Why Are GOP Leaders Negotiating a Bad Budget Deal When There’s already a Good Budget Deal in Place?

Perhaps the least recognized and least appreciated triumph of the GOP Congress is the de facto spending freeze between 2009 and 2014.

Fights over debt limits, sequestration, spending caps, and government shutdowns were messy and chaotic, but it’s hard to argue with the results. The burden of federal spending fell from 24.4 pct of GDP to 20.3 pct of economic output in just five years.

So I was pleased to see this morning that the Wall Street Journal opined this morning on this success.

…amid all the conservative denunciations of the John Boehner era, a key political fact is typically ignored. To wit, the GOP takeover of the House in 2010 has led to a marked decline in federal spending. …The stimulus boosted spending to a modern record of 24.4% of GDP in 2009… Then Republicans won the election in 2010 on a mandate to cut spending. …Total federal outlays fell two years in a row—from $3.6 trillion in 2011 to $3.45 trillion in 2013… The spending decline was even more marked as a share of the economy, falling for three straight years—from 23.4% in 2011 to 20.3% in 2014. This kind of spending restraint almost never happens in Washington…domestic spending fell by about 2.8% of GDP during the same period.

The editorial specifically praises the spending caps that were part of the Budget Control Act, which are enforced by sequestration.

…the discretionary spending caps and sequester included as part of the 2011 agreement…forced discipline that has kept a lid on spending-as-usual.

Amen.

The lobbyists, special interests, bureaucrats, cronyists, politicians, and contractors in Washington hate budget caps and sequestration, but it’s been a big success.

Writing for the Washington Examiner, Michael Barone makes a similar argument.

The hold-down of federal spending was accomplished by the sequester procedure which has stayed in place now for four years. It’s not the optimal way to form a budget. But if your goal is holding down spending — and reducing spending from 25 percent of GDP to 20 percent — then the sequester has been very effective.

Now let’s consider some very good news.

The Budget Control Act, along with the genuine enforcement mechanism of sequestration, is the law of the land. The growth of discretionary spending is capped not only this year, but also next year. And the rest of the decade. And even into the 2020s.

But now let’s contemplate some very bad news.

The pro-spending crowd in Washington has been working hard to weaken the spending caps and they may be on the verge of success.

Here are some excerpts from a report in The Hill.

Congressional Republican leaders are launching budget talks with the White House. …News of the budget talks is already unnerving…House conservatives… GOP leaders are seeking to strike a deal that would set top-line budget numbers for the next two years. …A White House official said McConnell and Boehner reached out to Obama on Sept. 17. …A source close to McConnell said he hopes to secure a deal to increase discretionary spending for defense and nondefense programs in exchange for reductions to mandatory spending.

Huh?!?

Why are GOP leaders negotiating a new deal when there’s already a good deal in place for many more years?

In part, it’s because many Republicans are big spenders, particularly for the defense budget. But part of the answer is that President Obama has threatened to veto any budget that doesn’t bust the caps. The President has even threatened to shut down the government to get more spending.

And GOPers think they’ll get blamed, even though Obama is the one who would be reneging on the deal he agreed to back in 2011.

So where does this lead?

Well, if Republicans don’t try (or don’t care) to make an argument for fiscal restraint, Obama will prevail. And the net effect will be a repeat of the so-called Ryan-Murray budget deal that weakened the spending caps back in 2013.

That means more discretionary spending, accompanied by budget gimmicks and thinly disguised tax hikes.

P.S. Some advocates of bigger government say sequestration would hurt the economy, but I challenge any of them to justify their Keynesian argument after looking at evidence from the U.S. and Canada in the 1990s.

P.P.S. And if sequestration is bad, then why didn’t any of the President’s hysterical predictions become reality after the 2013 sequester?

P.P.P.S. You can enjoy some good sequester cartoons here, here, and here.

P.P.P.P.S. Here’s my contribution to sequestration humor.

