.6 percent rather than broadening the base. As the top rate rose, so did the value of generating new tax breaks. Ironically, many of the people who complain the loudest about Washington influence-peddling and lobbying are the same people who support higher tax rates, which stimulate more influence-peddling and lobbying.

The last sentence is key. Higher tax rates are good news for the politicians, interest groups, bureaucrats, and lobbyists that dominate Washington.

Here’s a simple example. Let’s pretend we have a modest tax rate of 20 percent. Now imagine you are part of an industry with $200 million in profits and you want a special tax break. How much are you willing to pay to get that loophole?

Well, with a 20 percent tax, the most you can save (assuming the loophole is huge and you wipe out all your tax liability) is $40 million.

So how much would you spend on lobbyists, campaign contributions, etc, in order to get that loophole? That’s hard to answer, because it would require some estimate of the probability of success. But one thing we can safely assume is that the industry would never spend more than $40 million.

But let’s now assume you live in a world with 50 percent tax rates. Does that change the incentive for influence peddling in Washington? Of course it does. The industry’s tax bill is now $100 million, so it now has an incentive to spend up to that amount to get special treatment.

So now let’s consider a couple of additional hypothetical questions.

  • First, imagine you’re a lobbyist. Do you think you will get more business if tax rates are high, or if tax rates are low?
  • Second, imagine you are a politician. Do you think you will get more campaign contributions if tax rates are high, or if tax rates are low?

The answers are obvious, and so are the implications. Yes, higher tax rates are bad for growth and competitiveness. And, yes, they are unfair and discriminatory.

But they also foment and encourage sleaze in D.C., and that’s something that honest leftists should hate as much as the rest of us.

For more information, here’s my video on the link between big government and corruption, including a section on how a loophole-ridden tax system benefits Washington insiders.

And here’s the video on the flat tax, which explains why low tax rates are good for economic performance.

Both videos have good information (at least I like to think), but kudos to Samuelson for drawing an important link between high tax rates and corruption.

P.S. Robert Samuelson is hard to pin down on the philosophical spectrum. He’s written very good columns denouncing Obama’s manipulation of welfare statistics and criticizing the President’s flirtation with the value-added tax. But he’s also had a couple of columns where he identifies a very real problem, but fails to reach the right conclusion, including this piece that should have been an argument for Austrian economics and this piece on health care inefficiency that should have pinned the blame on third-party payer.

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I’ve been arguing against higher taxes because of my concerns that more revenue will simply lead to a bigger burden of government spending.

Yes, I realize it is theoretically possible that a tax hike could be part of a political deal that produces a good outcome, such as entitlement reform.

But that doesn’t seem to happen in the real world. Indeed, I pointed out almost exactly one year ago that the only budget deal that gave us a surplus was the 1997 pact that cut taxes instead of raising them.

But maybe there’s evidence from other parts of the world showing that tax hikes lead to balanced budgets. Perhaps we can learn something from European nations.

Let’s start with this chart I put together after digging through historical data from the United Nations, European Commission, and Organization for Economic Cooperation and Development. It shows tax burden for the 15 nations of the pre-2004-expansion European Union, minus Luxembourg which didn’t collect this kind of data in the 1960s. Basically, we’re looking at the average tax burden in Western Europe for 1965-1969 and for 2006-2010.

Euro tax debt 1

Not surprisingly, it shows that the tax burden has jumped significantly. I suspect the adoption of the value-added tax deserves a good bit of the blame, but that’s  a separate issue.

For this post, we’re wondering whether this big jump in taxes resulted in more red ink or less red ink.

This second chart looks at the burden of government debt, which averaged 45 percent of GDP for the 1965-1969 period. And we see a stick figure wondering whether the debt for 2006-2010 will be higher or lower. In other words, did politicians use the additional revenue to pay down the debt, did they spend it, or did they spend all the added revenue and then borrowed even more?

Euro tax debt 2

Well, knock me over with a feather. The next chart shows that debt is much higher today, averaging about 60 percent of GDP.

Euro tax debt 3

In other words, every penny of new tax revenue got spent. Not only that, but Europe’s politicians accumulated even more red ink because they increased spending even faster than they increased revenue.

What’s the moral of this story? Well, President Obama claims his class-warfare tax policy will reduce deficits as part of a “balanced approach.”

