Question of the Week: What’s the Right Point on the Laffer Curve?

Back in 2010, I wrote a post entitled “What’s the Ideal Point on the Laffer Curve?”

Except I didn’t answer my own question. I simply pointed out that revenue maximization was not the ideal outcome.

I explained that policy makers instead should seek to maximize prosperity, and that this implied a much lower tax rate.

But what is that tax rate, several people have inquired?

The simple answer is that the tax rate should be set to finance the legitimate functions of government.

But that leads to an obvious follow-up question. What are those legitimate functions?

According to my anarcho-capitalist friends, there’s no need for any public sector. Even national defense and courts can be shifted to the private sector.

In that case, the “right” tax rate obviously is zero.

But what if you’re a squishy, middle-of-the-road moderate like me, and you’re willing to go along with the limited central government envisioned by America’s Founding Fathers?

That system operated very well for about 150 years and the federal government consumed, on average, only about 3 percent of economic output. And even if you include state and local governments, overall government spending was still less than 10 percent of GDP.

Moreover, for much of that time, America prospered with no income tax.

But this doesn’t mean there was no tax burden. There were excise taxes and import taxes, so if the horizontal axis of the Laffer Curve measured “Taxes as a Share of GDP,” then you would be above zero.

Or you could envision a world where those taxes were eliminated and replaced by a flat tax or national sales tax with a very low rate. Perhaps about 5 percent.

So I’m going to pick that number as my answer, even though I know that 5 percent is nothing more than a gut instinct.

For more information about the growth-maximizing size of government, watch this video on the Rahn Curve.

There are two key things to understand about my discussion of the Rahn Curve.

First, I assume in the video that the private sector can’t provide core public goods, so the discussion beginning about 0:33 will irk the anarcho-capitalists. I realize I’m making a blunt assumption, but I try to keep my videos from getting too long and I didn’t want to distract people by getting into issues such as whether things like national defense can be privatized.

Second, you’ll notice around 3:20 of the video that I explain why I think the academic research overstates the growth-maximizing size of government. Practically speaking, this seems irrelevant since the burden of government spending in almost all nations is well above 20 percent-25 percent of GDP.

But I hold out hope that we’ll be able to reform entitlements and take other steps to reduce the size and scope of government. And if that means total government spending drops to 20 percent-25 percent of GDP, I don’t want that to be the stopping point.

At the very least, we should shrink the size of the state back to 10 percent of economic output.

And if we ever get that low, then we can have a fun discussion with the anarcho-capitalists on what else we can privatize.

P.S. If a nation obeys Mitchell’s Golden Rule for a long enough period of time, government spending as a share of GDP asymptotically will approach zero. So perhaps there comes a time where my rule can be relaxed and replaced with something akin to the Swiss debt brake, which allows for the possibility of government growing at the same rate as GDP.

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Being in Favor of Markets Is Not the Same of Being in Favor of Business

Folks, the pendulum is swinging in the right direction.

In recent weeks, I’ve shared a bunch of examples to support my hypothesis that libertarians, small-government conservatives, and classical liberals are finally making some progress.

This trend actually started with the fiscal cliff, though that was simply a smaller-than-expected defeat.

Since then, we’ve enjoyed victories on the sequester, the IMF, and dynamic scoring. I’ve also posted some evidence showing that the Tea Party has made a positive difference and specifically shared data showing that the burden of government fiscal policy has been reduced since the 2010 elections.

Well, here’s another feel-good story. A powerful Committee Chairman in the House of Representatives realizes that being pro-market is not the same as being pro-business. Hallelujah!

The Wall Street Journal reports:

During Jeb Hensarling’s first congressional bid, a man at a campaign stop in Athens, Texas, asked the Republican if he was “pro-business.” “No,” the candidate replied, drawing curious stares from local business leaders who had gathered to hear him speak, a former Hensarling aide recalled. “I’m not pro-business. I’m pro-free enterprise.” Now, more than a decade later, that distinction has Wall Street on edge. The new chairman of the House financial services committee wants to limit taxpayers’ exposure to banking, insurance and mortgage lending by unwinding government control of institutions and programs the private sector depends on, from mortgage giants Fannie Mae and Freddie Mac to flood insurance. Banks and other large financial institutions are particularly concerned because Mr. Hensarling plans to push legislation that could require them to hold significantly more capital and establish new barriers between their federally insured deposits and other activities, including trading and investment banking. …In interviews, a half-dozen industry representatives expressed some level of anxiety about Mr. Hensarling’s legislative agenda.

So, the cronyists are “on edge” and feeling “anxiety.” Gee, just breaks my heart.

And it’s not just Rep. Hensarling that is singing from the right song sheet.

Earlier this month, all 45 Senate Republicans voted for a symbolic measure aimed at banks with more than $500 billion in assets. The amendment, offered by Sens. David Vitter (R., La.) and Sherrod Brown (D., Ohio), sought to eliminate any subsidies or other advantages enjoyed by the biggest financial institutions because investors expect the government to prevent them from collapsing. …Most congressional Republicans believe the changes enacted in the wake of the 2008 financial crisis—principally in the Dodd-Frank financial reform bill—enshrined the notion that the biggest institutions are “too big to fail” because they guaranteed the government would step in to prevent the most sprawling firms from going under.

To be sure, many of these same politicians voted for TARP, so I’m not under any illusions that they’ve become committed supporters of genuine capitalism.

Putting taxpayers before Wall Street

Though Hensarling did vote the right way, so I’m confident that he understands that insolvent banks should be liquidated rather than bailed out.

Too bad folks in the Bush Administration didn’t understand this simple principle of free markets.

Here are some more details from the article about Hensarling’s commitment to economic liberty.

Mr. Hensarling has been a vocal critic of taxpayer backstops for the private sector. He voted against the Wall Street rescue package in the fall of 2008 and supported measures to ease the importation of prescription drugs. He even picked a fight with one of the largest employers in his backyard—American Airlines—by supporting initiatives to allow more long-distance flights out of Dallas’s Love Field, the home base for rival Southwest Airlines. Now, his other potential targets include: the Export-Import Bank of the U.S., which makes loans to American companies that do business overseas, and the Terrorism Risk Insurance Act, a temporary backstop created in the aftermath of 9/11 to insure construction projects. The latter measure expires at the end of 2014, unless Mr. Hensarling’s committee acts to extend it. “In every jurisdictional area that I can get my fingers on, I want to move us away from the Washington insider economy,” he said. Mr. Hensarling sharpened his free-market views when he studied economics under former Sen. Phil Gramm at Texas A&M University.

I’m especially happy to see that he wants to end the corrupt system of subsidies from the Export-Import Bank, which is a typical example of big businesses being anti-free market.

So what does all this mean? Perhaps not much in the short run, particularly with Obama in the White House and Tim Johnson of South Dakota chairing the Senate Banking Committee.

In the long run, though, this is a positive sign. Our prosperity and liberty depend on small government and free markets, so we need at least a few lawmakers who understand that there shouldn’t be any special favors for big interest groups.

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This Wins the “Booby Prize” for Great Moments in Government-Run Healthcare

I’ve posted some horrifying examples about what happens when you put politicians and bureaucrats in charge of health care.

The story that makes every guy wince comes from Sweden, where a man wound up having his penis amputated because of government incompetence.

And I’ve shared numerous examples of substandard care from the United Kingdom, in part because I can’t resist mocking Paul Krugman.

Speaking of the U.K., here’s a story that may lure some young men into supporting government-run healthcare.

Did taxpayers get good value for their money?

…22-year-old Josie Cunningham recently was approved for breast enhancement surgery that cost more than $7,000, and paid for entirely by taxpayers, reports Opposing Views. Why? Because she told her General Practitioner that being flat-chested was causing her emotional distress. “My GP referred me for the operation because I wasn’t just flat-chested — I didn’t have any boobs whatsoever,” Cunningham said. “I could never go on holiday as I lived in terror of ever being seen in a bikini and could never set foot outside without a padded bra.” Her doctor’s prescription to counter the “emotional distress” was to enhance her breast size from a 32A to 36DD.

I’ve never heard of the website that contains this story, and I’ve never heard of Opposing Views, where it supposedly originated, so I confess to being a bit skeptical of this story.

Then again, who would have guessed that the government in the United Kingdom would provide taxpayer-financed sex trips to Amsterdam? Or that the bureaucrats at the European Commission would be able to get penile implants at public expense?

Closer to home, let’s not forget that Obamacare allows taxpayer-subsidized viagra for sex offenders! And Medicare pays for penis pumps, which creates frightening visual images.

So even if this specific story isn’t true, I have no doubt that the British government has squandered money in similar ways.

P.S. Speaking of breast augmentation, one of the few well-functioning parts of the American healthcare system is cosmetic surgery. Why? Because consumers largely pay out of pocket and, as a result, costs are restrained.

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Obamacare May Be a Joke, but We’re Paying a Heavy Price for some Amusing Cartoons

I’m not sure why political cartoonists have been revisiting the issue of Obamacare in recent days, but I’ve been enjoying their humor.

I shared three funny cartoons a couple of days ago, adding to my collection of Obamacare humor (see here, here, here, here, here, here, here, and here).

Now let’s enjoy three more, beginning with this gem from Lisa Benson.

Though we shouldn’t laugh at this cartoon. As we saw with both Medicaid and Medicare, entitlement programs routinely cost far more than original projections.

If you somehow think Obamacare might be different, watch this video.

Gary Varvel hits a different part of Obamacare, noting that the President’s promise of lower premiums is an utter fantasy.

And Michael Ramirez looks at the big picture.

I want to close with an optimistic point about the prospect of changing this terrible law.

Thanks to government programs and other forms of regulation and intervention, we had a bad healthcare system before Obamacare.

And even though it was government that was causing the system to malfunction, many people blamed the free market. And the President took advantage of that misunderstanding to push he legislation.

So now we have Obamacare, which has made the system a bit more statist.

But most people think Obamacare was much bigger than it actually was, with some actually thinking we used to have a free market!

Anyway, this flawed perception works to our advantage since it will now be possible to blame any bad news in the healthcare world on  Obamacare.

As such, I expect that Obamacare will remain unpopular.

The real question will be whether reformers will rally behind proposals to not just repeal Obamacare, but to actually restore a free market.

If you want to understand what needs to happen, I encourage you to watch two short videos, one from Reason TV and the other from the Center for Freedom and Prosperity.