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Microsoft Audit Scandal Shows that Restraints on Abusive IRS Should Be Part of Tax Reform Plans

I’m delighted that so many presidential candidates are talking about partial tax reform and I’ve specifically analyzed the plans put forth by Marco Rubio, Rand Paul, Jeb Bush, and Donald Trump.

These proposals all make the tax code less punitive, and that would be good news for job creation, growth, and American competitiveness.

But that doesn’t mean any of them are perfect. They all fall short of the pure flat tax, which is the gold standard for full tax reform. Another problem is that these proposals won’t be plausible or sustainable unless unaccompanied by some prudent plans to restrain the growth of federal spending.

Today, though, I want to focus on another shortcoming. The various plans need to be augmented by long-overdue restrictions on the IRS, which has become and abusive and rogue bureaucracy.

Consider a few examples.

• The IRS goes beyond the law to make the system worse, as we saw when it imposed a regulation that forced U.S. banks to put foreign tax law above American tax law.
• Bureaucrats at the IRS then decided to ignore the text of the FATCA legislation and make up a different enforcement mechanism in order to salvage an unworkable and destructive law.
• Moreover, the IRS disregarded legislative text and arbitrarily rewrote the Obamacare legislation to enable additional subsidies.
• This is the bureaucracy that – in an odious display of bias – interfered with the electoral process by targeting the President’s opponents. And then awarded bonuses to itself after this corrupt behavior!
• The IRS also is one of the worst offenders in the government’s asset-forfeiture racket, which arbitrarily steals money from law-abiding citizens.
• While the IRS slaps harsh penalties and interest payments on taxpayers who make inadvertent errors, the agency is seemingly incapable of preventing massive fraud against taxpayers, routinely sending checks to crooks and con artists milking the system for EITC payments and false refunds.
• And the IRS (with help from negligent courts) routinely violates legal protections and civil liberties of American citizens.

These horror stories provide plenty of evidence that the internal revenue service should have its wings clipped.

But let’s add another straw to the camel’s back. The tax collection agency in the midst of an audit fight with Microsoft and the IRS is making a mockery of its own rules and flagrantly abusing the company’s legal rights.

This is bad news for one of America’s most successful firms, but it also is creating a very dangerous precedent that could victimize many other companies – large and small – in the future.

Writing for The Hill, Andy Quinlan of the Center for Freedom and Prosperity highlights some of the IRS’s most offensive actions.

First, the IRS is flouting its own rules as part of its persecution of Microsoft.

Government officials, counter to federal law, are trying to bully the company into extending an audit process that should have ended over 6 years ago. …Federal law provides a three-year time period for the completion of an audit, yet IRS officials have been digging through the company’s files for over nine years.

Second, the IRS won’t even tell the company how much money it wants!

Seattle-based Microsoft had to force a hearing on this matter because the IRS refused to submit a final tax bill to Microsoft for a dispute over taxes owed from 2004 to 2006. The IRS has been dragging out this audit process for close to a decade, and continues to pressure the company to sign waivers extending the audit infinitum.

Third, the IRS has been whining about supposedly inadequate budgets, but the bureaucrats are paying a private law firm millions of dollars to participate in this never-ending audit.

In 2014, the government in an unprecedented move hired Quinn Emanuel, a L.A.-based litigation firm to help audit the company. The IRS has billions in budget, teams of lawyers and accountants, yet they decided spend $2.2 million dollars outsourcing their legal team to lawyers that charge in excess of $1000 an hour.  It should come as no shock to anyone following the IRS scandal that Quinn Emanuel is chock full of lawyers who are also large contributors to the party in power.

Fourth, the IRS’s rogue behavior may become standard practice if the bureaucrats don’t face any repercussions for stepping over the line.

This fight actually has little to do with Microsoft. It has everything to do with the prospect of the IRS abusing power, wasting taxpayer money and setting dangerous precedents for enforcement against small businesses. …The actions of the IRS that put this matter into court threatens to set a dangerous precedent on the power of the federal government with regard to tax issues. Congress needs to protect citizens against IRS overreach, and now a potential new procedure that will allow private tax information to be shared with outside law firms.