But what he’s actually proposing is that the United States should emulate our friends on the other side of the Atlantic. And it seems their idea of a “balanced approach” simply means higher taxes, as you can see from this shocking chart. Gee, what a coincidence.

Based on what we know about the evidence in Europe, and based on what we know about the proclivities of American politicians, anybody want to guess what will happen to U.S. government debt if Obama prevails?

P.S. The pre-2004-expansion European Union nations were Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Netherlands, Portugal, Spain, Sweden, and the United Kingdom.

P.P.S. The figures in this post are for central government taxes and debt.

P.P.P.S. There are some good lessons to be learned from other nations, as shown in this video. And if you pay attention to the details in that video, you’ll notice that the key to good fiscal policy is…drumroll please…following Mitchell’s Golden Rule.

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More than two years ago, while writing about the Laffer Curve, I described the “Butterfield Effect.”

A former reporter for the New York Times, Fox Butterfield, became a bit of a laughingstock in the 1990s for publishing a series of articles addressing the supposed quandary of how crime rates could be falling during periods when prison populations were expanding. A number of critics sarcastically explained that crimes rates were falling because bad guys were behind bars and invented the term “Butterfield Effect” to describe the failure of leftists to put 2 + 2 together.

Last year, I was amused to see a New York Times columnist complain that Republicans were being stubborn in their opposition to tax hikes, but she inadvertently provided evidence against her own position.

She obviously wants readers to conclude that bad, mean, wicked Republicans are being too dogmatic because they won’t agree to big tax hikes. But the chart she prepared tells a completely different story. The only budget agreement that actually produced a balanced budget was the 1997 deal, and that deal contained tax cuts rather than tax increases!

I’m thinking this habit of accidentally helping the other side should be called the “Own-Goal Effect,” even though I generally don’t like anything associated with soccer (with one very important exception).

Given the track record of the New York Times in these matters, you won’t be surprised that the self-styled newspaper of record just published a story that combines the Butterfield Effect and the Own-Goal Effect.

Here are a couple of sentences from the recent NYT story, noting that taxpayers in many parts of the world face a tsunami of tax increases.

Taxes on earnings, investment income, sales and a few other things have gone up already in many countries, and further increases are possible, including a huge one in the United States. …“Quite a few countries are trying to increase tax revenue,” said Kevin Cornelius, a partner in Geneva for the Human Capital Practice at Ernst & Young. “The question is who’s raising taxes the slowest. I can’t remember as much tax legislation going through as we’ve seen in the last 24 months.”

Nothing remarkable in that excerpt. My blog is filled with stories about greedy governments seeking to extract more revenue from the economy’s productive sector.

New York Times Tax Competition HeadlineBut notice the headline that the NYT assigned to the article. Channeling the wisdom of Fox Butterfield, it fails to make an obvious causal link. As I have repeatedly noted in my writings about tax competition and tax havens, taxpayers need places to hide their money in order to curtail the ability and incentive of politicians to impose higher tax rates.

Heck, don’t believe me. Greg Mankiw has written the same thing.

In other words, the headline actually should read: “Taxes Trend Higher Worldwide Because there are Few Places to Hide.”

The article includes some discussion of how politicians are trying to shut down escape routes.

A rise in rates is not the only unpleasant matter that taxpayers must contend with. Tax lawyers, accountants and bankers highlight a global game of gotcha being played by revenue authorities. Taxpayers are being asked to provide more detailed information about financial accounts. Americans living or doing business abroad are conspicuous targets in this effort, and on the off chance that they will be less than forthcoming, the Internal Revenue Service is asking foreign financial institutions and tax agencies to join the cause. Elsewhere, vehicles that individuals and families use to shelter income and assets from tax, like trusts, corporations and foundations, are being examined more closely and critically. In certain cases, laws are amended to neutralize the effectiveness of tax-avoidance methods soon after they are devised. Also, foreign visitors’ claims of nonresidence for tax purposes are being treated more skeptically. “We’ve seen a huge amount of tax scrutiny,” said Mr. Cornelius at Ernst & Young. “Authorities are more aggressive in pursuing individuals. There’s more sharing of information across borders. That’s going to continue.”

What a depressing excerpt. And it doesn’t even touch on some of the worst ideas being advanced by the political elite, such as a potential international tax organization. Governments clearly are doing everything they can to pave the way for higher tax rates and a bigger burden of government spending.