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Another Victory for Good Fiscal Policy

Because I’ve been sharing good news recently – which definitely is not my normal style, I joked the other day I must be on coke, in love, or rolling in money. For example:

• The fiscal cliff was a smaller loss than I expected.
• The sequester was a real victory.
• We have good evidence that the Tea Party has made a positive difference.
• The Democratic-controlled Senate rejected a permanent expansion of funds for the IMF.
• The burden of government fiscal policy has been reduced since the 2010 elections.

Well, the drugs, love, and money must still be in my system because I’m going to share some more good news. Our lords and masters in Washington have taken a small step in the direction of recognizing the Laffer Curve.

Here are some details from a Politico report.

Here’s one Republican victory that went virtually unnoticed in the slew of budget votes last week: The Senate told the Congressional Budget Office it should give more credit to the economic power of tax cuts. It won’t have the force of law, but it was a big symbolic win for conservatives — because it gave them badly needed moral support in an ongoing war to get Washington’s establishment number crunchers to take their economic ideas more seriously. The amendment endorsed a model called “dynamic scoring,” which assumes that tax cuts will pay for at least part of their cost by generating more economic activity. The measure by Sen. Rob Portman (R-Ohio) called on CBO and the Joint Committee on Taxation to include “macroeconomic feedback scoring” in all future estimates of tax legislation. …Portman eked out a narrow 51-48 victory in the final series of budget votes that started around 3 a.m. on Saturday.

Just in case you missed it, this modest victory for common sense took place in the Senate. You know, the place controlled by Harry Reid of Cowboy Poetry fame.

To be sure, it’s not quite time to pop open the champagne.

The vote was a symbolic victory for the think tanks and lawmakers on the right who have been fighting for years to force CBO and JCT to officially endorse the idea that people spend more and invest more when they owe the government less. …Conservatives’ ideas, including revenue-generating tax cuts and a more market-oriented health care system, can only work if tax policy changes people’s behavior — and that’s just not how CBO views the world.

I’ve been very critical of both CBO and JCT, so I’m one of the people in “think tanks” the article is talking about.

P.S. Chuck Asay has a good cartoon mocking the CBO.

P.P.S. I’ll repeat, for the umpteenth time, that we want to recognize the insights of the Laffer Curve in order to facilitate lower tax rates, not because we want to maximize revenue for the government.

P.P.P.S. Dynamic scoring is a double-edged sword. If the statists control everything, they’ll use the process to justify more spending using discredited Keynesian economics.

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Some Much-Needed Humor about the Bunny and the Politician

Time for some well-intentioned humor targeting our political masters.

These are the men and women who spend their time screwing us and wasting our money.

We already have some examples of what people in Montana, Louisiana, Nevada, and Wyoming think about big-spending politicians.

This little girl is more blunt.

And  here are a couple of good images capturing the relationship between politicians and taxpayers, and here is a somewhat off-color Little Johnny joke.

And let’s not forgot to include this joke by doctors about the crowd in Washington.

So with all that as warm-up material, here’s the latest political joke to reach my inbox.

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One morning a blind bunny was hopping down the bunny trail and tripped over a large snake and fell, ‘kerplop’, right on his twitchy little nose.

‘Oh please excuse me,’ said the bunny. ‘I didn’t mean to trip over you, but I’m blind and can’t see.’

‘That’s perfectly all right,’ replied the snake. ‘To be sure, it was my fault. I didn’t mean to trip you, but I’m blind too, and I didn’t see you coming. By the way, what kind of animal are you?’

‘Well, I really don’t know,’ said the bunny. ‘I’m blind, and I’ve never seen myself. Maybe you could examine me and find out.’

So the snake felt the bunny all over, and he said, ‘Well, you’re soft, and cuddly, and you have long silky ears, and a little fluffy tail and a dear twitchy little nose. You must be a bunny rabbit!’

The bunny said, ‘I can’t thank you enough. But by the way, what kind of animal are you?’

The snake replied that he didn’t know either, and the bunny agreed to examine him, and when the bunny was finished, the snake asked, ‘Well, what kind of an animal am I?’

The bunny had felt the snake all over, and he replied, ‘You’re cold, you’re slippery, and you haven’t got any balls…  You must be a POLITICIAN’.

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By the way, while I appreciate the spirit of this joke, I must protest on behalf of reptiles everywhere.

Adam and Harriet

My kids have had snakes for a dozen-plus years and they actually make very good, low-maintenance pets.

Here is my youngest, back in 2001, with his cuddly pet named Harriet. Sadly, Harriet went to the great snake cage in the sky a couple of years ago, but she was always a hit with the neighbors.

P.S. You can read some good Dave Barry satire about politicians here and here.

P.P.S. Here’s another good joke, but remember that we should be thankful that we don’t get all the government we pay for.

P.P.P.S. And if you want humor specifically targeting Obama, you’ll enjoy this Pope message, this Pennsylvania joke, this Reagan-Obama comparison, this Bush-Obama comparison, this sign, this video satire, and this bumper sticker.

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Ranking the States for Economic and Personal Freedom

Sometimes I myopically focus on fiscal policy, implying that the key to prosperity is small government.

But I’ll freely admit that growth is maximized when you have small government AND free markets.

That being said, our goal should be to expand freedom, not merely to have the largest possible GDP.

Which is why the Freedom Index is a good complement to Economic Freedom of the World.

It shows, for instance, that Singapore may be ranked #2 for economic freedom, but it is only #39 when you look at all freedoms.

We also have a comprehensive ranking of economic and personal freedom for the 50 states.

Here are the full rankings from the newly released Freedom in the 50 States from the Mercatus Center, showing North Dakota as the state with the most freedom, with South Dakota (#2), Tennessee (#3), New Hampshire (#4), and Oklahoma (#5) also deserving praise for high scores.

What makes Freedom in the 50 States so interesting is that you can mix and match variables based on your own preferences.

I checked the “fiscal” and “tax burden” categories, and South Dakota (no state income tax!) jumped to #1 for both of those measures.

You won’t be surprised to learn that New York is the worst state, not only overall, but also for various fiscal policy measures.

Who would have guessed, by the way, that there’s a “bachelor party” category based on laws governing alcohol, marijuana, prostitution, and fireworks. Interesting, Massachusetts is ranked #1, though I suspect most guys will still opt for #3-ranked Nevada.

P.S. I must be learning. I grew up in New York, which is #50 in the rankings of freedom in the states, and then in Connecticut, which ranks only #40. But I went to college in Georgia, which is #9 in the rankings, and I now live in the Virginia, which is #8. But I somehow doubt that I’ll ever wind up in North Dakota.

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Does Your Family Have an Extra $5,500 to Pay the Higher Energy Taxes Proposed by the Bureaucrats at the IMF (Who Get Tax-Free Salaries)?

If asked to name my least-favorite international bureaucracy, the easy answer would be the Organization for Economic Cooperation and Development.

After all, it was only a few days ago that I outlined different ways that the Paris-based bureaucracy is seeking to expand statism and reduce freedom around the world.

Our tax money at the OECD, UN, and IMF

I’m particularly nauseated by the OECD’s support for value-added taxes and their ridiculous assertion that poverty is higher in America than Greece or Turkey.

But we can’t forget the United Nations, which pushes a plethora of bad policies, including a push for regulatory control over the Internet, support for global taxation, supranational gun control schemes, attacks on sovereignty of American states, and support for a “right” to taxpayer-financed birth control (though at least they had the good sense to invite me to speak at last year’s “High Level Thematic Debate on the State of the World Economy”).

For today, though, my least favorite bureaucracy is the International Monetary Fund. I recently listed many of the ways that this gold-plated institution of over-paid and un-taxed paper pushers supports bigger government, but this story from today’s Washington Post is the icing on the cake of statism.

The report on a new IMF study started on a very positive note.

Government subsidies of gasoline, electricity and other energy sources amount to about $1.9 trillion a year and should be ended.

I’m against subsidies, so what’s not to like about a proposal to end handouts?

Well, it turns out that the IMF has a very strange way of defining subsidies. For logical people, a subsidy occurs when the government takes money from Person A and gives it to Person B.

In the la-la land of the IMF, however, a “subsidy” occurs if the government doesn’t tax as much from Person A as the bureaucrats would like. I’m not joking.

In the developed world, the IMF says the subsidies are even larger but less overt, reflecting that government tax policies do not capture the costs of pollution and other externalities. Using economic models and other studies performed as part of the larger global warming debate, the IMF puts those indirect subsidies at $1.4 trillion — $25 for each ton of carbon dioxide produced — and suggests they be offset through an “efficient” tax that makes energy users pay the full cost of the product.

To be fair, private behavior can impose costs on other people (“externalities”), so there’s nothing automatically wrong with looking at these indirect costs.

The problem is that the IMF used discredited global warming ideology to concoct an absurd $1.4 trillion estimate of “subsidies.”

And guess what that means?

For the United States, the IMF estimated that would require a $1.40 levy per gallon of gas and other fees totaling more than $1,400 per person each year — around $500 billion in total.

Wow, that’s more than $5,500 for a family of four.

Remember that these bureaucrats get extremely generous tax-free salaries, yet they apparently don’t see any hypocrisy in recommending huge tax increases for the peasantry.

“It is time for subsidies to end and carbon taxation to be put in place,” IMF First Deputy Managing Director David Lipton said in an interview Tuesday.

Amazing. I’m sure this leech is driven around in a private limousine, flies around the world in first class, and enjoys the services of the private chefs in the IMF’s elite dining room – all at our expense. Yet he wants the rest of us to pay higher tax.

P.S. You’ll be happy to know that the IMF study deliberately “did not look at government support for the alternative energy industry.” So Obama’s corrupt “green energy” programs got a free pass. Gee, how convenient.

P.P.S. I realize that I forgot the mention the World Bank, the folks who put together a fiscal report card giving nations higher grades if they imposed harsher tax burdens.

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An Obamacare Chart to Make You Cry…Balanced by Obamacare Cartoons to Make You Laugh

I’ve shared a nightmarish flowchart to show the Byzantine complexity of America’s healthcare system under Obamacare. Sort of makes you wonder whether the healthcare system will now be more complicated than the internal revenue code.

But some people may be skeptical because this flowchart was prepared by Republicans from the Joint Economic Committee.

Well, here’s a flowchart from the pro-Obamacare Washington Post, and it shows how just one small piece of the law will require complicated gymnastics.

It’s hard to feel anything but misery about this situation. The Obamacare taxes largely took effect earlier this year and a big chunk of the Obamacare spending starts next year.

So let’s with a great cartoon from Henry Payne showing the Secretary of Health and Human Service force-feeding Obamacare to states.