Wow, what a damning indictment against a vindictive bureaucracy.

And while Microsoft is a big company with plenty of money to defend itself, this is still outrageous. Particularly since the IRS will employ these thuggish tactics against less powerful taxpayers if it isn’t slapped down for by either Congress or the courts.

By the way, I should say something about the underlying dispute. The IRS is not happy about the prices that Microsoft charged when doing intra-firm sales between the parent company and foreign subsidiaries.

Yet if the bureaucrats really think Microsoft abused the “transfer pricing” rules, then the IRS should come up with its own estimate and – if necessary – they can go to court to see who’s right.

For what it’s worth, I suspect the IRS isn’t presenting Microsoft with a bill precisely because the bureaucrats ultimately wouldn’t prevail in a legal fight. The agency probably hopes a never-ending audit eventually will force the company to voluntarily over-pay just to end the torture.

Since I’m a policy wonk, I can’t resist noting that the only reason this kind of dispute even exists is because the United States has the highest corporate tax rate in the entire world. So companies naturally seek to maximize the income they earn in other nations (sort of like entrepreneurs and investors decide it’s better to do business in low-tax states such as Texas rather than fiscal hellholes such as Illinois).

And there’s nothing wrong – legally or ethically – with taxpayers choosing not to overpay the federal government.

The IRS can, of course, ask politicians to change the law if their goal is to grab more money. But as explained by Brian McNicoll in a column for the Washington Times, it shouldn’t try to confiscate more loot with endless harassment and dubious tactics.

If Microsoft’s business strategies are a problem for the IRS, it is up to Congress to change the tax law. But as long as those strategies are legal, no one should question Microsoft for doing what it can to limit its tax obligation. …there is reason Congress gives the IRS three years — not eight and certainly not carte blanche to go on indefinitely. …If the IRS has something on Microsoft, by all means bring it forward. But if it doesn’t, it needs to close the books on this near-decade of harassment and send Microsoft a bill for its taxes.

Returning to our main point, this is why tax reform should be accompanied by reforms to rein in the IRS’s improper behavior.

P.S. They haven’t put forth many details, but some candidates have indicated support for the kind of radical tax reform that would de-fang the IRS. Rick Santorum, Ben Carson, and John Kasich have all stated that they like the flat tax. And Mike Huckabee embraces a national sales tax to replace the current tax code.

And if there’s wholesale replacement of the internal revenue code, then a lot of the problems with the IRS automatically disappear.

P.P.S. Since we’re criticizing the IRS, I can’t resist sharing some oldies but goodies.

• It has thieving employees.
• It has incompetent employees.
• It has thuggish employees.
• It has brainless employees.
• It has protectionist employees.
• It has wasteful employees.
• And it has victimizing employees.

P.P.P.S. And since I’m digging through my archives, here’s my collection of IRS humor, including a new Obama 1040 form, a death tax cartoon, a list of tax day tips from David Letterman, a cartoon of how GPS would work if operated by the IRS, an IRS-designed pencil sharpener, two Obamacare/IRS cartoons (here and here), a sale on 1040-form toilet paper (a real product), a song about the tax agency, the IRS’s version of the quadratic formula, and (my favorite) a joke about a Rabbi and an IRS agent.

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Trump and Taxes: A Bush-Like Plan from “The Donald”

It’s been a challenge to assess Donald Trump’s fiscal policies since they’ve been an eclectic and evolving mix of good and bad soundbites.

Though I did like what he said about wanting to pay as little tax as possible because the government wastes so much of our money.

On the other hand, some of his comments about raising tax burdens on investors obviously rubbed me the wrong way.

