Halloween Political Humor

You would think Halloween would be the favorite holiday for leftists. After all, you go to other people’s houses and get free candy.

But since the entire process is voluntary, that spoils the fun for our coercion-loving statist friends.

Which may explain why a lot of Halloween humor has a libertarian bent. My favorite example is the video of a comedian explaining how to teach your kids about taxes after they’re done trick-or-treating.

Today, though, we’re going to enjoy a bunch of cartoons, starting with this Jerry Holbert gem showing Obama and his senior staff putting together his healthcare plan.

The part about taxpayer wallets is painfully accurate.

Sticking with the witch theme, Ken Catalino’s cartoon makes a good point about Obamacare’s economic impact.

This Tim Hartman cartoon could have been taken directly from today’s headlines.

It seems kids always have bad experiences when they make Halloween stops at the White House.

The witch theme returns with this Lisa Benson cartoon featuring Harry Reid and Nancy Pelosi.

Steve Kelley mocks the President’s serial dishonesty about Obamacare in this cartoon.

And this Henry Payne cartoon reminds us that maybe it’s not a bad idea to shut down the government.

Hmmm…I think I’ve already seen that idea.

Here’s Henry Payne again.

Yet another example of what happens when you trick-or-treat at the White House.

Last but not least, here’s John McPherson celebrating some very scary costumes.

Speaking of which, click here if you like mocking politicians.

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Keynesian Economics, Government Shutdowns, and Economic Growth

Keynesian economics is the perpetual motion machine of the left. You build a model that assumes government spending is good for the economy and you assume that there are zero costs when the government diverts money from the private sector.

With that type of model, you then automatically generate predictions that bigger government will “stimulate’ growth and create jobs. Heck, sometimes you even admit that you don’t look at real world numbers.

Which perhaps explains why Keynesian economics has a long track record of failure. It didn’t work for Hoover and Roosevelt in the 1930s. It didn’t work for Nixon, Ford, and Carter in the 1970s. It didn’t work for Japan in the 1990s. And it hasn’t worked this century for either Bush or Obama.

But politicians love Keynesian theory because it tells them that their vice is a virtue. They’re not buying votes with other people’s money, they’re “stimulating” the economy!

Given this background, you won’t be surprised to learn that Keynesians are now arguing that the recent partial government shutdown hurt growth.

Here’s some of what Standard and Poor’s wrote about that fight and why the shutdown supposedly reduced economic output, along with their warning of economic cataclysm if politicians had been forced to balance the budget in the absence of an increase in the debt ceiling.

…the shutdown has shaved at least 0.6% off of annualized fourth-quarter 2013 GDP growth, or taken $24 billion out of the economy. …the resulting sudden, unplanned contraction of current spending could see government spending cut by about 4% of annualized GDP. That would put the economy in a recession and wipeout much of the economic progress made by the recovery from the Great Recession. …The bottom line is the government shutdown has hurt the U.S. economy.

Part of me wonders whether the bottom line is that S&P was simply looking for an excuse for having made a flawed economic prediction earlier in the year. They basically admit they goofed (though, to be fair, all economists are lousy forecasters), as you can see from this excerpt, but we’re supposed to blame the lower GDP number on insufficient government spending.

In September, we expected 3% annualized growth in the fourth quarter… Since our forecast didn’t hold, we now have to lower our fourth-quarter growth estimate to closer to 2%.

Unsurprisingly, the Obama Administration has been highlighting S&P’s analysis.

A number of private sector analyses have estimated that the shutdown reduced the annualized growth rate of GDP in the fourth quarter by anywhere from 0.2 percentage point (as estimated by JP Morgan) to 0.6 percentage point (as estimated by Standard and Poor’s)… Most of the private sector analyses are based on models that predict the impact of the shutdown based on the reduction in government services over that period.

And the establishment press predictably carried water for the White House, echoing the S&P number. Here’s an example from Time magazine.

The financial services company said the shutdown, which ended with a deal late Wednesday night after 16 days, took $24 billion out of the U.S. economy, and reduced projected fourth-quarter GDP growth from 3 percent to 2.4 percent.

If nothing else, this is a good example of how a number gets concocted and becomes part of the public policy discussion.

Let’s take a step back,however, and analyze whether that $24 billion number has any merit.

The Keynesian interpretation is that the shutdown took money “out of the economy.” According to the theory, money apparently disappears if government doesn’t spend it.

In reality, though, less government spending means that more funds are available in credit markets for private spending. This video explains why Keynesian theory is misguided.

And if you want to dig further into the issue, you can click here for a video that explains why we might get better decisions if policy makers focused on how we earn income rather than how we allocate income.

Now that I’ve shared the basic arguments against Keynesian economics, let me give two caveats.

First, resources don’t get instantaneously reallocated when the burden of government spending is reduced. So I’ve always been willing to admit there could be a few speed bumps as some additional labor and capital get absorbed into the productive sector of the economy.

Second, a nation can artificially enjoy more consumption for a period of time by borrowing from overseas. So if deficit spending is financed to a degree by foreigners, overall spending in the economy will be higher and people will feel more prosperous.

But these caveats aren’t arguments for more spending. The ongoing damage of counterproductive government outlays is much larger and more serious than the transitory costs of redeploying resources when spending is reduced. And overseas borrowing at best creates illusory growth that will be more than offset when the bills come due.

Ultimately, the real-world evidence is probably the clincher for most people. As noted above, it’s hard to find a successful example of Keynesian spending.

Yet we have good evidence of nations growing faster when government outlays are being controlled, including Canada in the 1990s and the United States during both the Reagan years and Clinton years.

And the Baltic nations imposed genuine spending cuts and are now doing much better than other European countries that relied on either Keynesian spending or the tax-hike version of austerity.

P.S. Here’s a funny video on Keynesian Christmas carols. And everyone should watch the famous Hayek v Keynes rap video, as well as its equally clever sequel.

P.P.S. Switching to another topic, we have an encouraging update to the post I wrote last year about an Australian bureaucrat who won a court decision for employment compensation after injuring herself during sex while on an out-of-town trip. Showing some common sense, the Australian High Court just ruled 4-1 to strike down that award.

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If There’s a Grand Bargain, Taxpayers Should Get a Tax Cut rather than a Tax Hike

The Washington metropolitan area has become America’s wealthiest region because trillions of dollars are taken every year from the productive sector of the economy and then divvied up by the politicians, bureaucrats, lobbyists and interest groups that benefit from federal largess.

But there’s always an appetite in Washington for even more money.  Former Senator Kent Conrad just wrote in the Washington Post that “Our country needs more revenue to help us get back on track.”

I guess that means back on track to becoming Greece, though I suspect he would have an alternative explanation. All I can say for sure is that he probably wasn’t paying attention when I testified to his Committee last year about pro-growth tax policy.

But it’s not just Democrats who are greedy for more of our money. Republican Congressman Tom Cole of Oklahoma joined the Charlie Brown Club by stating, “we’re willing to put more revenue on the table.”

If you ask politician why they want more revenue in Washington, they invariably state that America’s long-term fiscal challenges are so large that you need a “balanced” package.

But why should there be “balance” between tax hikes and spending cuts (which would merely be reductions in planned increases) when more than 100 percent of America’s long-run fiscal problem is because of a rising burden of government spending?

Does that sound like an exaggeration? Well, check out this data from the Congressional Budget Office’s 2013 Long-Term Budget Outlook.

As you can see, tax revenues are supposed to jump substantially as a share of GDP in coming decades. Indeed, they will rise far above the long-run average of 17.7 percent of economic output.

In other words, a big increase in the tax burden already is set to occur, largely because of real bracket creep. This means tax cuts (ideally accompanied by tax reform) are needed to protect taxpayers from rising tax rates.

And if we want to deal with America’s real fiscal challenge, that means modest spending restraint in the short run and genuine entitlement reform in the long run.

P.S. Do you need more evidence that taxes should go down rather than up? Well, the New York Times inadvertently revealed that the only “grand bargain” that actually resulted in a budget surplus was the 1997 pact that lowered the tax burden.

P.P.S. I’ve admitted that – in theory – it might be reasonable to acquiesce to a tax hike if accompanied by some genuine reforms to control spending. But in reality that will never happen. The evidence from Europe is very persuasive that more revenue simply leads to a larger burden of government spending.

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Ohio’s Cheerleader for Big Government, John “Barack” Kasich

I’m glad I work for a principled and libertarian organization. At the Cato Institute, there’s never any pressure to say or do the wrong thing for partisan reasons.

When Republicans screw up, I don’t have to think twice about exposing their misdeeds.

I have repeatedly criticized President Bush (and his former top aide) for expanding the burden of government. Buying votes with other people’s money isn’t compassionate.

Incurable spendaholics?

I have excoriated former GOP Hill staffers who became lobbyists for various special interests groups looking to fleece taxpayers. Stealing is wrong, even when you get a lot of money to use government as middleman.

I have slammed a former Reagan Administration official for defending earmarks. I think it is morally offensive that he gets rich by facilitating the transfer of money from taxpayers to powerful interest groups.

I have condemned the former Senate Republican leader for defending Obamacare. I think it is disgusting that he puts his lobbying income ahead of America’s best interests.

I have denounced Illinois Republican legislators for killing school choice. I think it is downright nauseating that they condemn inner-city children to terrible schools in exchange for campaign contributions from teacher unions.

And I have pointed out that statist policies don’t become acceptable merely because they come from Republican presidential candidates. The road to serfdom oftentimes is bipartisan.

We now have another candidate for our “Republican Hall of Shame.” The governor of Ohio, John Kasich, is embracing Obamacare. Moreover, not only does he want bad healthcare policy, but he’s using third-world tactics and making morally reprehensible arguments.

The Wall Street Journal savages Kasich in a stinging editorial. Here’s a key excerpt that explains the overall situation.

…there are still a few disciples with faith in an ObamaCare higher power, and one of them happens to run Ohio. Governor John Kasich is so fervent a believer that he is even abusing his executive power to join the Affordable Care Act’s Medicaid expansion. Not to be sacrilegious, but the Republican used to know better. Now Mr. Kasich seems to view signing up for this part of ObamaCare as an act of Christian charity and has literally all but claimed that God told him to do so.

But Gov. Kasich has a slight problem. The legislature hasn’t approved this budget-busting part of Obamacare. So Kasich has decided that he can arbitrarily change policy, just like Obama did with the employer mandate and the Obamacare exemption for Capitol Hill.

The problem is that his evangelizing failed to convert the Ohio legislature, which is run by Republicans who understand the brutal budget and regulatory realities of participating in new Medicaid. So Mr. Kasich simply decided to cut out Ohio’s elected representatives and expand Medicaid by himself. …he appealed to an obscure seven-member state panel called the Controlling Board, which oversees certain state capital expenditures and can receive or make grants. …Mr. Kasich asked the panel to approve $2.56 billion in federal funding, and then he’ll lift eligibility levels via executive fiat. It’s a gambit worthy of President Obama, who also asserts unilateral powers to suspend laws that displease him and bypass Congress.

But what’s really nauseating is that Kasich equates big government and welfare spending with religious values.

Mr. Kasich really must feel like he’s guided by the Holy Spirit… “When you die and get to the meeting with St. Peter, he’s probably not going to ask you much about what you did about keeping government small. But he is going to ask you what you did for the poor,” to quote one of his favorite lines.

I suppose I could make a joke about communists presumably being super religious if you use this twisted metric, but there’s a serious point to be made. I’m not a religious scholar, but I wrote several years ago that, “Doesn’t Christianity (and, I assume, Judaism and other faiths) require individuals – using free will – to act charitably? Using the coercive power of government to forcibly redistribute other people’s money, by contrast, is moral preening at best.”

Moreover, Kasich must be delusional if he thinks making government bigger is good for the poor. Redistribution traps the poor in dependency and a larger public sector hinders economic growth, making life even more difficult for the less fortunate.

Heck, just compare Hong Kong and Argentina over the past 50-plus years and ask yourself which jurisdiction afforded more opportunity for those trying to climb the economic ladder.

Fortunately, the battle isn’t over yet.

Thirty-nine House Republicans signed a formal protest and some of them are threatening to sue, and well they should. They argue that circumventing the legislature subverts the Ohio constitution’s separation of powers and exceeds the statutory legal authorities of the Controlling Board, which is supposed to “take no action which does not carry out the legislative intent of the General Assembly.”

I don’t know whether a legal case will be successful, but I can share data showing that Ohio already is in deep fiscal trouble.

It ranks 39th in the Tax Foundation’s State Business Tax Climate Index.

It was the 7th-worst state on controlling spending over the past decade.

It ranks in the bottom 10 on measures of bureaucrats to teachers.

It was listed as one of America’s 11 states facing an economic death spiral.

And John “Barack” Kasich thinks he’ll make Ohio better by adding an additional layer of government spending to finance Obamacare expansion?!?

What makes this situation so sad is that Kasich was Chairman of the House Budget Committee in the mid-1990s, so he deserves some of the credit for restraining federal spending during that period, a very successful policy that led to better economic performance and budget surpluses.

P.S. Kasich’s push to expand Medicaid shows one of the reasons the program should be reformed. He’s being lured by the promise that Washington will pick up the entire tab for the first few years. Afterwards, state taxpayers will get saddled with some of the burden, but Kasich probably assumes he won’t be around to deal with that problem. This is why the entire program should be block-granted to the states. If Kasich really thinks God wants a bigger Medicaid system, he should go to Ohio voters and ask them to pay for it.