To be fair to the author, I don’t detect ideological bias in the story. He inadvertently provides evidence confirming that tax competition is needed to restrain greedy politicians, so he scores a goal against the statists. But, unlike our President and some others who are even more radical, I don’t think he was trying to advance the left-wing narrative that tax competition is bad and that tax havens are evil.

So perhaps he’s only guilty of the “Butterfield Effect” and not the “Own-Goal Effect.”

But he does work at the New York Times, which is tediously left wing (see here, here, here, here, here, here, and here), so we’ll give the newspaper an award for the “Own-Goal Effect.”

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I’m understandably partial to my video debunking Keynesian economics, and I think this Econ 101 video from the Center for Freedom and Prosperity does a great job of showing why consumer spending is a consequence of growth, not the driver.

But for entertainment value, this very funny video from EconStories.tv puts them to shame while also making important points about what causes economic growth.

The video was produced by John Papola, who was one of the creators of the famous Hayek v Keynes rap video, as well as its equally clever sequel.

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The politicians claim that they are negotiating about how best to reduce the deficit. That irks me because our fiscal problem is excessive government spending. Red ink is merely a symptom of that underlying problem.

But that’s a rhetorical gripe. My bigger concern is that politicians are prevaricating. They’re really talking about higher taxes in order to enable a bigger burden of government spending, not less red ink. I make this point in an interview on Fox Business Network.

This is the point where I often elaborate on issues raised in the interview, but let’s instead build on the discussion to look at policy and political reasons why the GOP  should not surrender to Obama’s tax demands as part of fight over the fiscal cliff.

Here are the policy arguments against higher taxes.

1. There is no need for higher taxes since the budget can be balanced merely by restraining spending so that it grows 2.5 percent each year.

According to the most recent Congressional Budget Office fiscal estimate, the 2001 and 2003 tax cuts can be made permanent and red ink can be wiped out in just 10 years so long as politicians simply control the growth of federal spending so that outlays don’t grow faster than 2.5 percent each year. Other nations have shown that this type of spending restraint is very successful, while no nation has ever taxed its way to fiscal success.

2. Since the tax increases stick and the supposed spending cuts quickly evaporate, budget deals that raise taxes have a long history of failure.

Last year, in an article that was designed to browbeat Republicans for being unreasonable about tax hikes, a New York Times columnist inadvertently revealed that the only budget deal that actually led to a fiscal surplus was the 1997 agreement that lowered taxes instead of increasing them. None of the tax-hike budget deals ever resulted in a balanced budget.

3. America’s short-run fiscal problem is the result of too much government spending, not inadequate tax revenue.

Because of large spending increases during the Bush-Obama years, the burden of federal spending has doubled in just 11 years. This is why today’s fiscal numbers look so grim. Some argue that tax revenues are below their long-run average of 18 percent of GDP, but CBO estimates show that tax collections will be above the long-run average by the end of the decade even if all the 2001 and 2003 tax cuts are made permanent. And the White House recently admitted this was true as well.

4. America’s long-run fiscal problem is the result of too much government spending, not inadequate tax revenue.

In the absence of entitlement reform, the burden of federal spending will double, measured as a share of GDP, and the overall burden of government will exceed the levels that currently exist in every single European welfare state. Tax revenues also will climb as a share of GDP thanks to “real-bracket creep,” so there is no plausible argument that the long-run problem is inadequate revenue.

5. The European evidence shows that genuine spending cuts are the only effective way of solving a fiscal crisis.

Nations such as Italy, Greece, France, Spain, Ireland, Portugal, and the United Kingdom have imposed massive tax increases, yet their fiscal problems remain. Indeed, in some cases, these nations are in worse shape because the tax hikes contributed to anemic economic performances.  Some of these countries have belatedly begun to trim their spending burdens, but generally by relying on transitory savings rather than permanent reductions in the obligations of the welfare state. The only relative success stories on the continent are Switzerland, which never got into trouble in the first place thanks to a spending cap, and the Baltic nations, which imposed genuine spending cuts when the crisis first began and now are reaping the rewards of that fiscal discipline.

And here are the political arguments against higher taxes.

1. With Republicans easily retaining control of the House of Representatives, the election was not a mandate to raise taxes.