But now “The Donald” has unveiled a real plan and we have plenty of details to assess. Here are some of the key provisions, as reported by the Wall Street Journal. We’ll start with the features that represent better tax policy and/or lead to lower tax burdens, such as somewhat lower statutory tax rates on households and a big reduction in the very high tax rate imposed on companies, as well as a slight reduction in the double tax on capital gains.

…no federal income tax would be levied against individuals earning less than $25,000 and married couples earning less than $50,000. The Trump campaign estimates that would reduce taxes to zero for 31 million households that currently pay at least some income tax. The highest individual income-tax rate would be 25%, compared with the current 39.6% rate. …Mr. Trump also would cut the top capital gains rate to 20%, from the current 23.8%. And he would eliminate the alternative minimum tax. …For businesses, Mr. Trump’s 15% rate is among the lowest that have been proposed so far.

But there are also features that would move tax policy in the wrong direction and/or raise revenue.

Most notably, Trump would scale back certain deductions as taxpayers earn more money. He also would increase the capital gains tax burden for partnerships that receive “carried interest.” And he would impose worldwide taxation on businesses.

To pay for the proposed tax benefits, the Trump plan would eliminate or reduce deductions and loopholes to high-income taxpayers, and would curb some deductions and other breaks for middle-class taxpayers by capping the level of individual deductions, a politically dicey proposition. Mr. Trump also would end the “carried interest” tax break, which allows many investment-fund managers to pay lower taxes on much of their compensation. …The Trump plan would raise revenues in at least a couple of significant ways. It would limit the value of individual deductions, with middle-class households keeping all or most of their deductions, higher-income taxpayers keeping around half of theirs, and the very wealthy losing a significant chunk of theirs. It also would wipe out many corporate deductions. …The plan also proposes capping the amount of interest payments that businesses can deduct now, a change phased in over a long period, and would impose a corporate tax on future foreign earnings of American multinationals.

Last but not least, there are parts of Trump’s plan that leave current policy unchanged.

Which could be characterized as “sins of omission” since many of these provisions in the tax code – such as double taxation, the tax bias against business investment, and tax preferences – should be altered.

…the candidate doesn’t propose to end taxation of individuals’ investment income… Mr. Trump would not…allow businesses to expense all their new equipment purchases, as some other Republicans do. …All taxpayers would keep their current deductions for mortgage-interest on their homes and charitable giving.

So what’s the net effect?

The answer depends on whether one hopes for perfect policy. The flat tax is the gold standard for genuine tax reform and Mr. Trump’s plan obviously falls short by that test.

But the perfect isn’t the enemy of the good. If we compare what he’s proposing to what we have now, the answer is easy. Trump’s plan is far better than the status quo.

Now that I’ve looked at the good and bad policies in Trump’s plan, I can’t resist closing with a political observation.  Notwithstanding his rivalry with Jeb Bush, it’s remarkable that Trump’s proposal is very similar to the plan already put forth by the former Florida Governor.

I’m not sure either candidate will like my interpretation, but I think it’s flattery. Both deserve plaudits for proposing to make the internal revenue code less onerous for the American economy.

P.S. Here’s what I wrote about the plans put forth by Marco Rubio and Rand Paul.

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Should Welfare Dependency Be Shameful or Discomforting?

It’s no exaggeration to say that a nation’s long-run vitality and prosperity are correlated with the spirit of independence and self-reliance among its people.

Simply stated, if too many people thinks it’s okay to ride in the wagon of government dependency, that a troubling sign that social or cultural capital has eroded.

Government policy obviously plays a role, both because politicians create various redistribution programs and also because they can set rules that help determine whether there is any stigma for relying on taxpayers.

Some lawmakers even think recipients should be publicly identified, in part to weed out fraudsters and also to discourage dependency. Here are some passages from a story in the Washington Post.