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Libertarian Jesus

Most of my political humor is designed to mock statists. That’s true whether I’m sharing cartoons, videos, jokes, or one-liners.

But I also enjoy clever left-wing humor, even when libertarians are the target. Here are examples that tickled my funny bone.

• A video portraying Somalia as a libertarian paradise.
• Cartoons on libertarian ice fishing and libertarian lifeguards.
• A mosaic showing 24 types of libertarians.
• A poster showing how the world sees libertarians.
• A 23-photo montage of libertarian problems.
• The answer to the riddle of why the libertarian chicken crossed the road.

I rarely find explicitly pro-libertarian humor, however, perhaps because we’re too busy fretting about the dangers of excessive government.

But I think you’ll agree that “Libertarian Jesus” is worth a laugh or two.

I like this poster because it makes the very important and serious point (which Cal Thomas has succinctly explained) that it’s not compassion when you use coercion to spend other people’s money.

If you want more pro-libertarian humor, all I can find is this poster about confused statists and the libertarian version of a sex fantasy.

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The Two Types of Child Victimization at Government Schools

You would think the bureaucrats who run government schools would want to focus on the basics, such as teaching reading, writing, and arithmetic.

After all, no nation spends more per pupil on education than the United States. And based on some Cato Institute research, I suspect the OECD estimate of about $15,000 per student is a low-ball estimate of the burden on American taxpayers.

So what do we get for all this money? To be blunt, the results are miserable, with Americans ranking well below average compared to our overseas competitors.

Here are some comparisons on both literacy and numeracy from the Organization for Economic Cooperation and Development. You’ll have to click the images to get an enlarged view. But maybe you won’t want to do that since it’s depressing to see that Americans are near the bottom for math skills and well below average for verbal skills.

Geesh, this is embarrassing. I like Slovaks, but I don’t want Americans to be less intelligent. I also like Belgians, but why are they kicking our tail? And I really like Estonians, but they’re putting us to shame.

So how is the education establishment dealing with these dismal results?

Well, they keep asking for more money. But as this remarkable chart from the Cato Institute illustrates, throwing more money at the system is a great way of building bureaucracy. But it sure doesn’t do much for kids.

So you could say this is a form of child abuse. But that would trivialize the plights of kids who are grossly mistreated. So let’s say that the sub-par education provided by government schools is a form of child victimization. Or mistreatment. Or some word that signifies how they are not well served by the government’s education monopoly.

But let’s also remember that sub-par education is not the only bad thing that happens in government schools.

We also have amazing (in a bad way) episodes of intrusive and abusive political correctness.

Here’s a story from Massachusetts about a student being punished for doing the right thing.

It’s tough for Eleanor Cox to talk about how heartbroken her daughter Erin is over the punishment she received for doing what she thought was right. …Two weeks ago, Erin received a call from a friend at a party who was too drunk to drive. Erin drove to Boxford after work to pick up her friend. Moments after she arrived, the cops arrived too and busted several kids for underage possession of alcohol. A North Andover High School honor student, Erin was cleared by police, who agreed she had not been drinking and was not in possession of alcohol. But Andover High told Erin she was in violation of the district’s zero tolerance policy against alcohol and drug use. In the middle of her senior year, Erin was demoted from captain of the volleyball team and told she would be suspended from playing for five games. …the parents of Erin’s teammates have started a petition to support her.

I’m dismayed, of course, that the school wants to punish someone who didn’t do anything wrong, but what really irks me is that the school wants to regulate and control behavior that takes place off school property and outside of school hours.

To be blunt, it’s none of their you-know-what business. Parents should have primary responsibility for their kids and law enforcement has a role if they’re breaking the law.

Let’s now travel down south and read part of a report about how some mindless school bureaucrats punished an autistic student because he drew a picture of a bomb and brought the drawing to school.

…it all started when her son had made the hand-drawn picture of the bomb during the weekend at home. Parham said Rhett is a fan of the video game Bomber Man and drew the cartoon-ish like explosive. She told FOX Carolina on Monday that her son took the picture to Hillcrest Middle School, and that’s where problems arose. Parham said she was told that her son showed the picture to some older children, who reported him to school administration. …She said her son was suspended indefinitely by the school.

Fortunately, the government backed down after the story generated some unfavorable attention for the bureaucratic drones.

But we should ask ourselves why it even got to that stage. And perhaps get some counseling for the little brats who snitched on him. Sounds like they’re future IRS agents in training.

Sadly, this is just part of a pattern we’ve seen in government schools, with bureaucrats hyperventilating over normal kid behavior. Here are some other examples.

• Bureaucrats suspended a little boy for taking bites out of a pop tart in such a way that it was shaped like a gun.
• Bureaucrats suspended a 7-year boy for pretending to throw a non-existent grenade on the playground.
• Bureaucrats suspended a 6-year old boy in Maryland for making a gun shape with his finger.
• Bureaucrats busted a 5-year old girl in Pennsylvania for having a pink plastic gun that shoots bubbles.
• A teacher in Rhode Island caught an 8-year old boy with some plastic toy army men.
• Bureaucrats evacuated a school because an 11-year old boy made a motion detector for his science experiment.
• Bureaucrats in Florida kicked an 8-year old boy out of school for a year because he had a plastic gun in his backpack.
• A dual award in Virginia, with half the prize for the bureaucrats who suspended a 10-year old boy for a toy gun and half the prize for the cops who then arrested the kid.
• A third-grader got in trouble for having toy army men on his birthday cupcakes.
• Two second-graders got suspended for holding pencils like they were guns.
• Bureaucrats suspended a kindergartener for having a lego-sized toy gun.
• Bureaucrats wanted a deaf child to change his sign-language name because it required him to shape his fingers in a way that resembled a gun.
• Bureaucrats suspended two boys for playing with toy guns while off school property.

Now ask yourself to key question: Do we want to maintain and perpetuate a failed government school monopoly, or should we implement school choice to get better results and less political correctness?

Heck, we should be able to reform our schools if there’s already choice in countries such as Chile, Sweden, and the Netherlands.

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Setting Taxpayers on Fire in California

I posted a video back in 2010 that used biting humor to complain about overpaid firefighters.

That video stirred a hornet’s nest, generating some spirited debate in the comments section. But there was no resolution, in part because you can’t make sweeping judgements when firefighter pay is determined locally.

Some firefighters may be underpaid and some almost certainly are overpaid.

And you can find a jaw-dropping example of the latter category in southern California.

Andrew Biggs at the American Enterprise Institute looks into a controversy about compensation levels for firefighters in Orange County and says the critics are wrong – but also right – about excessive pay and benefits for the firefighting bureaucracy.

UnionWatch.org reports that the average firefighter in Orange County, California pulls in total pay and benefits of $234,000 per year, making them among the best-paid public employees – and, for that matter, among the best-paid of any kind of employees – in the country. But is this true? No. But yes. UnionWatch relies on compensation data provided by Orange County itself, which appears to buttress their claims. Average salaries for firefighters top $91,000, on top of which they typically receive another $65,000 in overtime and other supplementary pay. Firefighters then receive an employer pension employer contribution of around $61,000 and health insurance benefits of about $15,000, for a total of over $234,000.

Here’s why UnionWatch.org is incorrect.

…why is this not right? Because in Orange County and most other cities and states, much of the employer’s pension contribution is to pay off unfunded liabilities from prior years, which is different from pension benefits earned by employees in the current year. Only the latter is truly compensation. The “normal cost” of Orange County Fire pension benefits accruing this year is about 23.49 percent of salaries, or around $37,685. So, average annual compensation would be around $23,000 less, so make that total compensation of about $211,000. Still not shabby, but less than the headline.

But it seems that the group also is right. Indeed, they understated the cost of employing a firefighter.

But here’s the bad news: total compensation is actually a lot higher than $211,000, and even higher than UnionWatch’s $234,000 figure. The reason is that Orange County calculates its pension contribution based on the assumption the plan’s investments will 7.75% investment returns every year. …If we assume a 4% interest rate – something above the riskless Treasury yield, but lower than the pensions’ own risky investment return – the normal cost of Orange County Fire pensions rises a lot – to about 75 percent of salaries. (…the Congressional Budget Office applied the same risk-adjustment in valuing pensions for federal government employees.) In other words, in an average year an Orange County firefighter accrues future pension benefits worth over $118,000. So total annual compensation for an average Orange County firefighter is somewhere in the neighborhood of $290,000 per year.

That’s a nice pile of cash. Not as good as the city manager in one California town who raked in more than $787,000 per year, but definitely not shabby.

But the real issue is whether $290,000 is too much or too little. Being a firefighter is a risky profession, after all, and higher compensation is an efficient way of compensating for danger. And I assume there are fitness requirements that restrict the pool of eligible applicants.

Unfortunately, the article doesn’t give us the information needed to specifically assess whether Orange County firefighters are overpaid.

For what it’s worth, though, I think the answer is yes. We have data from the Department of Labor showing that state and local government bureaucrats are far less likely to voluntarily leave their jobs compared to workers in the private sector.

That’s a very strong indication that they’re receiving above-market wages. And since firefighters are paid a lot more than the average state or local bureaucrat, we can make some educated assumptions about their relative compensation.

To put this issue in context, here’s a video I narrated from the Center for Freedom and Prosperity on the issue of bureaucratic compensation.

If I had to simplify this video into a couple of short messages, one of them would be that a lot of bureaucrats are grossly overpaid for the simple reason that their jobs shouldn’t exist. I’m sure there are some very nice and wonderfully conscientious people working at places such as the Department of Agriculture and the Department of Housing and Urban Development, but their jobs should be phased out as those departments are eliminated.

The other message is that we should use market indicators to determine compensation for government jobs that would still exist. Whether we’re talking about military pay at the federal level or compensation for cops at the local level, it makes sense to pay enough to get the right people but not so much that taxpayers are getting the short end of the stick.

In Orange County, California, taxpayers are left with a twig.

P.S. I already mentioned the fat-cat city manager from Bell, California. Here are some other bureaucrats who are living on Easy Street courtesy of taxpayers.

• A transit bureaucrat from California who got $330,000 with doing a day of work.
• 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.

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For any Fiscal Policy Question, Spending Restraint Is the Answer

Okay, I’ll admit the title of this post is an exaggeration. How to fix the mess at the IRS is a fiscal policy question, and that requires tax reform rather than spending restraint.

But allow me a bit of literary license. We just had a big debt limit battle in Washington and, after a lot of political drama, politicians kicked the can down the road.

So we need to ask ourselves whether that fight accomplished anything?

It did focus attention on the flaws of Obamacare, and I suppose there’s some value in that.

But the debt limit was not a vehicle – as has been the case in the past – for changes in fiscal policy. We didn’t get something good, like the sequester which resulted from the 2011 debt limit legislation. And we didn’t get something bad, like the tax hike in the 1985 debt limit legislation

Some are asking whether we should even have a debt limit. A number of critics have suggested we should get rid of the borrowing cap because it creates the risk of default. I think those concerns are very overblown.

I’m more persuaded by those who argue that the debt limit diverts attention from better options to improve fiscal policy.

Professors Gary Becker and Edward Lazear write in the Wall Street Journal that the debt ceiling is not a very good tool for restraining the growth of government. They look at evidence from the states to warn that fiscal rules that seek to limit borrowing are ineffective.

Many states are required to have “balanced” budgets, but the growth in spending and the size of state governments continues apace. During good times, when tax revenues are high, states “balance” their budgets by spending at the high levels consistent with large revenues. When times get tough, it is difficult if not impossible to eliminate programs that had been initiated during the fat years. Instead, the states resort to budgetary gimmicks, like delaying shortfalls until next year’s “balanced” budget.

Gimmicks are bad, of course, but politicians also respond to fiscal squeezes by raising taxes.

And that can be even worse as the prospect of more revenue leads to a ratchet effect, with periodic tax hikes used to maintain or expand the gravy train of spending. The fiscal mess in Europe is an obvious case study, but if you want a painful example from America, just look at data from Connecticut. The state did quite well without an income tax from the 1600s until 1991.

But then an income tax was imposed, in part to deal with the fiscal shortfall caused by an economic downturn. And, as critics warned, that new tax has produced dismal results. The top rate has jumped from 4.5 percent to 6.5 percent and inflation-adjusted per-capita state government spending has doubled. And there have been zero net private-sector jobs created since the income tax was implemented.

So what’s the answer? Becker and Lazear explain that lawmakers should target the underlying problem of spending rather than the symptom of red ink.

Better than a debt-ceiling rule would be one that controls spending directly, not the debt that results from it. The specifics are less important than the general principle, which is that spending growth should be limited in a way that brings government outlays back down to historic ratios relative to GDP. This would place the attention where it belongs, on spending rather than on the difference between outlays and receipts. Increased spending, coupled with even larger increases in taxes, might bring the deficit down, but it would damage economic growth and well-being.

Well stated. Reducing the overall burden of government spending – measured as a share of economic output – should be the goal of fiscal policy. That’s simply another way of stating my Golden Rule. And there’s a growing body of academic evidence showing that reducing the size of government is a good way of improving economic performance.

I’ve been highlighting the example of Switzerland, which has successfully strengthened its economy and fiscal policy with a spending cap (which, ironically, is called a “debt brake” even though the real effect of the law is to limit how fast spending can increase over time).

Other countries that have limited spending also have achieved some very impressive results. The video at this link looks at evidence from nations such as New Zealand and Canada in the 1990s, and there’s a more recent data about the positive effects of spending restraint in the Baltic nations.