I would have replaced “states” with “patients,” but you get the point. We’re being saddled with a one-size-fits-all monstrosity that will cripple what little is left of a functioning marketplace for health care and health insurance.

Next we have a Lisa Benson cartoon, showing the very unhealthy meal we’re expected to digest. Where’s Mayor Bloomberg when we actually need him?!?

Both Benson and Payne were part of the political cartoonist contest, so you can see their best work by clicking here.

Last but not least, here’s Steven Breen’s take on the third birthday of Obamacare. As you can see, there’s not a lot to celebrate.

Indeed, this is a good opportunity to share my video explaining why Obamacare will be a budget buster.

P.S. Lawmakers did repeal one of Obamacare’s tax provisions, a 1099 reporting rule that would have buried everyone under a blizzard of paperwork (here’s the cartoon version of that issue). And the Democratic-controlled Senate recently voted 79-20 to repeal the medical devices tax. So there are small reasons for optimism. And I think the bulk of Obamacare spending could be repealed as part of a Medicaid block grant if and when Washington is controlled by lawmakers who are serious about addressing the entitlement crisis.

P.P.S. If you want to enjoy some more Obamacare humor, click here, here, here, here, here, here, here, and here.

P.P.P.S. If you want to know how to restore a functioning market-based healthcare system, this video from Reason TV is must watching.

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Revenge of the Laffer Curve…Again and Again and Again

If I live to be 100 years old, I suspect I’ll still be futilely trying to educate politicians that there’s not a simplistic linear relationship between tax rates and tax revenue.

You can’t double tax rates, for instance, and expect to double tax revenue. Simply stated, there’s another variable – called taxable income – that needs to be added to the equation. This simple insight is what gives us the Laffer Curve.

This is common sense in the business community. No restaurant owner would ever be foolish enough to think that revenues will double if all prices increase by 100 percent. People in the real world know that this would mean lower sales.

At best, revenues will rise by much less than 100 percent in that scenario. And if sales drop by enough, revenues may actually fall.

Perhaps because so few of them have business experience, it seems that politicians have a hard time grasping this simple concept.

The latest examples come from Europe, where the never-ending greed for more revenue has resulted in the imposition of financial transaction taxes.

So how’s that working out? Are politicians collecting the revenue they expected?

Hardly. Here are some of the details from a City A.M. column.

…taxes on financial transactions across Europe have devastated market activity and failed to raise as much as politicians hoped, according to new figures out yesterday.

The article cites three powerful examples, starting with Hungary.

Hungary implemented a 0.1 per cent tax at the start of the year. But it raised less than half the revenue the state had hoped for, bringing in 13bn Hungarian Forints (£36m) in January.

Wow, less than 50 percent of the revenue that politicians were expecting. But the politicians probably don’t care about the collateral damage they’re imposing on the economy because they’ll get to buy votes with another 13 billion Forints (about $55 million).

Now let’s see how the French are doing.

France forged ahead on its own, introducing a 0.2 per cent tax on sales of shares of major firms. But that only raised €200m (£169.4m) from August to November, well below to €530m expected.

Gee, what a shame, the politicians in Paris are only getting about one-third as much money as they were expecting. That’s even worse than Hungary.

But they’ll surely squander that bit of cash as fast as possible.

Our last example comes from Italy. There are no revenue numbers yet, but the decline in financial activity suggests this tax also will be a flop.

And Italy launched its FTT this month. Figures from TMF Group suggest it has cut trading volumes by 38 per cent already

Though politicians may decide it’s a success since they may get more than 50 percent of what they were originally estimating.

That kind of forecasting error would get somebody fired at any private business, but being a politician means never having to say you’re sorry.

And it certainly never means learning from mistakes. The evidence on the Laffer Curve is ubiquitous, with powerful examples in Ireland, the United Kingdom, Italy, France, Spain, as well as Bulgaria and Romania. Or states such as Illinois, Oregon, Florida, Maryland, Washington, DC, and New York.

P.S. Even President Obama has sort of acknowledged the supply-side principles that are the basis of the Laffer Curve.

P.P.S. Remember that the goal of good tax policy is NOT to maximize revenue.

P.P.P.S. I warned the European Union’s Taxation Commissioner about the dangers of a tax on financial transactions last year. Needless to say, my sage counsel appears to have been ignored.

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Despicable Police State Policies from Andrew Cuomo in New York

Why do words like “snitch” and “narc” have distasteful connotations?

And why don’t we hold “tattle tales” and “stool pigeons” in high regard?

Is it because we think people should be able to do bad things and get away with it? Do we like misbehavior to go unpunished?

I think the answer to these last two questions is an emphatic NO. Close to 100 percent of people would want the authorities to know if any of us overheard a terrorist plot. Or somehow found out about a murder. Or knew about some dirtbag who had raped someone.

Yet we still don’t like “narcs” and “stool pigeons,” probably because we know that some rules are bad, misguided, or foolish. For all intents and purposes, most Americans have libertarian sensibilities about victimless crimes.

So while we approve of “tattle tales” if it means we catch genuine criminals who violate the rights of others, we look down on the “snitch” who rats out the guy smoking a joint, the jerk who informs the IRS on a small business owner hiding income, and the weasel who tells the local planning gestapo that someone is remodeling their basement without government approval.

I’ve previously shared nauseating stories about Soviet-style tax informant programs in both Chicago and the United Kingdom (where they’re actually encouraging kids to turn in their parents!).

The state of New York is engaging in the same reprehensible tactics, only this time the target is guns rather than money.

Here are some of the nauseating details from a story in the Daily Caller.

For more than a year, New York state has maintained a tip line allowing people to report illegal gun owners and collect a $500 reward. …A February 2012 press release from Gov. Andrew M. Cuomo’s office first publicly announced the tip line, saying it was designed to “encourage citizens to report illegal firearm possession.” …On the Facebook page for The Record’s story, several users criticized the tip line for apparently encouraging New Yorkers to spy on each other.

Of course, sometimes the government actually requires us to spy on each other, as is the case with money laundering laws that criminalize innocent behaviors in a costly, intrusive, and ineffective effort to reduce crime.

Not surprisingly, the government is defending this campaign to turn people into stool pigeons for illegitimate reasons.

…a spokesperson for the New York State Division of Criminal Justice Services defended the program. “This program has been in place for more than a year and is aimed only at getting illegal crime guns off the streets: a goal that every New Yorker can agree with,” wrote Janine Kava, director of public information at NYS DCJS.

What the government should be doing, needless to say, it getting people who do bad things off the street. And that means investigating, arresting, prosecuting, and punishing those who abridge the rights of other people.

It does not mean arbitrarily criminalizing inanimate objects such as guns.

And as this young lady says, the government should only get the guns of law-abiding people under very particular circumstances.

P.S. Andrew Cuomo also happens to be a former Secretary of Housing and Urban Development, where he infamously was in charge of imposing so-called affordable lending requirements that helped start the bad Fannie Mae/Freddie Mac policies that eventually led to the housing bubble and financial crisis.

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California’s Golden Bureaucrat Snags $400K of Yearly Compensation – for the Rest of Her Life!

A regular feature of this blog used to be a “taxpayers vs bureaucrats” series, which featured outrageous examples of government employees getting wildly overcompensated.

I even narrated a video on the topic of excessive pay and benefits for bureaucrats.

But I stopped the series because it was too depressing. How often can read stories like this, after all, and not feel glum about America’s future?

• The chief bureaucrat of a low-income California city getting almost $800,000 per year.
• Cops in Oakland getting average compensation of $188,000.
• A school superintendent in New York raking in more than $500 thousand of annual compensation.
• A California government official raking in $822,000 of taxpayer-financed loot in just one.
• A Philadelphia bureaucrat, after working only 2-1/2 years, nailing down a guaranteed pension of $50,000 per year.
• A New York school bureaucrat simultaneously getting a $225,000 salary and $300,000 pension.
• California taxpayers being forced to pay a fired bureaucrat $550,000 for unused vacation time.
• An employee of the New Jersey Turnpike system raking in annual compensation of $320,000.

But I must lack willpower because I can’t resist writing about the latest scandal involving bureaucratic bloat.

Check out some of the ridiculous details about the woman who has earned the title of California’s Golden Bureaucrat.

Alameda County supervisors have really taken to heart the adage that government should run like a business — rewarding County Administrator Susan Muranishi with the Wall Street-like wage of $423,664 a year. For the rest of her life. …Muranishi’s annual pension will be equal to the dollar total of her entire yearly package — $413,000. She also has a separate executive private pension plan, for which the county chips in $46,500 a year.

Yes, you read correctly. She’ll be ripping off taxpayers “for the rest of her life.”

But if you want to get even more upset, check out how she’s bilking the people.

…in addition to her $301,000 base salary, Muranishi receives:

• $24,000, plus change, in “equity pay’’ to guarantee that she makes at least 10 percent more than anyone else in the county.
• About $54,000 a year in “longevity” pay for having stayed with the county for more than 30 years.
• An annual performance bonus of $24,000.
• And another $9,000 a year for serving on the county’s three-member Surplus Property Authority, an ad hoc committee of the Board of Supervisors that oversees the sale of excess land.

Like other county executives, Muranishi also gets an $8,292-a-year car allowance.

I’m relieved she’s getting a car allowance. The poor thing otherwise would have to rely on public transit. And isn’t it nice that she automatically gets a “performance bonus”? Sort of defeats the purpose, though, if it’s automatic. But what do I know, I’m just a taxpayer.

Even though I obviously lack the special insight needed to justify bloated compensation packages for California bureaucrats, I have enough common sense to know that the over-burdened taxpayers of California are being stretched beyond the breaking point – especially now that the looters and moochers have imposed a new 13.3 percent top tax rate on the state’s dwindling supply of high earners.

It’s no surprise that lots of high-paying jobs are relocating to states like Texas with better tax policy. Nor is it a surprise when pro golfers like Phil Mickelson warn they may leave the state. But when even a certified leftist like Bill Maher says he’s thinking about escaping, you know the situation is serious.

So for the umpteenth time, I will predict that the combination of bloated government and punitive taxation will lead to fiscal crisis in California.

Too much government spending and the Laffer Curve are not a good combination.

When you lure too many people into riding in the wagon and penalize those pulling the wagon, bad things happen. Doesn’t matter whether you’re looking at France or California.

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Good News: We’re Heading in the Wrong Direction at a Slower Pace

In recent months, people have asked me why I’m acting all giddy and optimistic. Am I hooked on cocaine? Have I fallen in love? Did I inherit several million dollars?