If you receive government assistance in the state of Maine, Lewiston Mayor Robert Macdonald thinks the public has a right to know about it. …Macdonald said a bill will be submitted during Maine’s next legislative session “asking that a Web site be created containing the names, addresses, length of time on assistance and the benefits being collected by every individual on the dole.” He added: “After all, the public has a right to know how its money is being spent.” …Macdonald told the Portland Press Herald that …“I hope this makes people think twice about applying for welfare.” …Publicly posting personal information, he said, could encourage people to go after those “gaming the system.”

Needless to say, this approach causes great consternation for some folks on the left.

Here’s some of what Dana Milbank wrote in his Washington Post column.

Rick Brattin, a young Republican state representative in Missouri, has…introduced House Bill 813, making it illegal for food-stamp recipients to use their benefits “to purchase cookies, chips, energy drinks, soft drinks, seafood, or steak.” …This is less about public policy than about demeaning public-benefit recipients. The surf-and-turf bill is one of a flurry of new legislative proposals at the state and local level to dehumanize and even criminalize the poor.

I admit it’s paternalistic, but if taxpayers are paying for someone else’s food, then shouldn’t they have the right to insist that recipients don’t buy junk food?

My view, of course, is that the federal government shouldn’t be in the business of redistributing income, but that’s an issue we discussed a few days ago.

Milbank also is upset that some lawmakers don’t want welfare benefits spent on frivolous things.

…the Kansas legislature passed House Bill 2258, punishing the poor by limiting their cash withdrawals of welfare benefits to $25 per day and forbidding them to use their benefits “in any retail liquor store, casino, gaming establishment, jewelry store, tattoo parlor, massage parlor, body piercing parlor, spa, nail salon, lingerie shop, tobacco paraphernalia store, vapor cigarette store, psychic or fortune telling business, bail bond company, video arcade, movie theater, swimming pool, cruise ship, theme park, dog or horse racing facility, pari-mutuel facility, or sexually oriented business . . . or in any business or retail establishment where minors under age 18 are not permitted.” …another state that prohibits welfare funds for cruise ships is true-blue Massachusetts.

Again, I have to ask why it’s unreasonable for taxpayers to put limits on how welfare funds are spent?

Setting aside my desire to get Washington out of the business of maintaining a welfare state, shouldn’t the people paying the bills have some right to decide whether they want recipients going to massage parlors and casinos?

Let’s now look at a very real-world example of how our friends on the left are trying to make dependency easier and more respectable.

They now want to make it easier and less discomforting for folks to get food stamps. Here are some excerpts from a story in the Daily Caller.

A report from the U.S. Department of Agriculture (USDA) looked at whether it should get rid of in-person interviews for those who apply to receive benefits under the Supplemental Nutrition Assistance Program (SNAP), which is commonly known as food stamps. …the USDA with the Food and Nutrition Service (FNS) conducted a limited real-world test to see if the in-person interviews are needed.

The report looks at test cases in Utah and Oregon to gauge the impact on “client and worker outcomes,” but obviously didn’t consider the impact on taxpayers.

The report says that the increase of participants from 17 million in 2000 to nearly 47 million recipients in 2014 is one reason why the application process should be made easier and less costly, but others have argued that more relaxed entry requirements into the program are the very reason it has expanded so much.

The latter group is correct. If people can sign up for freebies over the phone, with very weak verification procedures, then it should go without saying that the burden on taxpayers will grow even faster.

And for purposes of our discussion today, this proposal would make it even easier for people to become dependents. The government already has turned food stamps into a welfare-state version of a debit card, which means that recipients feel less conspicuous about relying on taxpayers. Now they wouldn’t even have to visit a food stamp office when first signing up for the system!

The bottom line is that it will be very healthy for our nation if most people feel reluctant and/or embarrassed to become wards of the state.

Fortunately, there are some folks who already have this self-reliant streak. Here’s a blurb from some analysis by Angela Rachidi for the American Enterprise Institute.

…research shows that a sizeable number of eligible people do not participate in SNAP because they do not want government assistance. According to a 2003 USDA report on the subject, 27% of eligible non-participants indicated that they would not enroll in the program even if they were assured they were eligible. The report cited the desire to feel independent as the primary driver in not wanting benefits.