There has been some interest in spending caps on Capitol Hill. Congressman Brady of Texas has proposed a MAP Act that is somewhat similar to Switzerland’s debt brake and Senator Corker of Tennessee has introduced a CAP Act that also would restrain annual spending increases.

Perhaps if some of their colleagues read today’s Becker-Lazear column, they’ll also understand why it’s better to focus on the underlying problem of government spending rather than getting distracted by the symptom of red ink.

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Welfare Fraud Is another Reason to Replace the IRS with a Flat Tax

One of my missions in life is fundamental tax reform. I would like to replace the corrupt internal revenue code with a simple and fair flat tax.

Though what I really want is a tax system that minimizes the damage of extracting money from the productive sector of the economy, so I’ll take any system with a low rate, no double taxation, and no distortionary loopholes.

The national sales tax, for instance, also would be a good option if we can first repeal the 16th Amendment so there’s no risk that politicians would pull a bait and switch and saddle us with both an income tax and a sales tax (and in my ultimate fantasy world, we would shrink the federal government to the size envisioned by the Founding Fathers, in which case we probably wouldn’t need any broad-based tax at all).

While I normally make the economic case for tax reform, there are many reasons to fix our broken tax code.

Many Americans, for instance, are rightfully upset that the tax code is a 76.000-page monstrosity that enables the politically well connected to benefit from special provisions.

So we don’t know if the rich are paying an appropriate amount. Some of them are paying too much because of high rates and double taxation, while some of them are paying too little because they have clever lawyers, lobbyists, and accountants.

In an ideal world, if someone like Bill Gates earns 10,000 times as much as I do, then he should pay 10,000 times as much in tax. That’s a core principle of the flat tax.

But this post isn’t about why we need tax reform to promote economic growth or fairness. Instead, I want to focus on tax reform as a way of reducing welfare fraud. The Treasury Department just released a report acknowledging that the IRS made more than $100 billion of improper “earned income credit” payments over the past decade and that about one-fourth of all such payments are in error.

This Fox News article is a good summary. Here are the key details.

The Internal Revenue Service paid out more than $110 billion in tax credits over the past decade to people who didn’t qualify for them, according to a Treasury report released Tuesday. …IRS inspector general J. Russell George said more than one-fifth of all credits paid under the program went to people who didn’t qualify. …George said in a statement. “Unfortunately, it is still distributing more than $11 billion in improper EITC payments each year and that is disturbing.” …The agency said it prevents “nearly $4 billion in improper claims each year and is committed to continuing to work to reduce improper claims.” The EITC is one of the nation’s largest anti-poverty programs. In 2011, more than 27 million families received nearly $62 billion in credits.

Now some background. The “earned income credit” or “earned income tax credit” is actually an income redistribution scheme operated by the IRS. It’s basically a wage subsidy. If someone earns money (the “earned income” part), the law says the IRS should augment that money with a payment from the government (the “credit” or “tax credit” part).

The key thing to understand, though, is that the EITC is “refundable,” which is the government’s term for payments to people who don’t earn enough to owe any income tax. That’s why it’s primarily an income redistribution program. Only it’s operated by the IRS rather than the Department of Health and Human Service or some other welfare agency.

And when government is giving away other people’s money, there are those who will try to abuse the program. That’s true for corporate welfare, and it’s true for traditional welfare like food stamps. And, as we see from the Treasury report, it’s true for the EITC.

That’s the bad news.

The good news is that the EITC has a redeeming feature. Some lawmakers realized traditional welfare programs were very destructive because they paid people not to work. The EITC supposedly offsets that perverse incentive because you get the money only because you earn some income.

But now let’s share some additional bad news. The government takes away the EITC once your income reaches a certain level, and this is equivalent to a big increase in the marginal tax rate on earning additional income.

And when you combine the EITC with all the other redistribution programs operated by government, you create a huge dependency trap. Indeed, the chart shows that many of these programs can be larger than the EITC (which is called “negative income tax”).

So let’s adopt a flat tax and get rid of all the bad features of the tax system, including the EITC. Welfare and income redistribution are not proper roles of the federal government.

We’re far more likely to get good results – both for poor people and taxpayers – if we let state and local governments experiment and learn from each other on what actually helps people climb out of poverty.

P.S. I can’t overlook an opportunity to point out that today’s complicated and convoluted tax code is the reason why we have a powerful and intrusive Internal Revenue Service. And never forget that the IRS has a long record of abusive actions.

• It has thieving employees.
• It has incompetent employees.
• It has thuggish employees.
• It has brainless employees.
• It has victimizing employees.
• And it has politically biased employees.

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The Unrecognized Shutdown Victory…and some After-the-Fact Shutdown Humor

I recently gave five reasons why the shutdown fight was worthwhile and my number one reason was that it’s better to be on offense than defense.

It seems I’m not the only one to reach this sensible conclusion. Here’s some of what Fred Barnes wrote today for the Wall Street Journal.

In the deal that ended the government shutdown, Republicans…got almost nothing they’d sought. But what has been largely overlooked is that the deal didn’t curtail, much less end, the automatic spending cuts known as the budget sequester. And undoing the sequester is what President Obama and Democrats wanted most of all. The survival of the automatic spending cuts gives Republicans the upper hand in confronting the White House and congressional Democrats on budget issues… For Republicans eager to corral federal spending—and that’s most of them—the sequester is a gift that keeps on giving. …Democrats, especially Senate Majority Leader Harry Reid, are fit to be tied as they watch cherished social programs gradually shrink.

Other than the assertion that social programs are shrinking (they’re simply not growing as fast), Barnes is right. By going on offense on Obamacare, Ted Cruz and his allies put the left on defense and prevented them from successfully organizing to undo the sequester.

Kudos to the Tea Party for being willing to do the right thing against uphill odds.

In his column, Barnes explains that the sequester has been great news.

To say the sequester has backfired for Democrats is putting it mildly. …The sequester is cuts and only cuts. As a result, Senate Minority Leader Mitch McConnell noted proudly last week when announcing the end of the shutdown that “government spending has declined for two years in a row [for] the first time in 50 years.” …Saving the sequester “has been a top priority for me and my Republican colleagues throughout the debate” about the shutdown, Mr. McConnell said. …Republicans can sit on their hands and experience the joy of trimming the size of government and, thanks to the sequester, watching Democrats gripe about it.

Spot on. The sequester was a major defeat for Obama (and also a big loss to the Washington establishment).

Moreover, Senator McConnell is correct about government spending actually declining for two consecutive years, which is a remarkable achievement and a sign that the Tea Party has made a difference (though I explained in my post on presidential spending performance that it’s not as impressive as it sounds because of the way TARP money is measured).

So let’s hope Republicans don’t fumble away the sequester as part of some tax-hiking grand bargain that will enable bigger government.

Since we’re doing some after-the-fact analysis of the shutdown fight, this gives me an opportunity to belatedly share some great shutdown images from Buzzfeed. There are about 20 of these, all of which are worth seeing. Here are my three favorite ones.

We’ll start with some horrid anarchists disobeying the government.

Here we have some radicals, probably from the Tea Party.

Last but not least, here are WWII vets who failed to obey the statist clowns at the National Park Service.

P.S. Previous examples of government shutdown humor can be enjoyed by clicking here, here, here, here, and here.

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The French Death Spiral

There’s a tendency in public life to exaggerate the positive or negative implications of any particular policy.

This is why I try to be careful not to overstate the potential benefits of reforms I like, such as the flat tax. Yes, we would get better growth and there would be less corruption in Washington, but tax reform would not be a panacea for every ill. Many other policies also need to be fixed to generate sustained prosperity.

Likewise, I’m obviously not a fan of Obamacare, but I try to remind people that our system was already messed up even before Obama was elected. As such, repealing Obamacare – while the right thing to do – is just one of many things that need to happen to restore a competitive and efficient healthcare system.

Now that I’ve warned about the risks of overstatement, I’m going out on a limb to say that we may be at the point where France is taxing itself to the point of economic ruin.

One French budget expert warned that, “the spiraling welfare debt was particularly abnormal and particularly dangerous” and that “The strategy of fixing the system by collecting new revenue is reaching its limits.”

And even a European Union Commissioner thinks France has gone too far. As one newspaper reported, “Tax increases imposed by the Socialist-led government in France have reached a ‘fatal level’, the European Union’s commissioner for economic affairs said today. Olli Rehn warned that a series of tax hikes since the Socialists took power…threatens to ‘destroy growth and handicap the creation of jobs'”

You know you’re taxing too much when even Euro-crats in Brussels think the fiscal burden is excessive!

I’ve certainly added my two cents to this discussion, but I suspect people will be more willing to believe someone who endures the French fiscal regime every day.

And that’s our topic for today. A woman from France has written a very powerful indictment of France’s coercive and confiscatory economic system. Here are some excerpts from the UK-based Telegraph.

More than 70 per cent of the French feel taxes are “excessive”, and 80 per cent believe the president’s economic policy is “misguided” and “inefficient”. …Worse, after decades of living in one of the most redistributive systems in western Europe, 54 per cent of the French believe that taxes – of which there have been 84 new ones in the past two years, rising from 42 per cent of GDP in 2009 to 46.3 per cent this year – now widen social inequalities instead of reducing them.

Some of you may be wondering why French voters elected a socialist if they overwhelmingly think taxes are too high, but keep in mind that the former President was just as much of a statist.

I’m curious, by the way, about the data on taxes and social equality. Why do the French think higher taxes increase inequality? Is it that they think the higher taxes are being imposed on the middle class and the poor? Do they think that high taxes stifle growth and prevent upward mobility? Is it some combination of these factors, or something else altogether?

One thing we can say with certainty is that all these taxes have led to a bloated public sector.

By 2014, France’s public expenditure will overtake Denmark’s to become the world’s highest: 57 per cent of GDP. In effect, just to keep in the same place, like a hamster on a wheel, and ensure that the European Central Bank in Frankfurt isn’t too unhappy with us, Hollande now needs cash. …finance minister Pierre Moscovici recently admitted that he “understood” the French’s “exasperation” with their heavy tax burden. This earned him a sharp rap on the fingers from the president… “It’s not only that people don’t like to be treated like criminals just because they’re successful,” says a French banker friend who has recently moved to London. “But this uncertainty in every aspect of the tax system means it is impossible to do business: you don’t know what your future costs are, or your customer’s. You can’t buy, you can’t sell, you can’t hire, you can’t fire.”

Not surprisingly, this hostility to achievement is having a predictable impact.

…tax has been the clincher that sent hundreds, possibly thousands of French citizens abroad: not just “the rich”, whom Hollande, during his victorious campaign, said he personally “disliked”, …but also the ambitious young, who feel that their own country will turn on them the minute they achieve any measure of personal success. …one out of four French university graduates wants to emigrate, “and this rises to 80 per cent or 90 per cent in the case of marketable degrees”, says economics professor Jacques Régniez, who teaches at both the Sorbonne and the University of New York in Prague. “In one of my finance seminars, every single French student intends to go abroad.

Heck, a majority of French people have said they would be interested in escaping to the United States if they had the opportunity.

However, those are the productive and ambitious young people of France. Unfortunately, there’s another group of young French people, and they have different dreams.

…young people, and many of their parents, dream of getting any kind of state or local administration post…which ensures complete job security, unrelated to the economic situation, the market, or their own performance. More than a quarter of the French workforce is employed by some public body or other: schools, hospitals, local and regional councils, the police, the civil service proper – or those new subsidised public-service jobs the Hollande government is so keen on.

We have people like that in the United States as well.

What matters for a society, though, it whether there are too many people living off the government. When the moochers and looters outnumber (and out-vote) the people who are producing, the conditions exist for an economic death spiral.

Simply stated, the folks riding in the wagon keep voting to impose heavier burdens on those pulling the wagon. That eventually leads to economic ruin, and it leads to trouble even faster when the people pulling the wagon have the opportunity to move across borders.

Which is what is happening in France.

P.S. Here’s a powerful comparison of France and Switzerland.

P.P.S. More than 8,000 French households last year got to experience the Obama-version of a flat tax.

P.P.P.S. Americans shouldn’t feel superior to France since our tax code is worse in certain ways.

P.P.P.P.S. That being said, we’re not as bad as France, and even Obama won’t be able to change that.

P.P.P.P.P.S. I endorsed the current socialist President of France, but for a strategic reason.

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Some Much-Need Obamacare Humor

It seems there’s a cottage industry of people in America devoted to making parody videos about one of the world’s most evil statists. And some of them make very strong points about public policy.

Here’s Hitler learning about Europe being downgraded.

And here’s the Fuehrer finding out that Scott Walker prevailed in his fight against government bureaucrats in Wisconsin.

Well, the clever folks at the Powerline Blog have added to this stellar collection. Watch as the leader of the National Socialist Workers Party learns about the failure of Obamacare.

I give this two thumbs up, five stars, and whatever else signifies a good job.

The parts about Bidencare and Hillarycare are delightfully vicious. And DC insiders will be amused by the jab at the Heritage Foundation for concocting the mandate in the first place (to be fair, Heritage has atoned for that sin by becoming one of the leading critics of Obamacare).

To augment the Hitler video, let’s share some great new Obamacare cartoons, starting with one from Henry Payne.

And here’s the always clever Michael Ramirez.

Last but not least, Lisa Benson weighs in with a good depiction of Obamacare’s launch.