Nobody argued that there was a mandate to raise taxes before the election, when Republicans controlled the House and Democrats controlled the White House and Senate, so how can there be a mandate to raise taxes today since the election didn’t change anything? Some assert that Obama has a mandate since he campaigned in favor of his soak-the-rich tax plan. That’s true, but House Republicans prevailed after campaigning against class-warfare taxes, so that’s a wash.

2. The GOP prevailed in the exact same tax battle back in 2010, before they controlled the House and when they had fewer seats in the Senate.

This is not the first fiscal cliff battle. The same fight took place at the end of 2010. At the time, Democrats has an overwhelming majority in the House and even stronger control of the Senate than they do today. But by holding firm and staying united, Republicans prevailed. If they lose today, when they have far more political power, it will be a damning indictment of their incompetence.

3. Acquiescing to tax hikes would set a tone of weakness for 2013 and 2014, much as the 2011 “shutdown fight” needlessly gave Obama the upper hand on fiscal battles in 2011 and 2012.

Back in early 2011, the GOP had a pivotal battle with Barack Obama over spending levels for the remainder of the fiscal year. Being a thoughtful guy, I gave them some unsolicited advice on how to prevail, explaining for National Review how Republicans basically won the shutdown fight of 1995-1996. Sadly, they didn’t take my advice and they wound up with a crummy deal. And that paved the way for subsequent defeats, such as the debt limit debacle that planted the seeds for the current tax-hike dilemma. The GOP needs to stop this carousel of capitulation. The fiscal cliff, while bad, is not as bad as a tax deal imposed on them by Obama.

4. If Republicans give up on taxes, they will get nothing in exchange.

I’ve actually written that I would accept higher taxes if we got some real fiscal reform to restrain the growth of government. There is zero chance, however, of any meaningful changes on the spending side of the fiscal ledger, such as program terminations or real entitlement reform. Heck, Obama even proposed more spending for additional Keynesian faux stimulus. Republicans will be laughingstocks if they get suckered…again.

5. Integrity matters, so politicians who promised the people that they wouldn’t raise taxes should honor those commitments.

I realize that it is silly to make an argument about honor and integrity when we’re discussing the actions of politicians, but I’m old fashioned. A promise should mean something. And even if promises don’t mean anything to these guys, they should remember that voters don’t like dishonesty.

Fiscal Cliff Parachute CartoonI’m not terribly hopeful that any of my advice will be followed, so let’s close this post with some gallows humor.

This cartoon has the same message as the seven classics I posted over the weekend.

Simply stated, Republicans are caught between a rock and hard place, and it looks like taxpayers are going to get screwed.

But they do have a choice about whether their fingerprints should be on the screw.

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The Benson and Holbert cartoons at this link do an excellent job of mocking Obama’s class-warfare agenda.

But Michael Ramirez is unmatched. Here’s his latest gem, making fun of gullible and brainless Republicans.

Cartoon Ramirez rich

The cartoon is great, both because it visually captures the vapid naiveté of GOPers (the eyes are classic) and it also correctly implies that higher taxes on the “rich” will be just the beginning.

Of course, since more and more leftists are admitting they also want to tax the middle class, I’m not sure why anyone thinks that’s a controversial proposition.

You can enjoy some of my favorite Ramirez cartoons by clicking here, here, here, here, here, here, here, here, here, here, here, here, here, herehereherehereherehere, and here.

P.S. I don’t want to neglect Chuck Asay, who is probably tied with Ramirez as favorite cartoonist on my list. You will understand why if you click here and here.

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I’ve repeatedly tried to expose pervasive fiscal dishonesty in Washington.

In these John Stossel and Judge Napolitano interviews, for instance, I explain that the crooks in DC have created a system that allows them to claim they’re cutting the budget when the burden of government spending actually is rising.

This sleazy system is designed in part to deceive the American people, and the current squabbling over the fiscal cliff is a good example. The President claims he has a “balanced approach” that involves budget cuts, but look at the second chart at this link and you will see that he’s really proposing bigger government.

This dishonest approach also was used by the President’s Fiscal Commission and last year’s crummy debt limit deal was based on this form of fiscal prevarication.

WSJ Baseline Con

Here are some key excerpts from a Wall Street Journal editorial exposing this scam.