These questions started after I said the fiscal cliff was a smaller loss than I expected. Then people wondered what was going on when I wrote that we should celebrate the sequester victory. The questions got more intense when I opined that the Tea Party had made a positive difference. And people were even more nonplussed when I wrote that we should enjoy a win over the IMF.

But I’m not the only person thinking that things may be heading in the right direction.

Conn Carroll explains his optimism in the Washington Examiner. He starts by noting how bad Congress was back in 2009 and 2010.

…its liberal predecessor passed a trillion-dollar stimulus, enacted a government takeover of health care and institutionalized the power of Wall Street’s Too Big To Fail banks by passing the Dodd-Frank financial regulation law.

Then he explains that the new Tea Party Congress has changed the fiscal outlook.

…if you look at the hard numbers — if you look at the tax-and-spending trajectory that the United States was on before the 112th Congress was sworn into office, and then look at the path the U.S. is on now — you’d see that Republicans in Congress have made tremendous progress in shrinking the size and scope of the federal government.

But is there any proof?

Conn points out that the CBO “baselines” from early 2011 showed government growing very rapidly.

…the nonpartisan Congressional Budget Office released its annual Budget and Economic Outlook for fiscal years 2011 through 2021. That document showed the federal government was on track to spend…a total of almost $50 trillion ($49.8 trillion to be exact) through 2021. At the same time, tax revenues were set to rise from just 14.8 percent of GDP in 2011 to 20.8 percent in 2021.

The same estimates from early this year, by contrast, show government growing at a slower pace.

The CBO’s Budget and Economic Outlook for fiscal years 2013 through 2023 shows just how much House Republicans have actually accomplished. The federal government is now on track to spend just $46.2 trillion through 2021. That is a $3.6 trillion spending cut. And instead of taxes eating up 21 percent of the U.S. economy in 2021, now the government is set to take in just 18.9 percent.

Here are the respective baselines from those CBO publications. Let’s start by looking at how spending is projected to grow at a slower pace for the rest of the decade.

That’s $3.5 trillion of savings. Not genuine spending cuts, of course, but it’s real progress if government doesn’t grow as fast.

Here are the revenue numbers.

This data basically shows that the tax burden will be much smaller than projected because about 98 percent of the Bush tax cuts were made permanent as part of the fiscal cliff deal.

And if you believe in the Starve-the-Beast theory (and you should), this will make it harder for politicians to increase the burden of government spending in the future.

Conn also notes that the unemployment rate has fallen.

Despite all of this supposedly economy-killing “austerity,” unemployment has steadily fallen, too. When Republicans took control of the House in 2011, the nation’s unemployment rate was 9 percent. Today, it has fallen to 7.7 percent.

If this seems like a familiar point, it’s because I share his assessment. I wrote back in February of last year that gridlock was a positive thing for the economy since it reduced the likelihood of new bad policies.

What’s remarkable about these developments, as Conn notes, is that folks were expecting Obama to have momentum as his second term began.

Just three months ago, many in Washington were predicting Obama would steamroll Republicans into accepting higher taxes for millions of earners, undoing the sequester and maybe even passing new stimulus spending. Instead, Republicans have stayed unified, outfoxed Obama, preserved and made permanent most of last decade’s tax cuts (including permanent indexing of the Alternative Minimum Tax) and let the sequester cuts occur on schedule. As a result, Obama’s approval ratings have tumbled, and his entire second-term agenda is in jeopardy.

The final sentence in that excerpt explains why I’m feeling semi-optimistic. Obama’s agenda of more taxes and more spending is being thwarted.

To be sure, that doesn’t mean we’re seeing good policies of tax reform and fiscal restraint. And we still face a very dour fiscal future unless entitlements are reformed.

But we’re going in the wrong direction at a slower pace, and that beats the alternative.

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Great Moments in Government Waste

Taxpayers all across America send lots of money to Washington, DC, in part because we’re supposed to believe that redistribution is a legitimate and desirable function of the federal government.

But this is a very perverse form of redistribution. All that money going to Washington helps subsidize a network of overpaid bureaucrats, fat-cat lobbyists, corrupt politicians, and well-heeled interest groups.

Indeed, as shown in this map, 10 of the 15 richest counties in the country are in the Washington metropolitan area.

One of those wealthy areas is Arlington County, VA, just across the river from Washington. Home to thousands of federal bureaucrats and other DC insiders, Arlington is similar to Washington in that there is a lot of wasteful spending. Sort of makes you wonder if local bureaucrats and federal bureaucrats ever meet at bars after work and brag about who wasted the most money that day?

Anyhow, here are some sordid details from a Washington Post story.

A wall made of etched glass opens the rear vista to newly planted landscaping. Embedded in the floor are heating elements intended to ward off the cold weather and keep winter-weary feet cozy. …And the price tag: $1 million. “Is this made of gold?” asked commuter Yohannes Kaleab, examining the concrete-and-stainless-steel bench that is part of the new, seven-figure bus shelter. “What?” asked Robin Stewart as he learned of the cost of the structure while waiting for a bus there last week. “That’s ridiculous. From a citizen, from a voter, whoever put that budget through needs to get their butt canned. It’s an outrage.” The “super stop,” which opened March 11, is the first of 24 new bus stops that will also accommodate Arlington’s long-planned streetcars. …It will shelter 15 people at a time.

$1 million for this bit of glass, metal, and concrete?!?

That sounds kind of expensive, but we can be comforted by the fact that thoughtful public servants predict future savings.

“When you do a prototype, you end up heavily front-loading on the costs,” said Dennis Leach, Arlington’s transportation director.

So how much will taxpayers save on the remaining 23 stops? Well, the good news is that they won’t cost $1 million each. The bad news is that the government doesn’t exactly save a lot of money when doing bulk purchases.

“Our goal if at all possible is to do it for less,” Leach said. The county has budgeted $20.8 million for the remaining 23 stops, or about $904,000 for each one.

Gee, knock me over with a feather. The additional bus stops will “only” be $904,000!

That’s not counting cost overruns, which are an inevitable reality with government budgeting, so I think it’s safe to assume that the final cost will be far higher.

So why do governments waste money like this?

Part of the answer, of course, is that politicians are inherently wasteful. But there’s another factor at play. Politicians are especially wasteful when they can spend money that isn’t collected from their own taxpayers.

And readers from other parts of America doubtlessly will be overjoyed to learn that their paying for a big chunk of this boondoggle.

Federal and state transportation money paid 80 percent of the costs.

With taxpayers outside of Arlington paying such a high share of the cost, we should think of ourselves as lucky that the bus stop didn’t cost $10 million!

But here’s the most amazing part of the story.

What’s the most important part of a bus stop? In theory, a bus stop can be nothing more than a sign indicating the spot where you should wait for a bus.

But if you’re going to build a structure, the most valuable feature – at least from the perspective of riders – is that you will be protected from the weather. So what sort of protection are riders getting as a result of this $1 million boondoggle? Meh, not so much.

…the bus shelter is “pretty, but I was struck by the fact that if it’s pouring rain, I’m going to get wet, and if it’s cold, the wind is going to be blowing on me. It doesn’t seem to be a shelter. It doesn’t really shelter you very much . . . you can get pretty soaked in two minutes.” Her opinion was shared by some on Columbia Pike trying it out.

Gee, isn’t this wonderful. Some contractors doubtlessly lined their pockets building this white elephant. Some consultants doubtlessly fattened their bank accounts with all the nonsense that is now part of the “planning” process.

But taxpayers, as usual, got the short end of the stick. They got taken for a ride, figuratively. And if they actually use the bus stop, they can get taken for a ride, literally, so long as they don’t mind getting wet.

P.S. And let’s not forget that Obama wants some more class-warfare tax hikes to finance more of this “investment.”

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Even Cartoonists Understand that You Shouldn’t Postpone Reforms Until the Fiscal Crisis Has Started

I’m a bit of a nag on getting people to realize that deficits are not the nation’s main fiscal problem. Government borrowing isn’t desirable, to be sure, but our real concern should be a government that is too big and spending too much.

I even created a Bob Dole Award to chastise people who mistakenly focus on red ink when they should be worried about the overall burden of government spending.

But I may have to give myself the award because I very much enjoyed these two cartoons.

Here’s one from Jerry Holbert, showing Obama blithely unconcerned about the looming debt catastrophe.

Except it’s really an entitlement problem, which is why I would have given the zombies names like Medicare, Medicaid, and Social Security.

And this Ken Catalino cartoon sort of makes the same point, but focusing specifically on the fiscal boondoggle known as Obamacare.

For those who don’t get the “mint” reference, it comes from a disgustingly amusing scene in a Monty Python movie.

And since I’ve already linked to scenes in another Monty Python movie, that gives you an idea of the type of humor I appreciate.

But the serious point to this post is that we will face a fiscal crisis at some point if government isn’t put on a diet.

Waiting for the crises to actually occur is a recipe for wretched consequences, as we can see from Greece, Italy, Spain, etc.

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Let’s Enjoy a Victory – even if Temporary – in the Fight against More Bloat at the International Monetary Fund

I’m not a fan of the International Monetary Fund. It galls me that a bunch of bureaucrats enjoy opulent lifestyles at our expense, and don’t even have to pay on their lavish incomes.

But I might be willing to overlook all that if it wasn’t for the fact that IMF routinely and reflexively pushes for bad policy.

• Endorsing government cartels to boost tax and regulatory burdens.
• Trying to undermine flat tax systems in Albania and Latvia.
• Encouraging a “collective response” to over-spending in welfare states.
• Pushing for higher tax burdens in Greece.
• Seeking the same destructive policy in Cyprus.
• Advocating for more centralization and bureaucratic rule in Europe.
• Urging higher taxes in El Salvador.
• Supporting “eurobonds” so that taxpayers from other nations can subsidize the profligacy of welfare states such as Greece, Italy, and Spain.

And the icing on the cake is that the IMF was created for the purpose of helping the manage the system of fixed exchange rates that was imposed after World War II. That system no longer exists, yet the IMF is still plaguing us.

I’ll be happy if they simply take their hands out of my pockets

I remember reading someplace that cockroaches were the only animals that would survive a nuclear war. I have no idea if that’s true, but it appears that international bureaucracies have similar survival skills.

But I’m digressing. Notwithstanding all the bad news listed above, we’re celebrating some good news today.

Here’s the situation. The IMF has been so busy subsidizing bad policy around the world with lots of bailouts that the gold-plated bureaucracy wants American approval to permanently misallocate more of the world’s capital.