The bad news, if we can be momentarily serious, is that Obamacare’s failure is the predictable result of bad policy based on bad economics. But failure doesn’t mean the law blows up and disappears. Legislation will be required to undo the damage, which is why it’s good that some lawmakers continue to fight.

In the meantime, it’s our healthcare system – which was already messed up by government to begin with – that’s incurring the damage. Which makes this bit of humor that arrived in my inbox funny…but in a very dark way.

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

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Lung Cancer, Heroin, and Government Spending

If this blog was an episode of Jeopardy, the response to the title of this post would be “Name three things that Dan Mitchell doesn’t like.”

But this blog isn’t a game show. It’s a serious forum* for discussing how we protect freedom and prosperity from ever-expanding government.

That’s why, in this interview with John Stossel, I reiterate my mantra that government spending is the problem and that deficits and debt are symptoms of the problem.

I usually use the analogy that government spending is a brain tumor and red ink is the headache caused by the tumor when seeking to help people understand that it’s important to focus on the disease and not the symptom. But to show that I’m not just a single-analogy kind of guy, this time I said that government spending was like lung cancer and that deficits are akin to the resulting cough.

I also concocted an analogy about government goodies being akin to heroin. If you’re an addict, it may feel good to put more junk in your veins, but you’ll be much better off if you endure the short-run discomfort of going clean. Just as it may cause angst among interest groups if we stop the federal gravy train, but they’ll be better off in the long run if we reduce the burden of government spending and restore robust growth.

And nobody will be surprised to see that I made my usual points that there was no risk of default and that it’s actually surprisingly simple to balance the budget with modest spending restraint.

Speaking of analogies, I also modified Senator Durbin’s analogy so that he and his colleagues are a bunch of drug dealers trying to buy votes by addicting people to big government.

*Okay, given all the political humor I share, perhaps it’s a semi-serious forum, but my analysis of fiscal policy is not a joking matter.

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The Perverse Economics of Obamacare: Earn Less, Get More

Obamacare was put together by people who don’t understand economics.

This is probably the understatement of the year since I could be referring to many features of the bad law.

The higher tax burden on saving and investment, making an anti-growth tax system even worse.

The exacerbation of the third-party payer problem, which is the nation’s biggest healthcare problem.

The increased burden of government spending, worsening America’s entitlement crisis.

Those are all significant problems, but today I want to focus on how Obamacare encourages people to be less productive. And I’m going to use a rather unexpected source. The left-leaning San Francisco Chronicle has a financial advice column that inadvertently show how Obamacare discourages people from earning income.

The article nonchalantly explains that people may want to reduce their income so they can get more goodies from the government.

People whose 2014 income will be a little too high to get subsidized health insurance from Covered California next year should start thinking now about ways to lower it to increase their odds of getting the valuable tax subsidy. “If they can adjust (their income), they should,” says Karen Pollitz, a senior fellow with the Kaiser Family Foundation. “It’s not cheating, it’s allowed.” Under the Affordable Care Act, if your 2014 income is between 138 and 400 percent of poverty level for your household size, you can purchase health insurance on a state-run exchange (such as Covered California) and receive a federal tax subsidy to offset all or part of your premium. …getting below the 400 percent poverty limit could save many thousands of dollars per year.

You may be thinking that this is just a theoretical problem, but the article cites a very real example.

To get a subsidy, the couple’s modified adjusted gross income for 2014 income would need to fall below $62,040, which is 400 percent of poverty for a family of two. …Proctor estimates that her 2014 household income will be $64,000, about $2,000 over the limit. If she and her husband could reduce their income to $62,000, they could get a tax subsidy of $1,207 per month to offset the purchase of health care on Covered California. That would reduce the price of a Kaiser Permanente bronze-level plan, similar to the replacement policy she was quoted, to $94 per month from $1,302 per month. Instead of paying more than $15,000 per year, the couple would pay about $1,100.

To put it in even simpler terms, this couple has figured out that they can get almost $14,000 of other people’s money by reducing how much they earn by just $2,000.

That, in a nutshell, is the perfect illustration of the welfare state. It tells people that they can get more by producing less. And the system is based on the theory that there will always be some suckers who work hard to provide the subsidies.

But as we’ve seen in Greece, Italy, Spain, and elsewhere, this system eventually breaks down as more and more people learn that it’s easier to ride in the wagon than it is to pull the wagon (as powerfully illustrated by these two cartoons).

And remember that the United States isn’t too far behind Europe’s welfare states.

Thanks to the plethora of welfare programs and income-redistribution schemes that already exist, millions of Americans have an incentive to earn less money and get trapped in government dependency. This graph, for instance, shows that various handouts mean that a single mom with $29,000 of income can be better off than a self-reliant person with $69,000 of income.

And a local CBS station discovered that a low-income household could be eligible for more than $80,000 of goodies from the government. Earning more money, though, would mean fewer handouts.

The same problem exists, by the way, in other nations such as Denmark and the the United Kingdom.

Remember Julia, the mythical moocher created by the Obama campaign to show the joys of government dependency? As illustrated by this Ramirez cartoon, Julia symbolizes the entitlement mentality. But the cartoon doesn’t go far enough. It should show how Julia decides to lead a less productive and less fulfilling life because she gets hooked on the heroin of handouts.

P.S. Some honest liberals recognize that redistribution can trap people in poverty.

P.P.S. Unsurprisingly, Thomas Sowell explains this issue with blunt and powerful logic.

P.P.P.S. To close with some humor, here’s a new Declaration of Dependency put together for our leftist friends. Though they may want to think twice before asking for a divorce from Red State America.

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Five Important Takeaways from the Government Shutdown-Debt Limit Fight

The wailing and hysteria in Washington is over. The politicians now have the authority to borrow more money and the bureaucrats are all back at work (rested and refreshed after their paid vacation, so they’ll probably tax, spend, and regulate with extra fervor).

So what can we say about this fight? I have five semi-random observations about what happened.

1. It was a fight worth having, even though there was virtually no chance of derailing Obamacare.

With America’s separation-of-powers system, the House of Representatives had the ability to force a fight about Obamacare, but it didn’t have a realistic shot at winning the fight. I suspect President Obama would have chosen to deliberately default if necessary to thwart Republican efforts to defund or delay the law.

That being said, I’m glad the Tea Party-oriented members chose to take a stand. They focused attention on a bad law. They forced the left to play defense. Simply stated, they were willing to take a stand against the ongoing Europeanization of the American economy. That’s something to admire, not criticize.

2. Any strategy to reduce the burden of government will have to overcome an establishment media that is philosophically biased and politically partisan.

Maybe it’s just my own naiveté, but I’m surprised that so many journalists are one-sided partisans. They don’t write stories explaining that the government shut down because Democrats rejected House-approved legislation defunding Obamacare (which accurately depicts the shutdown as being the result of a disagreement between Democrats and Republicans). Instead, they have screaming headlines about “Republicans shut down the government.”

Even more disturbing, I had several conversations with journalists explaining that the United States would not default if the debt limit wasn’t raised. The federal government, I explained, will be collecting 12 times as much revenue as required to pay interest on the debt. And I shared quotes from several establishment budget experts who agreed with my assessment. Yet those journalists inevitably wrote stories about “Republicans pushing US closer to default.”

3. The shutdown will probably be a political plus for advocates of small government.

Notwithstanding the polling data, I’m not worried about political damage because of the shutdown-debt limit fight. In the short-run, the fight sidelined the left’s agenda. Instead of debating how to expand government or how to raise taxes, we had a battle over Obamacare. That’s a good thing. And as more and more people learn about the deep flaws of the President’s main “achievement,” they will begin to appreciate in the long run that some lawmakers wanted to curtail government-run healthcare.

This won’t stop the media from talking about a “defeat” for the Tea Party, both because they’re lazy and also because they want to discourage advocates of small governments from future fights. For what it’s worth, I strongly suspect the 2014 election will generate good results for the Cruz-type lawmakers. Indeed, it’s worth noting that congressional Republicans did very well in the 1996 elections, even though conventional wisdom said they would suffer as a result of the 1995-96 shutdown fight.

4. Fans of political drama should be happy since there will quite likely be another shutdown-debt limit fight in a few months.

Yesterday’s agreement kicks the can down the road. The “discretionary” parts of the government are now funded through January 15 and the government’s new borrowing authority will last through February 7.

That almost surely means we’ll have a similar fight early next year.

5. To win that future fight, the GOP establishment and the insurgents should agree on a common strategy.

From a political perspective, Democrats had a big advantage in the recent fight because they locked arms and agreed to unanimously resist the efforts to curtail Obamacare. This meant they had to cast some tough votes in favor of the individual mandate and in favor of Obama’s special exemption for Capitol Hill. But that unified strategy put them in a stronger position than Republicans, who may have agreed on the goal of curtailing Obamacare but disagreed on the tactics of Cruz and his allies.

This is why my main advice to friends on the Hill (both from the establishment and insurgents) is to sit down over the next month or so and agree on a common strategy. If they did that, the insurgents would learn that the establishment crowd is sometimes willing to do the right thing (such as the Ryan budget) and the establishment lawmakers would learn that the insurgents are willing to push for more modest changes. I’m not sure what specifically that would mean. Maybe they’ll agree to go after Obamacare again, or some specific feature of that boondoggle law. Maybe they’ll push for overall entitlement reform. Or maybe they’ll go with my top choice, which is some sort of spending cap akin to the Swiss Debt Brake, such as Congressman Brady’s MAP Act.

If you’re interested in these topics (or if you’re a glutton for punishment), Chris Edwards and I spent almost one hour discussing all these topics in this recent Cato e-briefing.

If you want something only about half as long, I recommend my video series on the economics of government spending.

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Untaxed and Overpaid IMF Bureaucrats Recommend Huge Tax Hikes in America

If there was a special award for chutzpah, the easy winner would be the bureaucrats at the International Monetary Fund. These pampered bureaucrats get lavishly compensated and don’t have to pay tax on their bloated salaries.

The gold-plated fringe benefits include “your spouse/partner may join you on official travel at Fund expense.”

You would think this would make them a bit sensitive to the notion that it’s hugely hypocritical of them to propose big tax hikes when they have a special exemption.

But they have no shame. The international bureaucracy is making a renewed push for higher taxes all over the world.

You can read the actual IMF report, but the UK-based Guardian does a very good job of summarizing the important details.

The key takeaway is that the bureaucrats are telling governments to make the VAT more onerous (a standard IMF recommendation) and to raise other taxes as well.

…the current fiscal monitor…suggests there are ways of raising extra tax revenue, beyond the fund’s long-term support for broadening the tax base through the wider application of VAT.

And what are those other taxes? Well, the IMF is very promiscuous when urging the confiscation of other people’s money.

First, it supports the idea of a financial activities tax, which would be levied on the wages and profits of financial institutions. This would be the equivalent of levying VAT on financial services, which are currently exempt. …Second, the IMF thinks it is time to do something about an international tax system… Instead of a race to the bottom where countries compete with each other to offer the lowest rate of corporate tax, it urges co-operation.

Yes, you read correctly. The IMF wants a big tax hike on the financial services sector. I guess we’re supposed to believe that will strengthen banks or something like that.

And it wants to end tax competition so that greedy governments can more easily increase the tax burden on businesses.

Cartels are supposed to be a bad thing, but they suddenly become acceptable when governments get together and conspire on ways to rig the system in favor of higher taxes. That’s been an ongoing project for the OECD (another statist international organization filled with untaxed bureaucrats), and I guess the IMF wants to get in on the action.

But the most remarkable part of the IMF report is the endorsement of punitive class-warfare taxes.

Finally, the fund comes out in favour of having a long hard look at whether those on the highest incomes should pay more. In some countries, the US in particular, the IMF research suggests the rich are substantially under-taxed. …It compared the current tax rate paid by highest earners with the tax rate that would maximise revenue…the fund concluded the top rate of tax that maximised income was 60%, it was careful to set a range for each country studied.

For all intents and purposes, the IMF wants to turn back the clock and return to 1970s-style confiscatory tax levels. Top tax rates of 60 percent, no problem. Payroll tax rates of 30 percent, sounds great! Value-added tax burdens of 25 percent, peachy keen!!

“The IMF is right! It’s time to raise taxes”

The IMF’s message seems to be that the entire world should become France.

To be fair, however, at least the IMF acknowledges that the revenue-maximizing tax rate is less than 100 percent. Mon Dieu, they’re acknowledging the Laffer Curve! This means they’re not as far to the left as the bureaucrats at the Joint Committee on Taxation. I guess this is what people mean when they talk about damning with faint praise.

P.S. Just in case this isn’t enough evidence against the IMF, here are some more examples of the bureaucracy’s statist work.

• 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.
• Pushing an energy tax that would mean $5,500 of expense for the average American household.

So while I’m normally critical of Republicans for being timid, they deserve some praise for recently blocking even more subsidies for the IMF.

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Wise Words on Fiscal Sovereignty and Corporate Taxation (sort of) from Bill Clinton

I’ve always had a soft spot in my heart for Bill Clinton. In part, that’s because economic freedom increased and the burden of government spending was reduced during his time in office.

Partisans can argue whether Clinton actually deserves the credit for these good results, but I’m just happy we got better policy. Heck, Clinton was a lot more akin to Reagan that Obama, as this Michael Ramirez cartoon suggests.

Moreover, Clinton also has been the source of some very good political humor, some of which you can enjoy here, here, here, here, and here.