…President Obama and John Boehner are playing by the dysfunctional Beltway rules. The rules work if you like bigger government, but Republicans need a new strategy, which starts by exposing the rigged game of “baseline budgeting.” …numbers have no real meaning because they are conjured in the wilderness of mirrors that is the federal budget process. Since 1974, Capitol Hill’s “baseline” has automatically increased spending every year according to Congressional Budget Office projections, which means before anyone has submitted a budget or cast a single vote. Tax and spending changes are then measured off that inflated baseline, not in absolute terms. …Democrats designed this system to make it easier to defend annual spending increases and to portray any reduction in the baseline as a spending “cut.” Chris Wallace called Timothy Geithner on this “gimmick” on “Fox News Sunday” this week, only to have the Treasury Secretary insist it’s real. …in the current debate the GOP is putting itself at a major disadvantage by negotiating off the phony baseline. …If Republicans really want to slow the growth in spending, they need to stop playing by Beltway rules and start explaining to America why Mr. Obama keeps saying he’s cutting spending even as spending and deficits keep going up and up and up.

You probably won’t be surprised to learn that other nations rely on this crooked system, most notably the United Kingdom, which supposedly is imposing “savage” cuts even though government spending keeps rising (and they fooled Paul Krugman, though he seems to make a habit of misreading foreign fiscal and economic data).

But let’s return to the American fiscal situation. Republicans almost certainly will lose the battle over the fiscal cliff because they meekly are playing cards with a rigged deck controlled by the other side.

They should expose this scam by using nominal numbers and looking at year-over-year changes in both taxes and spending. I did that last year and showed how simple it is to balance the budget in a short period of time.

They key thing to understand is that (barring a recession) tax revenues rise every year. Indeed, the Congressional Budget Office projects that tax revenue will climb by an average of more than 6 percent annually over the next 10 years – even if the 2001 and 2003 tax cuts are made permanent.

So all that’s really needed to bring red ink under control is a modest bit of spending restraint. This video is from 2010, but the analysis is still completely relevant today.

It’s amazing how good things happen when you follow the Golden Rule of fiscal policy.

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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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I’m very concerned about both the fiscal cliff and its possible replacements. It will be bad news if we get an automatic tax hike on January 1, and it will be bad news if that tax increase is replaced by an even more odious plan concocted by the White House.

Fiscal Cliff Cartoon RamirezBut the cliff is not our biggest fiscal problem.

Here’s some of what I wrote for today’s New York Post about the fiscal cliff, along with a warning that we have a much bigger problem down the road.

…it’s a fight that has important implications, particularly since some of the tax increases will have a significantly harmful impact on incentives to work, save, invest and create jobs. In a competitive global economy, for instance, it is bizarrely self-destructive to increase the double taxation of dividends and capital gains. …This is all bad news, but it is not a crisis. If we go over the cliff, it simply means the economy will grow a bit slower and politicians will spend a bit more money. And the sequester actually would be (modest) good news, since it means the burden of government spending would be “only” $2 trillion higher 10 years from now, rather than $2.1 trillion higher. And even if Obama prevails in the fight, that simply means that we get a different mix of tax hikes and spending rises at a faster rate. Sure, that’s bad for the economy, but it’s not the end of the world. The real crisis is the ticking time bomb of entitlement programs and the welfare state. This bomb won’t explode this year or next year. It may not even explode for another 20 years. But at some point America will experience a Greek-style fiscal collapse if these programs are not reformed.

Just how bad is this future problem? Gee, I’m glad you ask.

A lot of people get upset about the national debt, which is somewhere between $11 trillion and $16 trillion, depending on whether you include money the government owes itself. Those are big numbers — but if you add up the amount of money that the government is promising to spend for entitlement programs in the future and compare that figure to the amount of revenue that the government projects it will collect for those programs, the cumulative shortfall is more than $100 trillion. And that’s after adjusting for inflation. Some politicians claim this huge, baked-into-the-cake expansion of government isn’t a problem, because we can raise taxes. But that’s exactly what Europe’s welfare states tried — and it didn’t work. Simply stated, even huge tax hikes won’t stem the flow of red ink in the long run if government keeps growing faster than the private economy. This is the fiscal problem that demands attention. Absent real entitlement reform, such as block-granting Medicaid to the states, the burden of government spending will consume ever-larger shares of our economic output with each passing year.