I’ve explained over and over again why it’s not a good idea to give more matches to a pyromaniac. But I never expected that lawmakers would do the right thing.

Yet they have, so let’s enjoy this fleeting experience. Here are some excerpts from a Reuters report.

…lawmakers…rebuffed a request by the Obama administration to approve a permanent increase in U.S. funding to the International Monetary Fund in a setback for IMF reforms to boost the voting power of emerging economies. The reforms need congressional approval because they involve shifting and making permanent a $65 billion U.S. contribution to an IMF crisis fund. …the U.S. Treasury sought to tuck the provision into pending legislation in Congress that aims to avoid a U.S. government shutdown at the end of March. The Republican-controlled House of Representatives rejected the IMF funding request last week, but the administration hoped the Democratic-led Senate would include it in its version of the funding bill. After days of negotiations, authors of the bill in the Senate Appropriations Committee rejected the request as too politically sensitive in the tense budget environment in Washington, where the sweeping government spending cuts triggered on March 1 are starting to be felt.

Wow. I wrote previously that rejecting additional IMF handouts was a minimum test of GOP seriousness in the battle against statism.

And they actually cleared that hurdle. Miracles do happen!

But there’s no such thing as a permanent victory in the battle against statism.

The Obama administration will have another shot at winning approval for increased IMF voting power when Congress starts work on a new set of spending bills later this spring for the 2014 fiscal year, which starts on October 1. But failure by President Barack Obama to reach a deal with Republicans to shrink the U.S. budget deficit could complicate any new requests for IMF funding, aides cautioned.

Not only is there no such thing as a permanent victory, even this bit of short-run success probably doesn’t mean much. If I understand correctly, the IMF already received the authority to squander the additional $65 billion. All that’s really happening now is a fight over whether to grant the bureaucrats permanent approval to misuse the funds.

But I’ll take any victory. Fighting for freedom in Washington is a rather grim task. Yet in the past month, we got the sequester and now we’ve stiff-armed the IMF.

I’m almost delirious with joy.

P.S. While the IMF almost always pushes bad policy, there are occasional glimmers of sanity from the economists on staff who write reports. Researchers at the international bureaucracy, for instance, have acknowledged the Laffer Curve and warned that it makes no sense to push taxes too high. And some of the bureaucrats have even admitted that it sometimes make sense to reduce the burden of government spending.

And even though it wasn’t their intention, IMF bureaucrats even provided very strong evidence showing why the value-added tax is a destructive money machine for big government.

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Targeting Multinationals, the OECD Launches New Scheme to Boost the Tax Burden on Business

I’ve been very critical of the Organization for Economic Cooperation and Development. Most recently, I criticized the Paris-based bureaucracy for making the rather remarkable assertion that a value-added tax would boost growth and employment.

But that’s just the tip of the iceberg.

• The OECD has allied itself with the nutjobs from the so-called Occupy movement to push for bigger government and higher taxes.
• The OECD, in an effort to promote redistributionism, has concocted absurdly misleading statistics claiming that there is more poverty in the US than in Greece, Hungary, Portugal, or Turkey.
• The OECD is pushing a “Multilateral Convention” that is designed to become something akin to a World Tax Organization, with the power to persecute nations with free-market tax policy.
• The OECD supports Obama’s class-warfare agenda, publishing documents endorsing “higher marginal tax rates” so that the so-called rich “contribute their fair share.”

Now the bureaucrats have concocted another scheme to increase the size and scape of government. The OECD just published a study on “Addressing Base Erosion and Profit Shifting” that seemingly is designed to lay the groundwork for a radical rewrite of business taxation.

In a new Tax & Budget Bulletin for Cato, I outline some of my concerns with this new “BEPS” initiative.

…the BEPS report…calls for dramatic changes in corporate tax policy based on the presumption that governments are not seizing enough revenue from multinational companies. The OECD essentially argues that it is illegitimate for businesses to shift economic activity to jurisdictions that have more favorable tax laws. …The core accusation in the OECD report is that firms systematically—but legally—reduce their tax burdens by taking advantage of differences in national tax policies.

Ironically, the OECD admits in the report that revenues have been trending upwards.

…the report acknowledges that “… revenues from corporate income taxes as a share of gross domestic product have increased over time. …Other than offering anecdotes, the OECD provides no evidence that a revenue problem exists. In this sense, the BEPS report is very similar to the OECD’s 1998 “Harmful Tax Competition” report, which asserted that so-called tax havens were causing damage but did not offer any hard evidence of any actual damage.

To elaborate, the BEPS scheme should be considered Part II of the OECD’s anti-tax competition project. Part I was the attack on so-called tax havens, which began back in the mid- to late-1990s.

The OECD justified that campaign by asserting there was a need to fight illegal tax evasion (conveniently overlooking, of course, the fact that nations should not have the right to impose their laws on what happens in other countries).

The BEPS initiative is remarkable because it is going after legal tax avoidance. Even though governments already have carte blanche to change business tax policy.

…governments already have immense powers to restrict corporate tax planning through “transfer pricing” rules and other regulations. Moreover, there is barely any mention of the huge number of tax treaties between nations that further regulate multinational taxation.

So what does the OECD want?

…the OECD hints at its intended outcome when it says that the effort “will require some ‘out of the box’ thinking” and that business activity could be “identified through elements such as sales, workforce, payroll, and fixed assets.” That language suggests that the OECD intends to push global formula apportionment, which means that governments would have the power to reallocate corporate income regardless of where it is actually earned.

And what does this mean? Nothing good, unless you think governments should have more money and investment should be further penalized.

Formula apportionment is attractive to governments that have punitive tax regimes, and it would be a blow to nations with more sensible low-tax systems. …business income currently earned in tax-friendly countries, such as Ireland and the Netherlands, would be reclassified as French-source income or German-source income based on arbitrary calculations of company sales and other factors. …nations with high tax rates would likely gain revenue, while jurisdictions with pro-growth systems would be losers, including Ireland, Hong Kong, Switzerland, Estonia, Luxembourg, Singapore, and the Netherlands.

Since the United States is a high-tax nation for corporations, why should Americans care?

For several reasons, including the fact that it wouldn’t be a good idea to give politicians more revenue that will be used to increase the burden of government spending.

But most important, tax policy will get worse everywhere if tax competition is undermined.

…formula apportionment would be worse than a zero-sum game because it would create a web of regulations that would undermine tax competition and become increasingly onerous over time. Consider that tax competition has spurred OECD governments to cut their corporate tax rates from an average of 48 percent in the early 1980s to 24 percent today. If a formula apportionment system had been in place, the world would have been left with much higher tax rates, and thus less investment and economic growth. …If governments gain the power to define global taxable income, they will have incentives to rig the rules to unfairly gain more revenue. For example, governments could move toward less favorable, anti-investment depreciation schedules, which would harm global growth.

You don’t have to believe me that the BEPS project is designed to further increase the tax burden. The OECD admits that higher taxes are the intended outcome.

The OECD complains that “… governments are often under pressure to offer a competitive tax environment,” and that “failure to collaborate … could be damaging in terms of … a race to the bottom with respect to corporate income taxes.” In other words, the OECD is admitting that the BEPS project seeks higher tax burdens and the curtailment of tax competition.

Writing for Forbes, Andy Quinlan of the Center for Freedom and Prosperity highlights how the BEPS scheme will undermine tax competition and enable higher taxes.

…the OECD wants to undo taxpayer gains made in recent decades thanks to tax competition. Since the 1980′s, average global income taxes on both individuals and corporations have dropped significantly, improving incentives in the productive sector of the economy to generate economic growth. These pro-growth reforms are the result of tax competition, or the pressure to adopt competitive economic policies that is put on governments by an increasingly globalized society where both labor and capital are mobile. Tax competition is the only force working on the side of taxpayers, which explains the organized campaign by global elite to defeat it. …If taxpayers want to preserve gains made thanks to tax competition, they must be weary of the threat posed by global tax cartels though organizations such as the OECD.

Speaking of the OECD, this video tells you everything you need to know.

The final kicker is that the bureaucrats at the OECD get tax-free salaries, so they’re insulated from the negative impact of the bad policies they want to impose on everyone else.

That’s even more outrageous than the fact that the OECD tried to have me thrown in a Mexican jail for the supposed crime of standing in the public lobby of a public hotel.

P.S. I just gave a speech to the Anguilla branch of the Society for Trust and Estate Professionals, and much of my remarks focused on the dangers of the BEPS scheme.

I took this picture from my balcony. As you can see, there are some fringe benefits to being a policy wonk.

And I travel to Nevis on Sunday to give another speech.

Tough work, but somebody has to do it. Needless to say, withe possibility of late-season snow forecast for Monday in the DC area, I’m utterly bereft I won’t be there to enjoy the experience.

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Question of the Week: Why Aren’t Libertarians More Persuasive?

A month ago, I answered a question about reconciling the absence of libertarian societies with the supposed superiority of libertarian principles.

I gave an uncharacteristically optimistic response, arguing that the world in many ways has become more free thanks to libertarian policies (or, to be more accurate, a decline in statism).

This led to several follow-up questions, mostly premised on the notion that I must be smoking crack to think government has become less of a burden. My defense would be that the world is more free than it was 40 years ago, but probably less free than it was 10 years ago, so it depends on your benchmark. And I definitely agree that the world is trending toward less freedom (with these charts being a very sobering example).

But the question that caught my eye, and makes for a good follow-up, comes from a reader in Missouri: “Why aren’t libertarians more persuasive?”

To elaborate, the question assumes that libertarianism is the right approach and that the evidence supports libertarian policies, so another way of phrasing the question is: “What is wrong with libertarians that they can’t sell libertarian ideas?”

The easy and simple answer is to say the problem is that the people are too susceptible to being bribed by politicians. As illustrated by the chart, more and more Americans are getting hooked on the heroin of government dependency.

And as more Americans adopt the moocher mindset found in Vermont, libertarians have a hard time developing a winning message.

But I think the reader is really asking whether the problem with libertarianism is…well, libertarians.

This is a fair question. Having given hundreds of speeches and engaged in thousands of conversation, I can say that many people make the following assumptions about libertarians.

1. On economic policy, libertarians don’t care about the poor. Since I work on fiscal issues, this is the one I deal with all the time. I try to explain – ad nauseam – that we want smaller government and more economic freedom because faster growth is the only effective way to lower poverty and help the poor. But a lot of people think we’re defending the status quo.

2. On social policy, libertarians are libertines, embracing and endorsing hedonism. This is probably the most common stereotype, and there definitely are libertarians who are motivated by a desire to get rid of laws that impinge on their freedom to do things like smoke pot. But the libertarian position is not that pot is good, but rather that prohibition is bad.