Thank goodness there are still a non-trivial number of Americans who don’t want to mooch off taxpayers.

By the way, you may be shocked to learn that the people of California are the least likely to sign up for food stamps.

Too bad the folks in Maine, Oregon, Vermont, and Washington don’t have the same spirit of self reliance.

Heck, Vermont’s already famous for having the top spot in the Moocher Index.

P.S. While Dana Milbank apparently thinks there shouldn’t be any restrictions on food stamps, most taxpayers probably won’t be pleased to see these examples of their money being misspent.

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

Then Mr. Milbank can start investigating other examples of fraud, starting with Medicaid and the disability program.

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Scholarly Evidence against the Welfare State

I repeatedly try to convince people that the welfare state is bad for both taxpayers and poor people.

Sometimes I’ll add some more detailed economic analysis and explain that redistribution programs undermine growth by reducing labor supply (with Obamacare being the latest example).

And I’ve even explained that the welfare state has a negative impact on savings and wealth accumulation (these dramatic charts show Social Security debt in America compared to ever-growing nest eggs in Australia’s private pension system).

But if new research from the European Central Bank (ECB) is any indication, I should be giving more emphasis to this final point.

Culling from the abstract, here’s the key finding from the working paper by Pirmin Fessler and Martin Schürz.

…multilevel cross-country regressions show that the degree of welfare state spending across countries is negatively correlated with household net wealth. These findings suggest that social services provided by the state are substitutes for private wealth accumulation and partly explain observed differences in levels of household net wealth across European countries.

Here are details from the study.

We regress net wealth on income…and add welfare state country level variables. …The main result of these hierarchical linear models is that pension and social security expenditure measured as shares of GDP show significant and negative correlation with household net wealth levels. …We regard this as evidence that welfare state expenditures indeed act as substitutes for private wealth accumulation and explain partly observed differences in household net wealth among euro area countries. A larger and more active welfare state leads to less need for private households to accumulate private wealth.

Here’s a pair of graphs from the study, showing the negative relationship between government-provided pensions and private wealth.

Now here’s the part that should make honest leftists more open to entitlement reform.

The data show that the welfare state increases inequality!

The effect of a 1 percentage point increase in state pension expenditure as a share of GDP on net wealth is a decrease about 20% less wealth for households around the 10th net wealth percentile. The size of the negative impact is smaller for wealthier households, but remains at above 10% of net wealth. Social security expenditure shows a similar but somewhat weaker effect, ranging at around 10% at the 10th net wealth percentile and coming close to zero for the wealthiest. …we see a decrease in net wealth of 47% for the low wealth household, of 16% for the middle wealth household, and 8% for the high wealth household. These numbers are roughly in line with our results… Additional welfare state spending is negatively associated with all wealth levels but decreasing in size relative to wealth across the full net wealth distribution. …this mechanism would lead to increased observed inequality of private net wealth given an increase of welfare state activity.

Those are some damning results.

And the numbers might be even worse in the United States since many minorities already are screwed by Social Security because they have shorter lifespans.

P.S. Since we’re on the topic of inequality, regular readers know that I think the issue as a complete red herring. Simply stated, the goal should be faster growth and it doesn’t matter if some people get richer faster than others get richer (assuming, of course, that the rich are earning their money and not getting subsidies, bailouts, and other forms of unearned wealth).

That being said, if somebody had asked me whether there had been a significant increase in inequality over the past couple of decades, I would have guessed – based on all the feverish rhetoric from our statist friends – that the answer is yes. So I was very surprised to see this chart from Mark Perry at the American Enterprise Institute.

In other words, the politicians who are talking about a supposed crisis of growing inequality are spouting nonsense. And I’m ashamed I didn’t know their rhetoric is a bunch of you-know-what.