In other words, the solution is to follow Mitchell’s Golden Rule. That’s the only way to make sure that the burden of government spending shrinks relative to economic output.

Fortunately, that simply requires some modest spending restraint to address the short run problem and some intelligently designed entitlement reform to solve the long run challenge.

P.S. If my only choice is surrendering to Obama or going over the fiscal cliff, I’ll take the plunge without a second’s hesitation. At least we get the sequester if we go off the cliff, so there’s a tiny bit of spending restraint. Moreover, if the GOP capitulates to Obama on this fight, it will set the stage for additional bad policy over the next two years (much as the acquiescence to Obama during the March 2011 “government shutdown” fight was a sign of things to come for the last years, but at least we resuscitated two good cartoons and got some good jokes out of that debacle).

P.P.S. In addition to the Ramirez cartoon above, you can enjoy this bunch of amusing fiscal cliff cartoons. Or I should say they’re amusing so long as you don’t think about the implications.

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Earlier this year, I explained that tax revenues would soon climb above their long-run average of 18 percent of GDP, even if the 2001 and 2003 tax cuts were made permanent. In other words, the nation’s fiscal challenge is entirely the result of a rising burden of government spending.

Even though the data on tax revenue comes from the left-leaning Congressional Budget Office (yes, the same folks who seem to think you maximize growth with 100 percent tax rates), many folks on the left simply refuse to believe the numbers. In their minds, it is a religious tenet that red ink is the result of “tax cuts for the rich.”

So I wonder what they will think of this chart, produced by the White House, that shows tax revenues will…drum roll please…rise above 18 percent of GDP even if lawmakers decide to “extend current policy.”

White House Tax Admission

Apologies for the poor quality of the chart, by the way. It was sent out in an email by the White House and posted on the TaxProf Blog. It’s the best copy I can find.

But you don’t need 20-20 vision to see that tax revenues will get to about 18.5 percent of GDP 10 years from now if current tax policy is made permanent.

Here’s a chart I made. It’s not as fancy, but it shows tax revenue for the last 50 years of the 20th Century, plus the years leading up to Obama this century. The average is exactly 18.0 percent, with a slight upward trajectory according to the Excel auto-trendline feature.

Tax Revenue Average Is 18 Pct of GDP

The moral of the story is that the tax increase battle is not about deficits and debt. The President’s class-warfare tax policy is designed to enable bigger government.

In the short run, the tax increase will help lock in place the expansion of government that took place during the Bush-Obama years.

In the long run, though, the left will want even more taxes to enable the demography-drive expansion of the welfare state. Higher revenues, in other words, are a substitute for real entitlement reform.

What the left generally won’t admit, however, is that the rich are not a piñata, capable of disgorging limitless amounts of new money. There are big Laffer-Curve effects when tax rates climb too high, largely because upper-income taxpayers have considerable control over the timing, level, and composition of their income.

So the ultimate target will be the middle class, as more and more statists are admitting, and the most worrisome threat is the value-added tax.

P.S. You may have noticed that the White House used 20 percent of GDP as a benchmark in its chart, apparently because we should strive for the fiscal policy we had in Bill Clinton’s second term. I might be willing to take them up on that offer, so long as they’re also willing to accept Bill Clinton’s spending levels.

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Okay, I’ll admit the title of this post doesn’t really say anything. My toaster is smarter than most Republicans.

But let’s focus specifically on the budget and tax negotiations. As I explained the other day, we basically have a situation where the President wants to trick GOPers into jumping out of the “fiscal cliff” frying pan and into the Obama class-warfare fire.

The frying pan is not a good option since it means a return of Clinton-era tax rates (but unfortunately not a return to Clinton-era levels of spending and regulation), but at least there would also be “sequestration,” which is budget-wonk term for automatic reductions in the growth of government spending.

Obama’s class-warfare fire, by contrast, is nothing but bad news. The tax increases might not be as large in the short run, but they would be designed to impose maximum damage on the economy. And the sequester would disappear. Indeed, Obama’s actually demanding more Keynesian stimulus!

The President says (with a straight face, so he does have acting talent) that he also wants “spending cuts” as part of his “balanced approach.”

Gullible Republicans seem to think this is just peachy keen, but here is the work of some cartoonists with a more realistic assessment. We’ll start with my favorite, from Robert Ariail, if for no other reason than it builds upon a cartoon I created for this 2011 post.