3. On foreign policy, libertarians are oblivious to external threats such as al Qaeda. I’ve had several people, for instance, complain about Ron Paul opposing the killing of Osama bin Laden, and they assume that means libertarians are somehow the modern-day equivalent of Soviet appeasers. Yet our message is that we favor national defense, but that we think we’ll have far less need to defend ourselves if we stop intervening in ways that have nothing to do with national security.

4. And in general, libertarians are ultra-individualists who reject concepts such as community, family, and nation. While it’s true that libertarians are motivated by individual freedom, opposition to government coercion does not imply that people can’t be good neighbors or good parents. Indeed, we would argue that a free society promotes private virtue. And there’s nothing inconsistent with patriotism and libertarianism, as illustrated by this t-shirt.

Looking at what I’ve written, I realize I haven’t answered the question. All I’ve done is identified some stereotypes and explained why they’re not accurate.

So I’ll simply conclude by making a rather unremarkable observation that overcoming these perceptions is a big challenge for libertarians – assuming that we want to make greater inroads with the masses.

P.S. I got nagged by several readers for not posting a “Question of the Week” last weekend. What can I say, I’m old and forgetful. But you can always peruse previous versions if you’re somehow suffering.

But I’ll try to compensate for my oversight with some humor. Since this post is about the supposed shortcoming of libertarians, here’s some self-mocking humor. We’ll start with a video portraying Somalia as a libertarian paradise, followed by cartoons on libertarian ice fishing and libertarian lifeguards, then an info-graphic showing 24 types of libertarians, and close with a poster showing how the world sees libertarians.

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Belgium Must Be Hopeless if Politicians from Brussels Are Criticizing Germany for Being too Capitalistic

I’m not a big fan of the German government. Angela Merkel has a disturbing desire to impose fiscal and political union on the European continent. And even the supposedly free market Free Democratic Party seems perfectly comfortable with a gradual descent into statism.

No wonder I mocked the Washington Post for labeling Germany a “fiscally conservative” nation.

But everything’s relative in the world of public policy. Compared to some basket cases in Europe, Germany is a laissez-faire paradise.

Here’s a fascinating report from an English-language news site in Europe.

Two Belgian government ministers have complained…that..Belgian companies are facing unfair competition. The two Belgian cabinet ministers were in Hannover (Germany) on Monday. They decided on their visit after often hearing in Belgium that it was cheaper to get Belgian cattle processed in Germany than at home.

So what is the unfair competition from Germany? Are there special tariffs or trade barriers that are artificially raising costs on Belgian products?

Nope, the Belgians are complaining that Germany doesn’t have a minimum wage and that regulations are not sufficiently onerous. Oh, the horror.

The Belgian ministers say that the most striking thing is that this can happen legally because there is no general minimum wage in Germany: “The company is not violating any regulations, because there are no regulations and that must stop” Mr Vande Lanotte told the VRT. The Belgians insist Belgian companies are the subject of unfair competition. Economy Minister Vande Lanotte says that in principle everybody should be treated in the same way: “Belgian companies cannot compete with their German competitors and this has ramifications.”

Gasp, there “are no regulations.” What sort of vicious dog-eat-dog system are the Germans running?!?

The answer, of course, is that Germany has lots of red tape.

More statist than France?!?

But apparently not as much intervention as Belgium. And you’ll notice that the “principle” that “everybody should be treated the same way” is really a stalking horse for the argument that there should be regulatory harmonization.

But the harmonization always means that everyone has to impose more onerous rules. Belgium doesn’t harmonize with Germany’s comparatively market-oriented policy. Instead, Germany is supposed to harmonize with the more statist and interventionist model of the Belgians.

In this sense, regulatory harmonization is like tax harmonization. It always means a heavier burden of government, not a lighter burden. Low-tax jurisdictions are badgered and harassed to make their tax systems worse so that fiscal hell-holes such as France don’t face “unfair competition.”

In an ideal world, the Germans would tell the Belgians to go jump in a lake.

But thanks to the never-ending pressure for regulation, harmonization, and centralization in Europe, it’s not that simple. The Brussels bureaucrats may decide to force Germany to adopt bad policy.

Mr Vande Lanotte intends to raise the issue of the absence of a minimum wage in many German sectors with the European Commission.

P.S. Germany also is better than the United States, at least on the issue of minimum wage mandates. Germany doesn’t have a minimum wage law. Obama, meanwhile, wants to saw off the bottom rungs of the economic ladder by pushing the U.S. minimum wage requirement even higher.

P.P.S. This story helps to explain why I want Belgium to split apart. If it became two nations, one Dutch and one French, I suspect we’d get better policy because they would then compete with each other instead of nagging Germany to become more statist.

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Another Horrifying and Depressing Look at the Human Cost of the Welfare State

When we think of Julia, the mythical moocher created by the Obama campaign, our first instinct is probably to grab our wallets and purses. After all, she symbolizes the entitlement mindset, as illustrated by this Ramirez cartoon.

But let’s think of this from Julia’s perspective and speculate about what it will mean for her life. Shouldn’t we worry whether a life on the dole will destroy her spirit?

Or perhaps that question is too abstract, so let’s make it more personal. Would we ever want any of our children and grandchildren to become wards of the state, living empty and hollow lives of dependency and never achieving anything?

The answer is no, of course, because we want our loved ones to have good and happy lives.

So why, then, would anybody want to impose that fate on a stranger? And this isn’t an abstract question. That’s what the welfare state does, every day, over and over again, subsidizing poverty and sloth.

And not just in the United States. I shared a truly sad video a couple of years ago showing how the British welfare state created multi-generational poverty and misery.

Now we have another video, this one from the folks at The Commentator, showing a news report from London that should anger all taxpayers. But it also should upset all people who care about rescuing people from government-induced emptiness.

I’m almost at a loss for words. At the risk of making sweeping judgments based on a short news clip, it appears that this poor woman’s life has been destroyed by government dependency.

And if you’re wondering how someone could ever allow themselves to be caught in the quicksand of the welfare state, don’t forget the story of Natalija, as well the expose about Danny and Gina. They are all healthy young people who made rational economic decisions to mooch since they could enjoy more comfortable lives.

The same thing happens in America. This story from Pennsylvania also shows that it can be far more lucrative to rely on handouts than to climb the economic ladder.

Just in case you think that’s an isolated example, look at this remarkable chart revealing how life on the dole can be much more remunerative than a life of striving and work (you can see similar charts for the U.K. by clicking here).

Let’s return to the woman in the video. I confess that I’m a bit conflicted. Should I feel sorry for Ms. MacDonald or should I look down on her?

The government has wrecked her life with handouts, yet there are probably people just like her who made the choice to avoid dependency and climb out of poverty. If you believe in free will, then she deserves some scorn.

That being said, I’m much more willing to heap abuse on Natalija, Gina, and Danny. They’re young and they should know better. Then again, in 30 years, how will they be different from the woman in the video?

These questions don’t have any good answers, so let’s close with a few examples of how the welfare state subsidizes some truly odd behavior.

• In the battle of the bums, we’ve had the spectacle of “Diaper Man” vs “Footless Hans.”
• In the contest for most despicable moocher, we have the “Florida Pedophiles” vs the “Gimme Babymaker.”
• In the perverse challenge match to subsidize one’s enemies, there’s the “Australian Jihadist” vs the “French terror suspect.”

And remember, you’re paying for all this!

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Political Correctness Run Amok in Massachusetts

This may be even worse than all the examples of anti-gun political correctness that I’ve shared.

Get a load of what some anti-achievement nutjobs in Taxachusetts have decided.

John Gillis has two students at the middle school who have worked hard to make the honor roll this year, but they won’t be able to attend the school’s annual honors night to celebrate their achievement. That’s because the school administration has decided to end the long-standing tradition… “We took it from an exclusive nighttime ceremony where only honors students were invited and rolled it into our end-of-the-year assembly,” Principal David Fabrizio said. “That way, everybody can celebrate their and their peers’ achievements.”

Yes, let’s all get participation medals simply for breathing. But it gets worse.

Fabrizio said that it is the school’s job to monitor both academic and social emotional growth. Concentrating on grades, “as strange as it sounds, can impinge upon the learning process,” he wrote. “The honors night, which can be a great sense of pride for the recipients’ families, can also be devastating to a child who has worked extremely hard in a difficult class but who, despite growth, has not been able to maintain a high grade point average,” Fabrizio wrote.

Too bad this didn’t exist when I was in school. I never once made the Honor Roll when I was a young slacker. Too bad political correctness hadn’t taken hold back then. I could have been taught that it was okay to never achieve anything.

But perhaps that would have made my life easier. Instead of engaging in the Sisyphean task of trying to roll back the welfare state, I could be doing something really productive…like being an overpaid bureaucrat making life harder for those who actually are trying to create wealth for the economy.

P.S. Take a wild guess whether Principal Fabrizio supports class-warfare tax rates as a way of mitigating the “devastating” differences between those that produce and those that don’t.

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(Almost) Everything You Ever Wanted to Know about the Fiscal Policy Debate in a Single Chart

I’m a sucker for a good flowchart because they either can help to simplify analysis or they can show how something is very complex.

Some of my favorites include:

• This explanation of double taxation.
• This depiction of the no-win Greek economic crisis.
• Portrayals of Obamacare complexity here and here.

I’d like to see a good fiscal policy flowchart, one that captures all the options for policymakers.

I created a matrix early last year to illustrate some of the goals and tradeoffs, but it wasn’t comprehensive.

Well, the folks at the UK-based Social Market Foundation have stepped into the breach and put together a flowchart that seems to cover every option.

They call it “The Gordian Knot of Growth.” It’s designed for the UK Chancellor of the Exchequer (akin to our Treasury Secretary and Office of Management and Budget Director), but I think the various boxes also capture almost all of the various policy prescriptions in the US.

But notice that I said this flowchart presents “almost all” of the options. You’ll notice that there’s no box for “tax increases” or “higher marginal tax rates.” That will give you an idea of how Obama’s class-warfare tax policy is way out of the mainstream.

For what it’s worth, I belong in more than one category. I’m an “Expansionary fiscal contractionist,” as well as a “Deregulator” and (under the TINA options) a supporter of “Long term measures.”

In other words, the burden of government spending should be reduced and we should allow markets to allocate resources.

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Anti-Gun Zealotry Has Morphed from PC Silliness to Government Thuggery

Mostly for the humor value, I’ve shared stories about brainless anti-gun political correctness by America’s “educators.”