Most recently, he even made some constructive comments about corporate taxation and fiscal sovereignty.

Here are the relevant excerpts from a report in the Irish Examiner.

It is up to the US government to reform the country’s corporate tax system because the international trend is moving to the Irish model of low corporate rate with the burden on consumption taxes, said the former US president Bill Clinton. Moreover, …he said. “Ireland has the right to set whatever taxes you want.” …The international average is now 23% but the US tax rate has not changed. “…We need to reform our corporate tax rate, not to the same level as Ireland but it needs to come down.”

Kudos to Clinton for saying America’s corporate tax rate “needs to come down,” though you could say that’s the understatement of the year. The United States has the highest corporate tax rate among the 30-plus nations in the industrialized world. And we rank even worse – 94th out of 100 countries according to a couple of German economists – when you look at details of how corporate income is calculated.

And I applaud anyone who supports the right of low-tax nations to have competitive tax policy. This is a real issue in Europe. I noted back in 2010 that, “The European Commission originally wanted to require a minimum corporate tax rate of 45 percent. And as recently as 1992, there was an effort to require a minimum corporate tax rate of 30 percent.” And the pressure remains today, with Germany wanting to coerce Ireland into hiking its corporate rate and the OECD pushing to undermine Ireland’s corporate tax system.

All that being said – and before anyone accuses me of having a man-crush on Bill and/or of being delusional – let me now issue some very important caveats.

When Clinton says we should increase “the burden on consumption taxes,” that almost surely means he would like to see a value-added tax.

This would be a terrible idea, even if at first the revenue was used to finance a lower corporate tax rate. Simply stated, it would just be a matter of time before the politicians figured out how to use the VAT as a money machine to finance bigger government.

Indeed, it’s no coincidence that the welfare state in Europe exploded in the late 1960s/early 1970s, which was also the time when the VAT was being implemented. And it’s also worth noting that VAT rates in recent years have jumped significantly in both Europe and Japan.

Moreover, Clinton’s position on fiscal sovereignty has been very weak in the past. It was during his tenure, after all, that the OECD – with active support from the Clinton Treasury Department – launched its “harmful tax competition” attack against so-called tax havens.

In other words, he still has a long way to go if he wants to become an Adjunct Fellow at the Cato Institute.

P.S. Just in case anyone want to claim that the 1993 Clinton tax hike deserves credit for any of the good things that happened in the 1990s, look at this evidence before embarrassing yourself.

P.P.S. There’s very little reason to think that Hillary Clinton would be another Bill Clinton.

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Time to Get Rid of the National Park Service

President Obama thinks he can prevail in the government shutdown fight by deliberately making life as difficult as possible for the maximum number of ordinary Americans.

We’ve seen this before. After suffering a defeat on the sequester, he made himself a laughingstock (as illustrated by these cartoons) with his Chicken-Little warnings that a tiny bit of fiscal restraint would grind government to a halt.

But his sequester hysterics are trivial compared to what the Obama Administration is doing today with the National Park Service.

Here are some unbelievable excerpts from Mark Steyn’s funny yet horrifying National Review column.

…the one place where a full-scale shutdown is being enforced is in America’s alleged “National Park Service,” a term of art that covers everything from canyons and glaciers to war memorials and historic taverns. The NPS has spent the last two weeks behaving as the paramilitary wing of the DNC, expending more resources in trying to close down open-air, unfenced areas than it would normally do in keeping them open. It began with the war memorials on the National Mall — that’s to say, stone monuments on pieces of grass under blue sky.

But it gets worse.

Not content with that, the NPS shock troops then moved on to insisting that privately run sites such as the Claude Moore Colonial Farm and privately owned sites such as Mount Vernon were also required to shut. When the Pisgah Inn on the Blue Ridge Parkway declined to comply with the government’s order to close (an entirely illegal order, by the way), the “shut down” Park Service sent armed agents and vehicles to blockade the hotel’s driveway.

Think that’s bad? Read on.

..in South Dakota, having closed Mount Rushmore the NPS storm troopers additionally attempted to close the view of Mount Rushmore — that’s to say a stretch of the highway, where the shoulder widens and you can pull over and admire the stony visages of America’s presidents.

What happened in Yellowstone, though, is surreal. Like something from Cambodia during the Pol Pot years.

But perhaps the most extraordinary story to emerge from the NPS is that of the tour group of foreign seniors whose bus was trapped in Yellowstone Park on the day the shutdown began. They were pulled over photographing a herd of bison when an armed ranger informed them, with the insouciant ad-hoc unilateral lawmaking to which the armed bureaucrat is distressingly prone, that taking photographs counts as illegal “recreation.” “Sir, you are recreating,” the ranger informed the tour guide. And we can’t have that, can we? They were ordered back to the Old Faithful Inn, next to the geyser of the same name, but forbidden to leave said inn to look at said geyser. Armed rangers were posted at the doors, and, just in case one of the wily Japanese or Aussies managed to outwit his captors by escaping through one of the inn’s air ducts and down to the geyser, a fleet of NPS SUVs showed up every hour and a half throughout the day, ten minutes before Old Faithful was due to blow, to surround the geyser and additionally ensure that any of America’s foreign visitors trying to photograph the impressive natural phenomenon from a second-floor hotel window would still wind up with a picture full of government officials. The following morning the bus made the two-and-a-half-hour journey to the park boundary but was prevented from using any of the bathrooms en route, including at a private dude ranch whose owner was threatened with the loss of his license if he allowed any tourist to use the facilities.

No bathroom stops?!? Has the bureaucracy really become this punitive and vindictive? Sounds like the Park Service has the same training program as the IRS.

I wonder if the “you-are-recreating” ranger is related to Mr. Norlander?

Ironically, American citizens now have less rights to “public land” than English peasants in 1217.

…in actual monarchies the king takes a more generous view of “public lands.” Two years after Magna Carta, in 1217, King Henry III signed the Charter of the Forest, which despite various amendments and replacement statutes remained in force in Britain for some three-quarters of a millennium, until the early Seventies. If Magna Carta is a landmark in its concept of individual rights, the Forest Charter played an equivalent role in advancing the concept of the commons, the public space. Repealing various restrictions by his predecessors, Henry III opened the royal forests to the freemen of England, granted extensive grazing and hunting rights, and eliminated the somewhat severe penalty of death for taking the king’s venison. The NPS have not yet fried anyone for taking King Barack’s deer, but it is somewhat sobering to reflect that an English peasant enjoyed more freedom on the sovereign’s land in the 13th century than a freeborn American does on “the people’s land” in the 21st century.

Yet all this abuse serves no purpose for open-air parks and monuments.

The geyser stasi of the National Park Service have in effect repealed the Charter of the Forest. President Obama and his enforcers have the same concept of the royal forest that King John did. The government does not own this land; the Park Service are merely the janitorial staff of “we the people” (to revive an obsolescent concept). No harm will befall the rocks and rivers by posting a sign at the entrance saying “No park ranger on duty during government shutdown. Proceed beyond this point at your own risk.” And, at the urban monuments, you don’t even need that: It is disturbing that minor state officials even presume to have the right to prevent the citizenry walking past the Vietnam Wall.

So what’s the bottom line?

The National Park Service should be out of the business of urban landmarks, and the vast majority of our “national” parks should be returned to the states.

Amen.

In my libertarian fantasy world, I have a list of priorities. I start with big things like entitlement reform and flat tax.

Then I move to medium goals like shutting down the department of agriculture and getting out of NATO.

At the bottom of my list are things like ending the drug war. It used to be that getting rid of national parks was in this category.

But the bureaucrats at the NPS have behaved so despicably that this is now much higher on my list of priorities. Simply stated, they’ve earned our disdain.

Let’s close with some amusing cartoons on this topic.

This Nate Beeler gem may be my favorite from today’s collection.

Michael Ramirez unveils a monument to arrogance.

Chip Bok shows who’s the real ideologue.

Last but not least, Glenn McCoy captures the President’s petulance.

P.S. Other examples of government shutdown humor can be enjoyed by clicking here, here, here, here, and here.

P.P.S. Excerpts from some of my other favorite Mark Steyn columns can be read here, here, here, here, here, here, and here.

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The “Third World Experience” of Obamacare

Back in 2009, before Obamacare, the United States had a healthcare system that was plagued by excessive government intervention, which led to a third-party-payer crisis and massive inefficiencies.

Perversely, the President thought the way to solve these problems was even more intervention, even though lots of people were warning that additional government spending and added intervention would make a bad situation even worse.

Now that it’s 2013 and Obamacare is being implemented, it seems (what a surprise!) that critics were right.

Amazingly, even the New York Times is being forced to acknowledge that Obamacare is turning into a typical government cluster-you-know-what.

…the chief digital architect for the Obama administration’s new online insurance marketplace, told industry executives that he was deeply worried about the Web site’s debut. “Let’s just make sure it’s not a third-world experience,” he told them. Two weeks after the rollout, few would say his hopes were realized. For the past 12 days, a system costing more than $400 million and billed as a one-stop click-and-go hub for citizens seeking health insurance has thwarted the efforts of millions to simply log in. The growing national outcry has deeply embarrassed the White House, which has refused to say how many people have enrolled through the federal exchange.

Not exactly the launch the President was hoping for, huh? Eric Allie’s cartoon is a much more accurate portrayal of what’s happening.

And contrary to what the White House is claiming, the problems go way beyond opening-day glitches.

“These are not glitches,” said an insurance executive who has participated in many conference calls on the federal exchange. Like many people interviewed for this article, the executive spoke on the condition of anonymity, saying he did not wish to alienate the federal officials with whom he works. “The extent of the problems is pretty enormous. At the end of our calls, people say, ‘It’s awful, just awful.’ ” Interviews with two dozen contractors, current and former government officials, insurance executives and consumer advocates, as well as an examination of confidential administration documents, point to a series of missteps — financial, technical and managerial — that led to the troubles.

By the way, notice how people don’t want to speak on the record, presumably because of concern about vindictive persecution by the Obama Administration. By itself, that should be a huge story.

But let’s stick with the coverage of the Obamacare disaster. As you can see, the Lisa Benson cartoon is right on the mark.

…just a trickle of the 14.6 million people who have visited the federal exchange so far have managed to enroll in insurance plans, according to executives of major insurance companies who receive enrollment files from the government. And some of those enrollments are marred by mistakes. Insurance executives said the government had sent some enrollment files to the wrong insurer, confusing companies that have similar names but are in different states. Other files were unusable because crucial information was missing, they said. Many users of the federal exchange were stuck at square one. A New York Times researcher, for instance, managed to register at 6 a.m. on Oct. 1. But despite more than 40 attempts over the next 11 days, she was never able to log in. Her last attempts led her to a blank screen.

But it’s not just the people trying to obtain insurance that are having an unpleasant experience.

The people who already have insurance are experiencing Obamacare sticker shock.

A North Carolina newspaper reports on bad news for health insurance consumers in the Tarheel State.

The Buncombe County resident, who along with her husband is self-employed, had been buying a policy from Blue Cross and Blue Shield of North Carolina. The couple paid $341 a month for a policy with a $10,000 deductible. Recently, Campbell, 53, got a letter informing her that her plan was not compliant with the Affordable Care Act and would no longer be available. It suggested a new plan with an $11,000 in-network deductible and $843 monthly premium. …John Wingerter, director of health insurance information services at the Council on Aging of Buncombe County, says he’s gotten at least a dozen calls from people who say their rates have increased dramatically.Some have said their rates have doubled or more than doubled.

And the Albuquerque Journal reports on some unfortunate people in New Mexico who have been victimized by Obamacare.

Robert Hare was happy with his insurance. So were Gregory Rothrock and his family. Yet, their insurance must change, and it will cost them more money. …Hare said his individual plan now costs him $87 a month and has a $5,000 deductible. The new plan will cost $211 and includes benefits, such as maternity coverage, that are required by the ACA but which Hare doesn’t want. …As for Rothrock, depending on which of the three levels of coverage he chooses, coverage for his family of three could be as much as 360 percent more costly.

Hmmm…I thought Obamacare was supposed to bring insurance rates down?!? And didn’t the President promise that people could keep their plans?

Does this mean – gasp! – that the folks in Washington have been lying to us!?!

The Chip Bok cartoon above is an amusing – and disturbing – look at what’s happening.

And when you add it all up, this Glenn Foden cartoon is a good summary of what we’ve been saddled with.

Which explains why I’m glad some lawmakers are still fighting Obamacare, even though they face very difficult odds.

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

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.

P.P.P.S. If you want to know where Obamacare will probably take us, peruse the horror stories about the U.K. system linked at the bottom of this post.

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Law Enforcement Resources Should Be Used to Protect against Real Crimes

I’m a very straight-laced guy. Some would even say boring. I’ve never done drugs, for instance.

But not because they’re illegal. I’ve never done drugs for the reason that I’ve never smoked cigarettes. Just doesn’t seem like a smart thing to do. And I encourage friends and family to have the same approach.

That being said, I’ve never thought we should criminalize things simply because I don’t like them.

Particularly when it would make a lot more sense to focus law enforcement resources on stopping crimes against people and property. This new video from Learn Liberty explains further.

But this isn’t about cost-benefit analysis. Watch this powerful video from Reason TV about how one family has been victimized by drug prohibition.

Now ask yourself what purpose it served to have local cops basically entrap that unfortunate kid? If you come up with an answer, you have a very creative imagination.