Cartoon Fiscal Cliff 3

Here are two cartoons about that share the same theme, putting Obama in the role of Wimpy from the Popeye series. If that’s not a familiar cultural reference (i.e., if you’re not as old as me), watch this YouTube clip.

Cartoon Fiscal Cliff 2

Cartoon Fiscal Cliff 6

And here’s the cartoon version of a post I wrote back in 2011.

Cartoon Fiscal Cliff 4

Here’s one from the great Michael Ramirez, acknowledging the President’s willingness to meet his opponents halfway.

Cartoon Fiscal Cliff 5

Let’s now close with two really good additions to this collection. Here’s one mocking Republicans for their naiveté.

Cartoon fiscal cliff 1

Last but not least, here’s one showing that Obama prefers the European version of a “balanced approach” rather than the version I put together.

Cartoon Fiscal Cliff 7

By the way, here’s another original bit of Dan Mitchell humor – the very simple two-line Barack Obama flat tax.

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I’m almost too depressed to write anything today. The Georgia Bulldogs came within five yards on the final play of the game of winning college football’s national championship (the game against Notre Dame being a mere formality for the winner of the Southeastern Conference), but fell 32-28 to the Alabama Crimson Tide.

But if the Continental Army could survive a bitter winter at Valley Forge, then surely I can summon the intestinal fortitude to write a blog post while sitting in a warm hotel room (yes, perhaps I’m being a tad bit melodramatic).

So here comes the second edition of “Question of the Week.” Last weekend, I responded to a query about whether I hated Republicans.

The most interesting question this week comes from a German reader, who asks “Are there any issues where you have changed your mind since coming to Washington?”

I’m tempted to say no. I came to Washington guided by libertarian principles and I’m still motivated by a desire to increase human liberty.

But I’m not the same person I was 20 years ago. Here are three areas where my views have evolved (though I hate using that word since it usually is used to describe the views of certain Republicans who have been in town too long and have decided big government is fine and dandy).

1. I’m much more uncomfortable about the death penalty. As I explained in my post about the shooting of Congresswoman Giffords, I’ve become more distrustful about the integrity of prosecutors. I think some of these politically ambitious jackals would deliberately send an innocent man to his death if it advanced their political careers. That being said, I’m a big believer that cost-benefit analysis is appropriate for criminal justice, so the deterrent value of the death penalty presumably saves some lives. In any event, I’m torn on this issue, though it doesn’t stop me from mocking groups that claim America is a horrible country because we still have capital punishment. And I also confessed this fantasy involving the death penalty.

“The fiscal collapse will happen after I leave office, so why worry?”

2. I now think Washington is pervasively corrupt. When I first came to town, I figured there was a lot of sleaze and graft facilitated by big government. Nothing has changed about that assessment, but I now think that a bigger problem is moral and cultural corruption among the political elite. Washington is filled with people who know the system is a racket. They know that the country is on a very dangerous trajectory. Many of them even understand what needs to be done to fix the problems. But they often decide that their short-run personal and political interests are more important than the long-run interests of the nation. But it’s also important to realize that politicians almost always are a combination of good and evil. The same folks who routinely cast bad votes every so often can be persuaded to do the right thing for the right reason, as occurred when GOPers in the House voted for the Ryan budget and its desperately needed entitlement reforms.

3. I’ve learned to be more careful about being myopically fixated on fiscal policy. As I noted in this post about tax rates, there are many factors that determine a nation’s economic performance. That’s hardly a breathtaking revelation, but in the past I have sometimes neglected to incorporate that understanding in my analysis. I’ve written positively about Ireland’s corporate tax regime, for instance, but failed to include important caveats about other government policies that were a threat to prosperity. This is a disservice to readers, and it also makes it easier for critics to put forth arguments such as “you said Ireland’s low corporate tax rate was a key to growth and look what happened.” To be sure, most of those folks would make those accusation even if I produced comprehensive analysis of Ireland’s good and bad policies. But I now try to be more careful so I don’t have to engage in after-the-fact elaborations.

I’m sure there are probably other ways in which my attitudes have changed over the years, but these are the things that come to mind.

Now, if you’ll excuse me, I’m going to find a dark room and curl up in the fetal position.

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