I realize this is a serious issue and I should be figuratively banging my fist on the podium and demanding negative consequences for these foolish teachers and school administrators.

But I share my outrage for stories like this one from New Jersey.

“Take him from his parents and send him to a foster home!”

New Jersey police and Dept. of Children and Families officials raided the home of a firearms instructor and demanded to see his guns after he posted a Facebook photo of his 11-year-old son holding a rifle. …The family’s trouble started Saturday night when Moore received an urgent text message from his wife. The Carneys Point Police Dept. and the New Jersey Dept. of Children and Families had raided their home.

Thankfully, this absurd exercise in government overreach met with stiff resistance.

Moore immediately called [his lawyer] Nappen and rushed home to find officers demanding to check his guns and his gun safe. Instead, he handed the cell phone to one of the officers – so they could speak with Nappen. “If you have a warrant, you’re coming in,” Nappen told the officers. “If you don’t, then you’re not. That’s what privacy is all about.” …“I was told I was being unreasonable and that I was acting suspicious because I wouldn’t open my safe,” Moore wrote on the Delaware Open Carry website. “They told me they were going to get a search warrant. I told them to go ahead.” …The attorney said police eventually left and never returned. “He has a Fourth Amendment right and he’s not going to give up his Fourth Amendment right or his Second Amendment right,” he said. “They didn’t have a warrant – so see you later.”

But let’s not be too optimistic just because this story ended well.

…the person who reported the false allegations of abuse cannot be held liable, she noted. “You can’t be prosecuted for making an allegation of child abuse –even if it’s false,” she said. Nappen said what happened to the Moore family should serve as a warning to gun owners across the nation. “To make someone go through this because he posted a picture of his son with a .22 rifle on his Facebook page is pretty outrageous,” he said.

We should all be outraged by this story. You don’t need a vivid imagination to see that this type of nanny-state-meets-the-jackboot- state thuggery could become more prevalent – and a lot uglier – in the future.

Raising my kids right

I’ll be taking my kids out to the High Lonesome Ranch in May, and we’ll be doing some shooting. And when they were much younger, my kids enjoyed their opportunity to shred some soda cans with an AK-47. I can only imagine what might have happened if I had taken some photos and posted them (not that Facebook existed in the primitive 1990s).

Let’s close by being thankful for the Founding Fathers. They bequeathed to us a Bill of Rights that includes a 2nd Amendment and a 4th Amendment. I know my conservative friends appreciate the former, but I hope this story helps them realize that the latter is also important as a bulwark against government thuggery. It’s for that reason that I once had the unusual experience of siding with Ruth Bader Ginsburg over Clarence Thomas!

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An Inside Look at Left-Wing Social Science Gun Research

In a presumably futile effort to change their minds by learning how they think, I periodically try to figure out the left-wing mind.

Why, for instance, do some people believe in Keynesian economics, when it is premised on the fanciful notion that you can increase “spending power” by taking money out of the economy’s left pocket and putting it in the economy’s right pocket?

I actually think part of the problem is that folks on the left focus on how income is spent rather than how it’s earned, so I sometimes try to get them to understand that economic growth occurs when we produce more rather than consume more. My hope is that they’ll better understand how the economy works if they look at the issue from this perspective.

But I’m getting off track. I don’t want to get too serious because the purpose of this post is to share this satirical look at the how leftists rationalize their anti-gun biases.

Let’s take a look at two cities that are quite similar in terms of demographics and income. But they have very different murder rates. Your job is to pretend you’re a leftist and come up with an explanation.

To be fair, we can’t rule out cold weather as a possible explanation given this limited set of data.

For what it’s worth, however, scholars who actually do real research, like David Kopel and John Lott, reach different conclusions.

Returning to satire, the Houston-Chicago comparison reminds me of this IQ test for criminals and liberals.

And since we’re having some fun with our liberal friends, let’s close with this comparison of liberals, conservatives, and Texans.

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The Laffer Curve Bites Ireland in the Butt

Cigarette butt, to be more specific.

All over the world, governments impose draconian taxes on tobacco, and then they wind up surprised that projected revenues don’t materialize. We’ve seen this in Bulgaria and Romania, and we’ve seen this Laffer Curve effect in Washington, DC, and Michigan.

Even the Government Accountability Office has found big Laffer Curve effects from tobacco taxation.

And now we’re seeing the same result in Ireland.

Here are some details from an Irish newspaper.

…new Department of Finance figures showing that tobacco excise tax receipts are falling dramatically short of targets, even though taxes have increased and the number of people smoking has remained constant…the latest upsurge in smuggling…is costing the state hundreds of millions in lost revenue. Criminal gangs are openly selling smuggled cigarettes on the streets of central Dublin and other cities, door to door and at fairs and markets. Counterfeit cigarettes can be brought to the Irish market at a cost of just 20 cents a pack and sold on the black market at €4.50. The average selling price of legitimate cigarettes is €9.20 a pack. …Ireland has the most expensive cigarettes in the European Union, meaning that smugglers can make big profits by offering them at cheaper prices.

I have to laugh at the part of the article that says, “receipts are falling dramatically short of targets, even though taxes have increased.”

This is what’s called the Fox Butterfield effect, when a leftist expresses puzzlement about something that’s actually common sense. Named after a former New York Times reporter, who was baffled that more people were in prison at the same time that crime rates were falling, it also shows up in tax policy when statists are surprised that tax revenues don’t automatically rise when tax rates become oppressive.

Ireland, by the way, should know better. About the only good policy left in the Emerald Isle is the low corporate tax rate. And as you can see in this video, that policy has yielded very good results.

My favorite example from that video, needless to say, is what happened during the Reagan years, when the rich paid much more to the IRS after their tax rates were slashed.

P.S. You won’t be surprised to learn that a branch of the United Nations is pushing for global taxation of tobacco. To paraphrase Douglas McArthur, “Bad ideas never die, they become global.”

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Mirror, Mirror, on the Wall, Which State Has the Highest Food Stamp Usage of All?

The food stamp program seems to be a breeding ground of waste, fraud, and abuse. Some of the horror stories I’ve shared include:

• Using food stamps to buy luxury coffee at Starbucks.
• Buying steaks and lobster with food stamps.
• The Obama Administration rewarding states that sign up more food stamp recipients.
• Proposals to make it easier to use food stamps at fast food restaurants.
• College kids scamming the program for handouts.
• New York City giving food stamps to newly released prisoners and running foreign-language ads encouraging more people to sign up for the program.
• The Octo-Mom mooching off the food stamp program.
• The Agriculture Department running radio ads to lure more people into food stamp dependency.

With stories like this, I’m surprised my head didn’t explode during this debate I did on Larry Kudlow’s show.

So exactly how bad is the food stamp program?

One way of measuring the cost of the program, both to taxpayers and to the people who get trapped in dependency, is to see what share of a state’s population is utilizing the program.

I just did a “Mirror, Mirror” post on states with the most education bureaucrats compared to teachers and got a lot of good feedback, so let’s do the same thing for food stamps.

Here’s a rather disturbing map from the Washington Post.

A couple of things stand out. I can understand Mississippi, Louisiana, and New Mexico being among the worst states because they have relatively low average incomes. And that’s sort of an excuse for Tennessee, though it’s worth noting that economically and demographically similar states such as Georgia and Alabama don’t fall into the same dependency trap.

Why such a significant handout culture?

But the state that stands out is Oregon. Based on the state’s income, there’s no reason for more than 20 percent of resident’s to be on the dole. The state does get a “high” ranking on the Moocher Index, so there’s some evidence of an entitlement mentality. And welfare handouts also are above average in the Beaver State as well.

It’s also disappointing to see that food stamp dependency has doubled since 2008 in Florida, Rhode Island, Nevada, Utah, and Idaho. Though it’s a credit to the people of Utah that they’re still in the least-dependent category. But the trend obviously is very bad.

And it’s also depressing to look at the bar chart on the right and see that spending on the program has tripled in the past 10 years. Heck, food stamps were about 70 percent of the cost of a recent Senate “farm bill.”

P.S. A local state legislator asked an official in Richmond why Virginia got such a bad score in the ranking of teachers compared to education bureaucrats. The good news, so to speak, is that Virginia is not as bad as suggested by the official numbers. According to the response sent to this lawmaker, “VDOE has determined that the data it reported on school division personnel and assignments to NCES for 2005-2006 through 2009-2010 through the US Department of Education’s EdFacts Portal were inaccurate.”

The bad news, as you can see from this table, is that there are still more edu-crats than teachers, but the ratio apparently isn’t as bad with this updated data.

As a Virginia taxpayer, I suppose I should be happy. But it’s hard to get overly excited when other states are taking positive steps to bring choice and competition to education, and the best thing I can say about the Old Dominion is that we’re not quite as infested with bureaucrats as we originally thought.

P.P.S. I guess I should give the left-wing Washington Post some credit for sharing the map on food stamp dependency. And, to be fair, the paper did reprint this remarkable chart showing how bad Obama’s record is on jobs compared to Reagan and Clinton. And the paper also printed this chart showing how the economy’s performance is way below average under Obama.

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Bill Maher: Born-Again Libertarian?

Maybe actors and other Hollywood types are only acting when they embrace statism?

We’ve already seen Hollywood liberals like Rob Schneider and Jon Lovitz complain about class-warfare policy.

And Gerard Depardieu moved out of France to escape the suicidally destructive taxes being demanded by French president Francois Hollande.

But the most shocking news is that even Bill Maher is getting irked that he’s being treated like a pinata.

Take a look at this short video. Ignore the first 2/3rds, which is Rachel Maddow making inane comments about the Ryan budget, and notice what Maher says in the final part.

Wow. He notes that the rich pay the overwhelming share of the federal tax burden (hmmm…I wonder if he watched this video).

And he’s not overly happy about California raping him with a new top tax rate of 13.3 percent.

Closet libertarian?

So now he’s saying he may move out of the state, just like Phil Mickelson. I won’t believe it ’til I see it, but for every well-known celebrity who publicly speculates about migrating to a zero-income tax state, there are probably dozens of investors, entrepreneurs, and small business owners who actually take that step.

And this, folks, is one of the reasons why class-warfare tax policy is so pointlessly destructive.

Reagan showed us in the 1980s that lower tax rates on upper-income taxpayers can generate more tax revenue. California is doing the same experiment, but in reverse.

Magnitudes matter, so we’ll have to wait and see before determining the net impact of Jerry Brown’s tax hike on California tax revenue. But I will blindly assert with confidence that revenues will be far below what politicians are hoping to collect.