Also keep in mind that the War on Drugs is the reason why politicians imposed costly and ineffective anti-money laundering laws. As well as disgusting and reprehensible asset forfeiture laws.

One misguided government policy leading to two other bad policies. That’s Mitchell’s Law on steroids!

P.S. Drugs do impose costs, but they’re mostly incurred by moronic users. Though there sometimes are collateral victims, such as kids whose parents allow their lives to get messed up. That’s why it would be nice if drugs somehow didn’t exist. Heck, the same things could be said about booze. Or tobacco. But they do exist. The libertarian position isn’t that these things are good. Instead, our position is that prohibition does more harm than good.

P.P.S. Just in case you think I’m an outlier, I invite you to read the thoughts of John McCain, John Stossel, Mona Charen, Gary Johnson, Pat Robertson, Cory Booker, and Richard Branson.

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More Academic Evidence that Bigger Government Means Less Prosperity

My goal in life is very simple. I want to promote freedom and prosperity by limiting the size and scope of government.

That seems like a foolish and impossible mission, perhaps best suited for Don Quixote. After all, what hope is there of overcoming the politicians, interest groups, bureaucrats, and lobbyists who benefit from bigger government?

But I don’t think I’m being totally irrational. I’ve pointed out, for instance, that we can make progress if we simply restrain the growth of government so that it expands slower than the private sector. Surely that’s not asking too much, right? Heck, we’ve done that for the past two years!

Moreover, while much of Washington is a fact-free zone, I’m encouraged by the wealth of evidence showing that big government is bad for growth.

I’ve cited research on the negative impact of excessive government spending from international bureaucracies such as the Organization for Economic Cooperation and Development, International Monetary Fund, World Bank, and European Central Bank. And since most of those organizations lean to the left, these results should be particularly persuasive.

I’ve also cited the work of scholars from all over the world, including the United States, Finland, Australia, Sweden, Italy, and the United Kingdom.

And I share additional compelling data in this video, including a comparison of the United States and Europe.

Now we have some more evidence to add to our collection. Here are some excerpts from a study by two European economists. We’ll start with a blurb from the abstract that tells you everything you need to know.

The aim of this paper is to analyze the impact of government spending on the private sector, assessing the existence of crowding-out versus crowding-in effects. Using a panel of 145 countries from 1960 to 2007, the results suggest that government spending produces important crowding-out effects, by negatively affecting both private consumption and investment.

But if you want to understand how they did their research, here are some methodological details.

While most of the tests of the “crowding-out” versus “crowding-in” hypothesis that have been carried in previous papers focus on a time series or cross-country approach, this work extends such analysis to a panel data set of 145 countries from 1960 to 2007. The results show that government spending produces important crowding-out effects, by negatively affecting both private consumption and investment. …In addition, we analyze possible asymmetries of the effect of government consumption on private consumption and investment. In particular, we test: i) whether the effect varies among regions; and ii) whether it depends on to the phase of the economic cycle. We find that the effect varies substantially among regions, but it does not seem to depend on the phase of the economic cycle. …we study the impact of changes in the ratio of government spending to GDP on the growth of real per capita private consumption and private investment.

Here are some of the key results, starting with how government spending impacts consumption.

Starting with the analysis of the effect of government consumption on private consumption (Table 5a), we can immediately see that it is negative and statistically significant. The results also suggest that not only contemporaneous changes in the government consumption-GDP ratio matter, but also its past lags (specifically, the 2nd and 3rd ones). In particular, the cumulative effect of government spending on private consumption is about 1.9 %, of which about 1.2% captured by contemporaneous changes in the government consumption-GDP ratio and 0.7 % by its lags. This result can be interpreted as follows: an increase of government consumption by 1 % of real GDP immediately reduces consumption by approximately 1.2%, with the decline continuing for about four years when the cumulative decrease in consumption has reached approximately 1.9 %.

And here’s the data on how government spending affects investment.

Similarly to what we obtained for private consumption, both current and lagged changes in government consumption-GDP ratio have a negative and significant effect on private investment, with a cumulative effect of approximately 1.8%. The main difference between the effect on consumption and investment is that, while contemporaneous change in the government consumption-GDP ratio seems to have a bigger effect on consumption, lagged changes are more detrimental for investment.

Interestingly, the economists find that the harmful impact of government spending varies by region and country.

But is the effect similar for different regions and countries? To answer this question, we replicate the estimations for specific geographical areas and countries. …The results show that the effect varies substantially between areas. In particular, while we find statistically significant crowding-out effects in Africa, Europe and South America, government spending does not seem to have (statically) significant affects in the other areas considered. We also assess whether the effect is different between developed (OECD) and developing countries. The results suggest that the impact of government spending on both private consumption and investment is more detrimental in the OECD group. …it emerges that the “crowding-out” effects of government consumption are largest in relatively less developed countries (such as Mexico and Turkey) and in those countries with a high share of government spending (such as Finland, Sweden and Norway).

While I’m always cautious about drawing sweeping conclusions from any single piece of empirical research, these results make a lot of sense.

The Rahn Curve (which is sort of a spending version of the Laffer Curve) is based on the theory that a very modest level of government, focusing on providing core public goods, is associated with better economic performance. But once government gets too big, than the relationship is reversed and higher levels of spending are associated with weaker performance.

So it’s no surprise that bigger government has particularly bad effects in nations that already have bloated public sectors. Here’s the video I narrated on the Rahn Curve, which provides additional analysis.

Last but not least, it also makes sense that bigger government has a pronounced negative effect in less-developed nations. Those are countries that generally have serious problems with corruption, cronyism, and the rule of law (i.e., Argentina), so the budget often is simply a tool for transferring funds to those with power and political connections.

For all their flaws, the Nordic nations at least are reasonably honest and well run. That being said, the fact that they can endure a larger level of government doesn’t mean it’s a good idea.

P.S. Someone did a video attacking my analysis of the Rahn Curve. Except it isn’t really an attack since I agree with the criticism.

P.P.S. For those who want to argue that the relative prosperity (by global standards) of Western Europe is evidence that big government is good for growth, I invite you to look at this chart. Simply stated, Western Europe became rich when government was very small.

P.P.P.S. Just as there’s lots of evidence about the damaging impact of government spending, there’s also a lot of research showing that high tax rates are economically destructive.

P.P.P.P.S. While I sometimes myopically focus on fiscal policy, remember that there are many other policies that determine economic performance.

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If You Want Jobs and Growth, Keep in Mind that Obamanomics also Doesn’t Work on the State Level

The Tax Foundation in Washington does some great work on fiscal issues, but I also admire their use of maps when they want to show how various states perform on key indicators.

They’re best known for “Tax Freedom Day,” which measures how long people have to work each year before they’ve earned enough to satisfy the tax demands of federal, state, and local government. And they have a map so you can easily see how your state ranks.

But my favorite map from the Tax Foundation is the one showing that the geese with the golden eggs are moving from high-tax states to low-tax states. That’s tax competition in action!

I also like their map showing which states have done the best and worst jobs of controlling the burden of government spending, as well as their map showing which states steal the biggest share of economic output from taxpayers.

So it should go without saying that I’m going to share their new State Business Tax Climate Index. And the accompanying map.

What are some important takeaways from this ranking? Five things caught my eye.

1. It’s a very good idea for a state to not impose an income tax. The top six states all avoid this punitive levy and every no-income tax state is in the top 15. And you won’t be surprised to learn that these states grow faster and create more jobs.

2. It’s just a matter of time before states such as New York and California are beset by fiscal crisis. When a jurisdiction has something special – like California’s climate or the appeal (to some) of New York City – it can get away with imposing higher tax burdens. But there’s a limit, and migration patterns show that productive people are voting with their feet.

3. Scott Walker and Chris Christie often are mentioned as serious 2016 presidential candidates, and both have become well known for trying to deal with the problem of over-compensated state bureaucrats. But they both preside over states in the bottom 10 of this ranking, and presumably should address this problem if they want to demonstrate that they’re on the side of taxpayers.

4. It’s possible for a state to make a dramatic jump. North Carolina currently is one of the bottom 10, but that will soon change because of reforms – including a flat tax – that were enacted this year. As the Tax Foundation noted: “While the state remains ranked 44th for this edition, it will move to as high as 17th as these reforms take effect in coming years.”

5. States also can move dramatically in the wrong direction. Connecticut is now one of America’s least-competitive states, in large part because politicians managed to push through a state income tax in the early 1990s.

P.S. If you like maps, here are some interesting ones, starting with some international comparisons.

• Which nations have the most red ink.
• Which nations are money laundering centers (hint, not tax havens).
• A crazy left-wing “Happy Planet” map.
• Another silly map supposedly showing that America is one of the world’s most authoritarian nations.

Here are some good state maps with useful information.

• Which states have no income taxes.
• Which states give the highest welfare payments.
• Which states have the highest taxes on wine.
• Which states are in a “death spiral” because of too many takers and too few makers.
• Which states have too many school bureaucrats compared to teachers.

There’s even a local map.

• How many of the nation’s richest counties are in the D.C. metro region.

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Big Government Is the Disease that Enables Corruption, Campaign Contributions Are Merely a Possible Symptom

When I write about the importance of understanding the difference between a disease and its symptoms, I’m almost always seeking to help people understand why it’s important to focus on the problem of government spending rather than the side-effect of government borrowing.

But the same analogy is useful when looking at issues such as lobbying and campaign contributions.

It’s very understandable for people to get nauseated when we see things such as lobbying for corporate welfare or campaign contributions being given in exchange for things such as ethanol subsidies.

So would it make sense to outlaw lobbying or to restrict campaign contributions? Setting aside constitutional issues (the First Amendment protects our rights to petition the government and to engage in political speech), the answer is no.

Why? Because lobbying and campaign contributions are a function of government being too big and being involved in too many areas.

If we shrink the size and scope of the state, we reduce incentives to manipulate the system. But if we leave big government in place, laws to restrict lobbying and campaign contributions will simply lead to different forms of “rent seeking.”

Not surprisingly, leftists want the wrong approach. Here are some excerpts from Dana Milbank’s Washington Post column, which argues that campaign spending is the problem.

…the Supreme Court…has created a campaign-finance system that is directly responsible for the rise of uncompromising leaders on both sides of the Capitol. …Political money was again before the Supreme Court on Tuesday morning, and, judging from their questions, the conservative justices are poised to make things even worse. Now they are prepared to expand on their 2010 decision that caused an explosion of independent spending by allowing the wealthy to give about $3.5 million apiece to candidates and parties in each election cycle. …The 1976 decision in Buckley v. Valeo made government for sale and created the arms race in campaign financing by equating unlimited spending with free speech. The John Roberts court in 2010 made the system dramatically worse in its Citizens United decision, loosening restrictions and spurring wealthy donors to make hundreds of millions of dollars in independent expenditures. …Justice Elena Kagan said those who give $3.5 million should expect “special treatment” from Congress — and Burchfield didn’t disagree. Under the Citizens United decision, he said, “gratitude and influence are not considered to be quid-pro-quo corruption.”

Milbank puts the cart before the horse. Big donors aren’t the problem. We should worry about big government.

If we had the type of limited central government envisioned by the Founding Fathers, there would be very little reason for billionaires (or the rest of us) to spend time or energy worrying about what happens in Washington.

I elaborate in this video on the real causes of political corruption in Washington.

P.S. In the title, I wrote that campaign contributions are a “possible” symptom. That’s because campaign contributions (like lobbying) don’t necessarily imply corruption. If John Doe gives money to someone like Rand Paul, he’s probably not looking for a government handout. But if the realtors cut a big check to someone like Chuck Schumer, it’s quite likely that they’re looking to obtain or preserve some undeserved goodie from Washington.

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Government Shutdown Jokes…and the Sick Joke of Obama’s Shutdown Strategy

Even though it’s an uphill battle, I’m glad there are some lawmakers willing to fight Obamacare. They realize a hard battle today could help save America from genuine fiscal crisis in the future.

I don’t know how this government-shutdown battle (which is morphing into a debt-limit battle) will end, but I’m hopeful the taxpayers get some sort of victory.

The 2011 fight over the debt limit, after all, gave us sequestration, which has been Obama’s biggest defeat.

Heck, maybe in this year’s fight we can even keep the government shut down long enough that people realize that we can do without much of the Washington bureaucracy.

If nothing else, this fight has exposed the callow, juvenile, and spiteful mentality of the President and his team. These Washington hacks are trying to make the shutdown as painful as possible for innocent third parties.

Mollie Hemingway has a must-read article at The Federalist with lots of disgusting examples. Here are the ones that strike me as especially cruel, dangerous, and/or petty.

Last week the Obama Administration chose to barricade the World War II Memorial to keep aging veterans and other citizens out during the so-called government “shutdown.” It’s tremendously wasteful to spend taxpayer funds and personnel shutting down an open-air memorial that could be visited at any time of the day prior to the shutdown, whether staff were nearby or not. But more than that, it’s just cruel: World War II veterans are on a race against time to see their memorial. …the feds shuttered the Amber Alert web site, which posts pictures of missing kids. …Amber Alerts aren’t even federally run. They’re mostly run by the states themselves. It took more time and energy to shutter the site than to just let it keep running. Every other juvenile justice program kept running… The National Park Service placed cones along highway viewing areas outside Mount Rushmore this week, barring visitors from pulling over and taking pictures of the famed monument. This pettiness extended to attempts to shutdown privately-run rival visitor sites such as Mt. Vernon, George Washington’s home. …The list goes on and on and on. The feds put 77-year-old Joyce Spencer and 80-year-old husband Ralph out of the home they’ve owned since the 1970s because it sits on federal land.