That being said, if their concern about inequality is legitimate and not just for purposes of demagoguery, I expect them to read the ECB working paper discussed above and add their voice in support of a smaller welfare state and in favor of Social Security reform.

P.P.S. If the New York Times can support private retirement savings (albeit by accident), then other leftists should be able to do the same thing.

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Obamacare Is Still a Disaster

Like many Americans, I’m suffering from Obamacare fatigue.

Before the law was implemented, I repeatedly explained that more spending and more intervention  in the health sector would worsen a system that already was suffering from too much government.

And since the law went into effect, I’ve pointed out – over and over again – the predictably negative effects of giving the government even more control.

So I’m tempted to wash my hands of the issue.

But that would be wrong, particularly since advocates of statism disingenuously might claim that silence somehow means acceptance or approval.

Moreover, we need to continuously remind ourselves that big government doesn’t work just in case there’s a chance to enact good reforms after Obama leaves office.

With that in mind, let’s look at recent developments that underscore the case against government-run healthcare.

How about the fact that Obamacare is extremely vulnerable to fraud?

…the GAO report showed that federal auditors 11 out of 12 times were able to gain subsidized coverage with fictitious applications, three of the successful applications never provided citizenship or immigration documentation. The investigators in each case were able to obtain $2,500 or around $30,000 annually in advance premium tax credits.

And what about the fact that the Obamacare co-ops have been a big flop?

Nonprofit co-ops, the health care law’s public-spirited alternative to mega-insurers, are awash in red ink and many have fallen short of sign-up goals, a government audit has found. Under President Barack Obama’s overhaul, taxpayers provided $2.4 billion in loans to get the co-ops going, but only one out of 23 — the one in Maine — made money last year, said the report out Thursday. Another one…was shut down by regulators over financial concerns. The audit by the Health and Human Services inspector general’s office also found that 13 of the 23 lagged far behind their 2014 enrollment projections.

Or what about the fact that deductibles have increased under Obamacare?

A survey released earlier this week by the Kaiser Family Foundation found that..deductibles have risen almost three times as fast since 2010 for employer-sponsored plans.

And should we care that Obamacare has meant rising health care costs?

…the actuaries estimated that health spending that year jumped by 5.5 percent, a bigger rise than the country had experienced in five years. …The actuaries cited three main reasons they think health spending is set to tick up. One is the aging of the population… Another is the improving economy… But the third, and a big one, was Obamacare’s coverage expansion.

All of the aforementioned things are contrary to what Obamacare supporters promised.

Though since I focus on policy rather than politics, I’ll take this opportunity to point out that higher deductibles in some ways are a good thing. Which is why I’ve defended Obamacare’s Cadillac tax.

But now let’s look at two additional Obamacare developments. And both represent very bad news.

First, new scholarly research shows that Obamacare will be bad news for all income levels, and even will be of questionable value to those getting big subsidies (h/t: Marginal Revolution).

…the average financial burden will increase for all income levels once insured. Subsidy-eligible persons with incomes below 250 percent of the poverty threshold likely experience welfare improvements that offset the higher financial burden, depending on assumptions about risk aversion and the value of additional consumption of medical care. However, even under the most optimistic assumptions, close to half of the formerly uninsured (especially those with higher incomes) experience both higher financial burden and lower estimated welfare.

In other words, people generally were making sensible choices when they had some degree of freedom.

But now that they’re being coerced into Obamacare, many of them are worse off. Even in many cases if they’re the ones getting subsidized!

Second, we now know that President Obama’s promise to lower health insurance premiums by $2,500 was laughably misleading.

But it’s not simply that the President exaggerated. As Investor’s Business Daily explains, the numbers actually have gone in the other direction

Since 2008, average family premiums have climbed a total of $4,865. The White House cheered the news, saying it was a sign of continued slow growth in premium costs. …Slightly less higher premiums aren’t what President Obama promised Americans when he ran for office touting his medical overhaul. He specifically said his plan would cut premiums. “We will start,” Obama said back in 2008, “by reducing premiums by as much as $2,500 per family.”