In other words, we will see the revenge of the Laffer Curve, regardless of what Bill Maher decides.

P.S. I can’t help adding that Rachel Maddow doesn’t know what she’s talking about. The Ryan budget does not propose a net tax cut, so it’s absurd to claim – or even imply – that there will be “tax cuts for the rich” financed by changes to healthcare. That budget does propose reforms to Medicare and Medicaid, but those changes are to salvage the programs by making them sustainable.

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Lessons from Cyprus

It doesn’t create a lot of confidence in Europe that tiny little Cyprus, with a GDP less than Vermont, is now causing immense turmoil.

Though to be more accurate, events in Cyprus aren’t causing turmoil as much as they’re causing people to examine both government finances and bank soundness in other nations. And that’s causing anxiety because folks have taken their heads out of the sand and looked at the reality of poor balance sheets.

Looking closer at the specific mess in Cyprus, an insolvent financial sector is the cause of the current crisis, though the problem is exacerbated by the fact that the government has dramatically increased the burden of government spending in recent years and therefore isn’t in a position to finance a bailout.

But that then raises the question of why Cyprus is bailing out its banks? Why not just let the banks fail?

Well, here’s where things get messy, particularly since we don’t have a lot of details. There are basically three options for dealing with financial sector insolvency.

1. In a free market, it’s easy to understand what happens when a financial institution becomes insolvent. It goes into bankruptcy, wiping out shareholders. The institution is then liquidated and the recovered money is used to partially pay of depositors, bondholders, and other creditors based on the underlying contracts and laws.
2. In a system with government-imposed deposit insurance, taxpayers (or bank consumers via insurance premiums) are on the hook to compensate depositors when the liquidation occurs. This is what is called the “FDIC resolution” approach in the United States.
3. And in a system of cronyism, the government gives taxpayer money directly to the banks, which protects depositors but also bails out the shareholders and bondholders and allows the institutions to continue operating.

As far as I can determine, Cyprus wants to pick the third option, sort of akin to the corrupt TARP regime in the United States. But that approach can only work if the government has the ability to come up with the cash when banks go under.

I’m assuming, based on less-than-thorough news reports, that this is the real issue for Cyprus. It needs taxpayers elsewhere to pick up the tab so it can bail out not only depositors, but also to keep zombie banks operating and thus give some degree of aid to shareholders and bondholders as well.

But other taxpayers don’t want to give Cyprus a blank check, so they’re insisting that depositors have to take a haircut. In other words, the traditional government-imposed deposit insurance regime is being modified in an ad hoc fashion.

And this is why events in tiny Cyprus are echoing all over Europe. Folks in other nations with dodgy banks and unsound finances are realizing that their bank accounts might be vulnerable to haircuts as well.

So what should be done?

I definitely think the insolvent institution should be liquidated. The big-money people should suffer when they mismanage a bank. Shareholders should lose all their money. Then bondholders should lose their money.

Then, if a bailout is necessary, it should go only to depositors (though I’m not against the concept of giving them a “haircut” to save money for taxpayers).

But Cyprus apparently can’t afford even that option. And the same is probably true of other European nations.

In other words, there isn’t a good solution. The only potential silver lining to this dark cloud is that people are sobering up and acknowledging that the problem is widespread.

Whether that recognition leads to good policies to address the long-run imbalances – such as reductions in the burden of government spending and the implementation of pro-market reforms – remains to be seen.

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Cartoonists React to the Senate Democratic Budget

I didn’t take Patty Murray’s budget very seriously. Indeed, I would have completely ignored the plan by Senate Democrats if it wasn’t for the fact that I felt compelled to debunk her mythology about the 1990s.

America’s political cartoonists are similarly underwhelmed.

Here’s Lisa Benson’s analysis.

A great cartoon because it recognizes that the problem is bloated government, not red ink.

Steve Breen also is not impressed.

As you can imagine, this might be my favorite of the group because I’m a sucker for cartoons portraying government as an obese slob (see here, here, here, and here).

Last but not least, thisJerry Holbert cartoon also is worth sharing.

Again, this cartoon correctly focuses on the main problems of punitive taxation and excessive spending, not the lesser symptom of too much borrowing.

It will be very interesting to see what we get (from both a substance perspective and humor perspective) when the White House finally decides to issue its budget.

That budget was legally required back on the first Monday in February. Based on what we saw last year and the year before that, I’m not holding my breath expecting anything more than another tax-and-spend blueprint.

And as this Michael Ramirez cartoon illustrates, we know where that will lead. Or take a look at this Glenn Foden cartoon. Different theme, but same restult.

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If Obama Wants More Tax Revenue, He Should Lower the Corporate Tax Rate

Regular readers know that I’m a big advocate of the Laffer Curve, which is the common-sense notion that higher tax rates will cause people to change their behavior in ways that reduce taxable income.

But that doesn’t mean “all tax cuts pay for themselves.” Yes, that happened when Reagan lowered tax rates on the “rich” in the 1980s, but there are also tax cuts that generate little or no revenue feedback.

The key thing to understand is that revenue feedback is driven by the degree to which a tax cut leads to more taxable income. And you tend to get bigger changes in taxable income when you lower rates on taxpayers who have considerable control over the timing, level, and composition of their income.

Who are those taxpayers?

Most of us don’t fall in that category. Cutting my tax rate, for instance, probably won’t have much impact on taxable income. My salary from Cato is already established, so there’s not much opportunity for a “supply-side” effect. Every so often I can earn some extra money by writing an article or giving a speech, but (unfortunately!) not enough for it to make a difference even if my incentives are altered.

But investors, entrepreneurs, corporate managers, and small business owners are among those who do have considerable flexibility to respond when incentives change.

Consider this new research from the Tax Foundation, which finds big “supply-side” responses from a lower corporate tax rate. Let’s start with their description of the problem.

The United States currently imposes the highest statutory corporate tax rate in the developed world. …the steep rate discourages U.S. companies from investing as much as they would otherwise and reduces their competitiveness in international markets. …A major barrier to cutting the U.S. corporate tax rate, however, is the reported revenue cost. According to conventional revenue analyses, such as those performed by Congress’s Joint Committee on Taxation (JCT), a lower corporate tax rate would be an expensive revenue loser.

The Tax Foundation then explains why the current revenue-estimating system is misguided.

In reality, the trade-off posited by conventional revenue estimates is misleading. The estimates overstate the revenue cost of cutting the corporate rate and overstate the potential revenue gains from increasing it, because they ignore tax-induced growth effects. Most notably, Congress’s JCT has adopted the static assumption that tax changes have absolutely no impact, for good or ill, on total production, employment, investment, consumption, and other macroeconomic aggregates. …The static assumption has the advantage of simplicity, and it is not too far from the truth for tax changes that either have little impact on incentives at the margin or affect parameters that do not respond much to incentives. This is an extremely unrealistic assumption, however, in the case of the corporate income tax rate.

Bingo. You can click here for more information on why the Joint Committee on Taxation is wrong, and you may be interested to know that fewer than 15 percent of CPAs agree with the JCT’s assumptions.

Using more realistic assumptions, the Tax Foundation calculates the real-world impact of a lower corporate tax rate.

The Tax Foundation’s dynamic simulation model provides quantitative estimates of the growth and revenue effects. The model estimates, for example, that cutting the federal corporate tax rate from 35 percent to 25 percent would raise GDP by 2.2 percent, increase the private-business capital stock by 6.2 percent, boost wages and hours of work by 1.9 percent and 0.3 percent, respectively, and increase total federal revenues by 0.8 percent.

Indeed, they look at a wide range of options and show us “static” estimates based on JCT-type methodology and “dynamic” estimates based on a model that includes changes in taxable income.

One very important point is that the Tax Foundation looks at the impact of a lower corporate tax rate on all forms of tax revenue.

Federal receipts include many taxes, fees, and payments other than the corporate income tax, such as the personal income tax, payroll taxes, and excises. The size of the economy strongly influences the amounts these taxes, fees, and other payments collect. This is relevant because of the corporate income tax’s big GDP effects. A wide range of federal receipts will expand when a lower corporate income tax rate grows the economy but shrink when a higher corporate income tax downsizes the economic pie.

The study then mentions that the revenue-maximizing corporate tax rate is 14 percent, but warns that this doesn’t mean policy makers should make that their goal.

Although a corporate rate of 14 percent would maximize federal receipts, counting all types of federal revenue, it would not be the optimal rate for the economy unless very little value is placed on people’s incomes and the quantities of goods and services they can consume or invest. The model estimates that while cutting the corporate rate from the revenue-maximizing rate of 14 percent to zero would cost $9 billion of federal revenue, GDP would rise by roughly $300 billion, a payoff of about 33 to 1.

Amen to that point. Our goal isn’t to maximize revenue for the clowns in Washington. The ideal point on the Laffer Curve is where you maximize growth.

If you want my two cents on the topic, you maximize growth when you raise the revenue needed to finance the legitimate functions of government – and that requires a lots less revenue than we’re collecting now according to scholarly evidence on the “Rahn Curve.”

Finally, the Tax Foundation research points out that there’s a difference between the short-run revenue-maximizing rate and the long-run revenue-maximizing rate.

The federal corporate income tax is unusual because the feedbacks there are so strong that cutting the tax’s rate would, over a broad range, more than pay for itself in terms of federal revenues, with the bonus of lifting the incomes and productivity of people throughout the economy. Nevertheless, a corporate rate cut would reduce federal revenues during a transition period, because the rate cut would begin immediately, while it would take several years for the capital stock to expand sufficiently in response to the new incentives to generate the growth needed to return revenues to their prior level.

This chart illustrates this point, using the example of a 25 percent rate.

In other words, the goal of good policy should be to improve the economy’s long-run performance. Over time, that results in more taxable income – a point that even the Congressional Budget Office acknowledges.

The one partial exception to this relationship between good tax policy and long-run tax revenue is the capital gains tax. Lowering that levy can cause big changes to short-run revenue because investors have complete control over when to sell assets. But the reason to lower – or ideally eliminate – that tax is to boost long-run prosperity.

So why aren’t policy makers embracing a lower corporate tax rate? On the right, there should be lots of support because of hostility to high tax rates. And on the left, there should be lots of support because of a desire for more tax revenue. Seems like a match made in Heaven.

But that assumes that folks on the left are motivated by a desire to maximize tax revenue. If you want to know the biggest obstacle to sensible tax policy, pay close attention beginning at the 4:34 mark of this video.

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