This goes way beyond the ordinary Washington Monument Syndrome, which occurs when politicians try to make supposed budget cuts as painful as possible.

The Obama White House is adding steroids and meth to that Syndrome in ways that are so pathetic that you would think their strategy will backfire (just like the Massachusetts Governor went overboard when he said budget cuts would lead to zoo animals being euthanized).

And people wonder why I mock politicians!?!

Since the Obama Administration’s petty actions seem like a joke, let’s close by sharing some real jokes from the late-night talk shows.

Jay Leno

• President Obama has officially canceled his trip to Asia. He said he didn’t want to be in Indonesia not doing anything to solve the crisis when he could be in Washington not doing anything to solve it.
• Actually, it’s the perfect time for President Obama to go to Asia. I mean, what better time to leave Joe Biden in charge of the country than during a shutdown?
• This government shutdown thing is getting old. The national parks are closed, museums are closed, and federal agencies are closed, but our borders are wide open. Don’t worry about that.
• It is day three of the government shutdown. Right now 33 percent of the government is doing absolutely nothing, which is not bad considering that before the shutdown 80 percent weren’t doing anything.
• This shutdown is hurting everyone. Today, Michelle Obama told fat kids: “You’re on your own. Eat a Happy Meal. I don’t care.”
• According to a new report, experts in Pakistan say $25 million in cash is smuggled out of Pakistan every day, and less than 1 percent of Pakistanis pay any income tax at all. Here’s the amazing part: Somehow their government hasn’t shut down, but ours has.
• How many are worried about a government shutdown? How many are more worried about it starting back up?
• I’m glad the government has shut down. Think about it, for the first time in years it’s safe to talk on the phone and send emails without anybody listening in.
• This whole government shutdown thing comes down to who will blink first. Well, we know it won’t be Nancy Pelosi. We know that for sure because she hasn’t blinked since the last shutdown.
• If the government does shut down, nonessential White House employees will be sent home without pay — so more bad news for Joe Biden.
• Since 1976 there have been 17 government shutdowns. The longest was during the four years that Jimmy Carter was president.

David Letterman

• At first people thought the government shutdown would last maybe a day, at the most a week. Now people are concerned, and experts are saying the shutdown may last as long as a Kardashian marriage.
• Almost a million non-essential government employees were let go. Well, isn’t that the problem, that there’s that many non-essential employees?
• Even the NSA is out of business. And while they’re closed, while the government is shut down, they are asking citizens to please spy on each other.
• Do you care that the U.S. government’s shutting down? I thought they were already shut down. I mean, honestly.

Jimmy Fallon

• Republicans were hoping John McCain would help them get their way on the spending bill — because if there’s anyone who can beat Barack Obama, it’s the guy who lost to Barack Obama.
• After Congress failed to reach an agreement on a new spending bill, the federal government officially shut down. So roads won’t get fixed, public employees won’t be able to help you, and getting a federal loan for a house will be very difficult — but there will also be a lot of differences.

Craig Ferguson

• Most people think the IRS Is just out to audit people. But that is not true. In addition to the people who do the audits, the IRS has people dedicated to defending taxpayers who get audited. But guess which group just got furloughed?
• The shutdown means the national zoo is closed. Who’ll feed the animals? Is anyone even there to lock them up at night? Pretty soon starving lions and tigers could charge out of the zoo. They’d devour the fattest, dumbest people on Capitol Hill. Actually that might be the answer to all of the problems.

Jimmy Kimmel

• Nonessential government services have been put on hold. Flight safety inspectors furloughed. National monuments closed. The Grand Canyon is closed — they filled it with spackle.
• Passport offices have been closed too. Interesting fact: Passport lines take exactly the same amount of time whether the passport office is open or not.

Having recently renewed my passport, the last Jimmy Kimmel joke hits a bit too close for comfort. But the best two jokes, in my humble opinion, are Letterman’s quip about non-essential employees being part of the problem and Leno’s line about how we should really worry about the government starting back up.

Gee, this is almost enough to make one conclude that we would be better off with a much smaller government!

P.S. Other examples of government shutdown humor can be enjoyed by clicking here, here, here, and here.

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Some Parts of Government Should Be Shut Down Forever

I realize we’re in the middle of a government shutdown and there’s a debt limit deadline rapidly approaching, but I’m not going to write about fiscal policy today.

Instead, I’m going to share a story about evil and stupid government policy. I guess you could say this is part of my why-decent-people-should-be-libertarian series. Previous editions – all of which highlight examples of innocent people having their lives turned upside down by the state – include these horror stories.

• The federal government threatening to imprison a woman for whistling at a whale.
• A must-be-read-to-be-believed story of vicious IRS persecution.
• Two stories of innocent people who were victimized by the idiotic Drug War.
• A video about how the EPA tried – and fortunately failed – to destroy a family.
• A story about the Justice Department’s discriminatory attack on a hapless homeowner.

Now watch this powerful video from the Institute for Justice and see whether it’s also an example of heartless and oppressive government.

The answer – if you believe in fairness, decency, and the rule of law – is that this definitely belongs on that list. What the federal government has done to the Dehko family is utterly despicable and a horrifying episode of thievery.

Just as other examples of bureaucratic theft should get us upset.

In the case of the Dehko family, they got in trouble (notwithstanding the fact that they did nothing wrong) because of so-called anti-money laundering laws.

These laws were instituted beginning about 30 years ago based on the theory that we could lower crime rates by making it more difficult for crooks to utilize the financial system.

There’s nothing wrong with that approach, at least in theory. But as I explain in this video, these laws have become very expensive and intrusive, yet they’ve had no measurable impact on crime rates.

As you might expect, politicians and bureaucrats have decided to double down on failure and they’re making anti-money laundering laws more onerous, imposing ever-higher costs in hopes of having some sort of positive impact. This is bad for banks, bad for the poor, and bad for the economy.

So we’ll see more people victimized, like the Dehko family.

Which brings us back to the beginning of this piece. At what point do well-meaning people connect the dots and conclude that government is a danger to liberty?

And when you draw this obvious conclusion, isn’t it time to become a libertarian?

This doesn’t mean you have to be a pot-smoking, Rand-quoting stereotype. Instead, it simply means that you have a healthy distrust of unlimited state power and you think individuals should have both the freedom and responsibility to manage their own lives.

To see where you stand, here are a couple of quizzes.

A just-for-the-fun-of-it quiz I put together involving pot, police cars, and a tractor.

A thorough quiz on libertarian purity.

Last but not least, if you decide to be a libertarian, I hope you can figure out how to make our cause more popular.

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Make-Believe Debt Limit Hysteria from the Political Establishment

It appears that the government shutdown, which technically is a battle over annual appropriations legislation for so-called discretionary spending, is going to drag on for a while.

The Obama Administration has shown zero willingness to negotiate, even though Republicans have made a series of offers to resolve the conflict.

And the longer this fight lasts, the more likely that the shutdown battle will get wrapped up in a bigger fight over the debt limit.

The White House apparently thinks this is a good development because of the assumption that GOPers can be stampeded into a bad deal to keep the government from supposedly defaulting.

Indeed, the Administration already is fanning the flames of economic anxiety. Here’s some of what the Treasury Department recently wrote as part of this world-is-ending hysteria.

A default would be unprecedented and has the potential to be catastrophic: credit markets could freeze, the value of the dollar could plummet, U.S. interest rates could skyrocket, the negative spillovers could reverberate around the world, and there might be a financial crisis and recession that could echo the events of 2008 or worse.

I’m surprised they didn’t warn about the four horsemen of the apocalypse and also say that default would mean cancer, tooth decay, and the heartbreak of psoriasis.

On a more serious note, there are three things about the Treasury report that are worth noting.

1. The Obama Administration is deliberately trying to blur the difference between defaulting on the debt, which would have real consequences, and “defaulting on obligations,” which is a catch-all phrase that includes mundane and uneventful matters such as postponing a Medicare payment to a hospital or delaying a grant disbursement to a state government.

2. The Treasury report repeatedly says bad things “could” happen and “might” happen, but never that they “will” happen. Well, I “could” be the clean-up batter next year for the New York Yankees, and I “might” date a couple of supermodels from Victoria’s Secret. But I wouldn’t want to bet my life on either of those things happening. Likewise, don’t hold your breath waiting for the sky to fall if the debt limit isn’t immediately increased.

3. The White House wants people to believe genuine default is likely even though tax receipts this fiscal year are expected to be more than $3 trillion and interest on the debt is projected to be only $237 billion. In other words, the Treasury will collect more than 12 times as much revenue as needed to pay interest on the debt. Even someone like me, with my well-known views on the incompetence of the federal government, thinks that the Treasury Department will have no problem figuring out how to avoid default.

To be sure, there would be some real problems if the debt limit wasn’t raised. The Treasury Department would have to override its own system to stop payments from automatically occurring. The bureaucrats would have to figure out how to prioritize payments.

Interest unquestionably would be paid on the debt, so there’s no real possibility of default. One also assumes the Administration would figure out how to make politically sensitive payments such as Social Security checks. But this would be uncharted territory, so things probably would be messy.

All that being said, I want to reiterate that a default only would happen if the White House wanted it to happen. And while the Obama Administration has shown a willingness to inflict pain on innocent third parties – as illustrated by the attempts to inconvenience Americans when the sequester imposed a tiny bit of fiscal restraint, it is inconceivable that the White House would decide to engineer an actual default.

By the way, it’s not just partisan political operatives in the Obama Administration who are making hysterical assertions.

Here are some blurbs from a Wall Street Journal report showing that the CEO of Goldman Sachs seems to be on the same page as the White House.

“There’s precedent for a government shutdown. There’s no precedent for default,”Goldman Sachs Group Inc. CEO Lloyd Blankfein said after emerging from an hour-long meeting between Mr. Obama and top financial executives. The executives, in town for a series of meetings arranged by the Financial Services Forum trade group, told Mr. Obama that even the possibility of the U.S. defaulting on its debt, should policy makers fail to raise the ceiling on the nation’s borrowing, would derail the nascent recovery and cause economic harm. Mr. Blankfein said they told Mr. Obama “exactly how bad it would be.”

And here are parts of a story from the UK-based Guardian about the views of the IMF’s head bureaucrat.

Christine Lagarde, the IMF’s managing director, urged America’s politicians to settle their differences before the dispute harmed the entire global economy. Speaking ahead of the fund’s annual meeting in Washington next week, Lagarde said it was “mission critical” that Democrats and Republicans raise the US debt ceiling before the 17 October deadline. Lagarde said the dispute was a fresh setback for a global economy… “In the midst of this fiscal challenge, the ongoing political uncertainty over the budget and the debt ceiling does not help. The government shutdown is bad enough, but failure to raise the debt ceiling would be far worse, and could very seriously damage not only the US economy, but the entire global economy.”

So what’s going on? Why are they making these hyperbolic statements?

Beats me, but here are my three theories.

1. They don’t know what they’re talking about, either because of stupidity or laziness. Since neither Blankfein nor Lagarde are stupid, perhaps they are simply too lazy to learn how the federal government operates and they don’t understand that the Treasury Department will have far more money than is needed to pay interest on the debt.

2. They understand the issues, but they’re willing to make dishonest and misleading statements because they want to please the White House. This could be because they sympathize with the President’s agenda. Or perhaps this is a typical case of DC-style horsetrading, with Blankfein supporting the White House in exchange for some sort of regulatory favor and Lagarde providing help to Obama in exchange for more subsidies from American taxpayers for the IMF.

3. They understand the issues, but are genuinely afraid that the President is so petty and ideological that he might deliberately force a default, so they are warning about the risks of that approach. Seems totally improbable, but keep in minds that the White House is so petty and spiteful that it has been spending money in a shutdown to keep elderly WWII vets from visiting an open-air memorial!

I’m guessing the second option is most accurate, but there’s no way to know for sure.

In closing, let’s take a step back and look at the big picture. What’s America’s biggest long-run economic challenge? Almost surely, the answer is that poorly designed entitlement programs will lead to a much more onerous burden of government spending.

The President made this problem worse with Obamacare (just as Bush made it worse with the prescription drug entitlement).

Advocates of fiscal responsibility want to address this problem now, before we get close to the point of a Greek-style fiscal collapse.

I’m not sure they can win, given the structure of America’s political system, but I’m damn sure glad that at least some people are trying to do what’s best for the country.

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Cheered on by the OECD, Japan Announces Higher VAT Rate to Enable Bigger Government

If you have any long-term Japanese investments, sell them soon.

How do you say “Barack” in Japanese?

In part, that’s because the Japanese Prime Minister announced another Keynesian spending binge earlier this year – even though several so-called stimulus plans in Japan have flopped over the past two decades (Keynesian economics doesn’t work anywhere, but that’s a topic for another day).

Adding to the burden of government spending is not exactly prudent behavior for a nation that already has the highest level of debt among all industrialized countries.

But the main reason I’m so pessimistic about Japan is that the government has decided to deal with the problem of runaway government spending by imposing  permanently higher taxes on the private sector.

I’m not kidding. Let’s look at parts of a recent Reuters report.

Japan’s Prime Minister Shinzo Abe will…raise the national sales tax to 8 percent in April from 5 percent, a final draft of the government economic plan, seen by Reuters, shows.

Japan’s government isn’t even pretending to restrain spending!

And to make a bad situation even worse, some of the money will be used for yet another faux stimulus package.

Abe ordered his government to compile the stimulus package to be announced on Tuesday. It features public-works spending for the 2020 Tokyo Olympics.

The main problem, though, is that Japan’s real fiscal problem is an ever-increasing burden of government spending. The tax increase won’t solve that problem. Indeed, it will give politicians an excuse to postpone much-need reforms.

Surprisingly, the Reuters report acknowledges these problems.

The government has done little to rein in spending…, so some critics doubt Tuesday’s move will be enough to get Japan on track to achieve its goal of halving the budget deficit – excluding debt service and income from debt sales – by the fiscal year to March 2016 and balance it five years later. …any improvement in government revenue from the tax increase is likely to be quickly overwhelmed by expenditures in a country where a rapidly ageing society and generous public services are blowing an ever-bigger hole in the budget.

Time to “decisively” raise taxes!

So why is the Prime Minister doing something that won’t work? Apparently this shows he is decisive. This is not a joke.

…pressing ahead with the tax hike bolsters the image Abe has sought to foster of a decisive leader, withstanding opposition from his advisers and some of his own party.

Gee, isn’t it wonderful that Japan’s Prime Minister decisively wants to do the wrong thing and decisively put his nation deeper in a ditch.

While rational people are puzzled by the Japanese government’s self-defeating decision to raise taxes, there is one group that is cheering. Here are some excerpts from Tax-News.com about the head bureaucrat from the OECD applauding the greed of Japan’s political class.

The Secretary General of the Organization for Economic Cooperation and Development Angel Gurria has warmly welcomed the announcement from Japanese Prime Minister Shinzo Abe that the nation will raise its consumption tax from its current five percent levy to eight percent from April 2014. …”As Abe himself has noted, this increase is essential to maintain confidence in Japan and establish a social security system that is sustainable for future generations. I congratulate Prime Minister Abe for this important step and also encourage the government to complete the second hike in the consumption tax rate to 10 percent in 2015.”

So the OECD wants a hike in the VAT now…and another one in just two years. I’m sure Japanese taxpayers are overjoyed to be subsidizing a bunch of bureaucrats in Paris (who get tax-free salaries!) who urge more taxes on other people.

But, to be fair, the OECD wants higher taxes for everybody – including more Obama-style class-warfare taxes in America. The bureaucrats even argue that VATs are good for growth and job creation!

My view, for what it’s worth, is that this is another piece of evidence showing that the VAT is a money machine for big government. Not just in Japan, but also in Europe.

And the same would be true in America. This video explains further.

P.S. Here are some examples of how the Japanese government wastes money, though regulation of coffee enemas is my favorite example of government stupidity from Japan.

P.P.S. Click here, here, and here to enjoy some very good cartoons on the VAT.

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The Shutdown Fight: Can Advocates of Fiscal Responsibility Overcome the Combined Forces of Obama, Lobbyists, and the Media?

I’m not overly optimistic about the outcome of the government shutdown fight. In part this is because our system of government, based on separation of powers, means it is very difficult to change the status quo.

This system, by the way, generally has been good for the country. It probably helps to explain why the United States has not traveled as rapidly in the wrong direction as other industrialized nations. Simply stated, the left didn’t have easy opportunities to impose bad policies such as a VAT or single-payer government-run healthcare.

But it also means it isn’t easy for supporters of small government to undo expensive policy mistakes such as Obamacare.

But I’m glad some people are trying to do the right thing, even though they not only have to fight Obama, but they also need to overcome a biased media that is serving as an echo chamber for the left’s talking points.

I deal with some of that bias in this interview on Canadian TV. The hosts were very polite and gave me plenty of time to make my points, but all their questions could have been written in the White House communications office.

Here are a few takeaways from that interview.

The fact that Obamacare is the law today does not mean it must be enshrined forever. A lot of folks in the media are regurgitating this White House talking point. I pointed out that the Continuing Resolution also is the law, but maybe I should have pointed out that politicians change the tax code all the time.

As hinted at above, this fight is not a sign of dysfunctional government, but rather is an example of how our Founding Fathers expected Washington to function.

Media bias is covering up angst and division on the Democratic side of the aisle. My Democrat friends on the Hill have told me they are worried about being forced to cast votes in favor of provisions such as the special Obamacare exemption for politicians. But as this Glenn McCoy cartoon implies, the press is pushing the left’s narrative rather than reporting the news.

Republicans won a policy victory as a result of the 1995 shutdown fight and they at least fought to a draw in the 1996 elections.

This is a fight to save America from turning into a bankrupt European-style welfare state. Even if that’s an uphill battle, that’s a fight worth having.

Using the example of corrupt agriculture subsidies, I explain that Obamacare won’t work very well, but that doesn’t mean it won’t lure more people into government dependency.

I like to think I did a decent job in this interview, but now it’s time to confess that this isn’t just a battle against Obama and the media.

If we want to shrink the size and scope of government, we also need to prevail against the lobbyist community. This is especially the case in the shutdown fight.

These excerpts from a Politico article reveal how Washington really works.

Though President Barack Obama often blames special interests and Washington lobbyists for the dysfunction and paralysis that plagues Beltway politics, most of the working K Street — and their clients — would like nothing better than for Congress to start working again on the routine business of drafting, debating and passing legislation. …“When Congress doesn’t do things and when Congress is not productive, people who are trying to influence Congress are not productive,” said Steve Elmendorf, a Democratic lobbyist who was a top adviser to former House Majority Leader Dick Gephardt. …Urban, who was a top staffer to former Sen. Arlen Specter (R-Pa.), said the latest fight over spending are throwing a wrench in K Street’s bread and butter work of tweaking legislation and attracting new client business. “The wide variety of client business — interests that come to Washington lobby — is now interrupted,” Urban said about the shutdown. …no major pieces of new legislation have moved since the takeover of the House by the GOP in 2010 —putting a big damper on new business development and existing client work. …”Not that we should be doing policymaking on K Street’s behalf,” Gold added. “But that’s the reality.”

In other words, the parasite class in DC wants “business as usual.” They want the government open so they can strike their backroom deals.

This is a perfect illustration of my “First Theorem of Government.” Washington insiders benefit from activist government. It means more money and power for the political class.

And notice how the lobbyists are complaining about less business ever since the 2010 elections. That’s because fewer laws mean fewer opportunities for graft and redistribution, so lobbyists suffer. Which is why I had to correct a massive typo when USA Today wrote that the Tea Party Congress was “unproductive.”

That “unproductive” Congress, by the way, reduced the burden of federal government spending from more than 24 percent of GDP to about 21.5 percent of economic output.

We should all be hoping that the current Congress is equally “unproductive” and we further shrink the burden of government spending and further curtail opportunities for political corruption.

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Is Today – the Anniversary of the Income Tax – the Worst Day in American History?

There have been some unfortunate and dark days in American history, but what was the worst day?

Some obvious choices include December 7, when the Japanese bombed Pearl Harbor, and September 11, when the terrorists launched their despicable attack.

Another option (somewhat tongue in cheek) might be January 20 since Republican partisans would say that’s the day that both Jimmy Carter and Barack Obama became President while Democratic partisans would say that’s the day Ronald Reagan became President.

But allow me to suggest that today, October 3, should be a candidate for America’s worst day.

Why? Because on this day in 1913, one of America’s worst Presidents, Woodrow Wilson, signed into law the Revenue Act of 1913, which imposed the income tax.

The law signed that day by President Wilson, to be fair, wasn’t that awful. The top tax rate was only 7 percent, the tax form was only 2 pages, and the entire tax code was only 400 pages. And a big chunk of the revenue actually was used to lower the tax burden on international trade (the basic tariff rate dropped form 40 percent to 25 percent).

But just as tiny acorns become large oak trees, small taxes become big taxes and simple tax codes become complex monstrosities. And that’s exactly what happened in the United States.

We now have a top tax rate of 39.6 percent, and it’s actually much higher than that when you include the impact of other taxes, as well as the pervasive double taxation of saving and investment.

And the relatively simply tax law of 1913 has metastasized into 74,000 pages of Byzantine complexity.

Not to mention that the tax code has become one of the main sources of political corruption in Washington, impoverishing us while enriching the politicians, lobbyists, bureaucrats, and interest groups. Or the oppressive and dishonest IRS.

However, even though I take second place to nobody in my disdain for the income tax, the worst thing about that law is not the tax rates, the double taxation, or the complexity. The worst thing is that the income tax enabled the modern welfare state.

Before the income tax, politicians had no way to finance big government. Their only significant pre-1913 sources of revenue were tariffs and excise taxes, and they couldn’t raise those tax rates too high because of Laffer Curve effects (something that modern-day politicians sometimes still discover).

Once the income tax was adopted, though, it became a lot easier to finance subsidies, handouts, and redistribution. As you can see from the chart, the federal government used to be very small during peacetime.

But as the decades have passed, the Leviathan state in Washington has grown. And in the absence of genuine entitlement reform, it’s just a matter of time before the United States morphs into a bankrupt European-style welfare state.

And as government becomes bigger and bigger, diverting more and more resources from the productive sector of the economy, we can expect more stagnation and misery.

That’s why October 3 is an awful day in American history. All the bad results described above were made possible by the income tax.

P.S. It’s totally off topic, but I don’t think we should commemorate September 11. I’d much rather we celebrate May 1, which is the day that Osama bin Laden became fish food.

P.P.S. If the income tax facilitated today’s bloated government, it should go without saying that giving politicians another big source of revenue would lead to an even bigger burden of government. That’s why the value-added tax is such an awful idea.

P.P.P.S. Government also used to be very small in Western Europe before the income tax. Indeed, it was during that period when European nations became rich.

P.P.P.P.S. One could also argue that February 3 is the worst day in history because that’s when Delaware ratified the 16th Amendment, thus making an income tax constitutional.

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Government Shutdown Humor

Over the past few days, I’ve explained that fiscal conservatives and libertarians had little choice but to use the “continuing resolution” as a vehicle to go after Obamacare.

I also pointed out that the shutdown fight in the mid-1990s resulted in a very important victory for advocates of smaller government.

And I wrote that it would have been better if the shutdown started even earlier to stop bureaucrats from their usual end-of-fiscal-year spending orgy.

So what should I write about today, as we enter another day of unplanned vacation for nonessential bureaucrats? Well, I heard President Obama warn yesterday that we need to take steps to protect the economy. Did this mean he was finally being reasonable and that he would agree to curtail the job-killing fiscal boondoggle otherwise known as Obamacare?

Don’t be silly.

Instead, he wants us to believe that a partial government shutdown somehow is bad for the economy. Just as he tried to convince us that the modest spending restraint of sequestration somehow was going to cripple the federal government (I wish!).

Obama’s over-the-top rhetoric is so laughable that the only appropriate response is mockery. So let’s enjoy some jokes and other humor about the government shutdown.

We’ll start with a very funny bit of satire about civilization collapsing without an omnipresent federal government. Here’s a teaser, but you should read the entire article.

Let’s remember, after all, that the United States was a Hobbesian jungle of vicious anarchy back in the 1800s when the federal government consumed only 3 percent of economic output!

Here’s some political satire I received in my inbox yesterday. It warns about the danger of unregulated and unlicensed children’s lemonade stands. Why? Because bureaucrats (like ones in California, Georgia, and Oregon) won’t be prowling the streets to shut them down.

This bit of humor actually isn’t accurate since the shutdown sidelines federal bureaucrats and the lemonade stands were shut down by local bureaucrats.

That being said, we can safely assume that there are paper pushers in Washington who spend their time doing things that are equally foolish and pointless, so I’m sharing it with you under the media’s “fake but accurate” standard.

The late-night talk shows also are having some fun with the shutdown. Let’s start with some good one-liners from Jay Leno.

• Well, last night we got to see how “Breaking Bad” ended, and tonight we get to see how the federal government ends.
• This whole government shutdown thing comes down to who will blink first. Well, we know it won’t be Nancy Pelosi. We know that for sure because she hasn’t blinked since the last shutdown.
• If the government does shut down, nonessential White House employees will be sent home without pay — so more bad news for Joe Biden.
• Since 1976 there have been 17 government shutdowns. The longest was during the four years that Jimmy Carter was president.

And here’s one from David Letterman.

• Do you care that the U.S. government’s shutting down? I thought they were already shut down. I mean, honestly.

Let’s close with two additional bits of humor. This tweet from Jonah Goldberg made me laugh out loud. Julia, you may remember, was the Obama campaign’s make-believe woman who mooched off taxpayers from birth to death.

But now she’s trying to survive in the post-shutdown apocalypse.

Speaking of Julia, this Michael Ramirez cartoon hits the nail on the head.

Our last bit of mockery says we should celebrate the shutdown because government causes so much damage when it’s open.

The underlying message of this image obviously is true, but I’m guessing this is a picture of a house in Detroit, so it might be more accurate to pin the blame on the city government rather than the federal government.

Then again, federal subsidies doubtlessly enabled and facilitated Detroit’s destructive policies, so maybe it’s okay to share this bit of humor without having to rely on the “fake but accurate” rule.

That’s actually the hard part of my job. It’s sometimes difficult to figure out which form of intervention, at which level of government, should be blamed when something bad happens.

But this isn’t supposed to be a serious post, so I’ll leave that topic for another day.

If today’s post didn’t give you enough government shutdown humor, you can click here, here, and here for additional examples.

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