And keep in mind that Obama’s claim of big savings was not a one-time, off-the-cuff comment.

As you can see in this video, it was a pervasive part of his campaign for further government control of the health care system.

But the real story isn’t prevarication by a politician. That comes with the territory.

The real issue is that our healthcare system is more screwed up because government now is playing a bigger role.

And keep in mind that fixing the problem means a lot more than simply repealing Obamacare. We also need to deal with spending programs such as Medicare and Medicaid and address tax preferences and regulations that encourage over-insurance.

After all, never forget that our real healthcare crisis is a giant government-caused third-party payer problem.

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In the Debate over Capitalism and the Poor, the Score Is: Thomas Sowell 1 – Pope Francis 0

Two days ago, I contrasted the views of Pope Francis and Walter Williams about capitalism and morality.

I explained that Walter had the upper hand because free markets are a positive-sum game based on voluntary exchange while redistribution (at best) is a zero-sum game based on coercion.

That’s the theoretical argument. Now let’s look at the empirical data, specifically focusing on which approach is best for the less fortunate.

Thomas Sowell, the great economist at Stanford University’s Hoover Institution, is not impressed by the Pope’s analysis. Here some of what Prof. Sowell wrote for Investor’s Business Daily.

Pope Francis has created political controversy…by blaming capitalism for many of the problems of the poor. …putting aside religious or philosophical questions, we have more than two centuries of historical evidence… Any serious look at the history of human beings over the millennia shows that the species began in poverty. It is not poverty, but prosperity, that needs explaining. …which has a better track record of helping the less fortunate — fighting for a bigger slice of the economic pie, or producing a bigger pie? …the official poverty level in the U.S. is the upper middle class in Mexico. The much criticized market economy of the U.S. has done far more for the poor than the ideology of the left. Pope Francis’ own native Argentina was once among the leading economies of the world, before it was ruined by the kind of ideological notions he is now promoting around the world.

I briefly discussed the failure of the Peronist Argentinian model last month, but let’s take a closer look at Professor Sowell’s assertions about the U.S. and Argentina.

My colleague at the Cato Institute, Marian Tupy, has put together a great fact-filled website called Human Progress, and it allows users to access all sorts of databases to produce their own charts and tables.

And here’s what the data shows about per-capita economic output in Argentina and the United States.

Not exactly a ringing endorsement of the supposedly more compassionate system in Argentina.

As you can see from this table, Argentina actually was slightly richer than the U.S. back in 1896. But that nation’s shift to statism, particularly after World War II, hindered Argentina’s growth rates.

And seemingly modest differences in growth, compounded over decades, have a huge impact on living standards for ordinary people (i.e., inflation-adjusted GDP per person climbing nearly $27,000 in the U.S. vs an increase of less than $6,700 in Argentina).

By the way, this is not an endorsement of America’s economic policy. We have far too much statism in the United States.

But compared to Argentina, which generally has ranked in the bottom quartile for economic freedom, the United States has a more market-friendly track record.

To help make the bigger point about the importance of economic liberty, let’s now compare the United States with a jurisdiction that consistently has been ranked as the world’s freest economy.

Look at changes in economic output in America and Hong Kong from 1950 to the present. As you can see, Hong Kong started the period as a very poor jurisdiction, with per-capita output only about one-fourth of American levels.

But thanks to better policy, which led to faster growth compounding over several decades, Hong Kong has now caught up to the United States.

What’s most remarkable, if you look at the table, is that per-capita output over the past 65 years has soared by more than 1,275 percent in Hong Kong.

Needless to say, if the U.S. is out-performing Argentina and Hong Kong is out-performing the U.S., then a comparison of Hong Kong and Argentina would yield ever starker results.

I actually did something like that back in 2011 and the results further underscore that there’s a very powerful relationship between economic policy and economic performance.

Which brings us back to the fundamental issue of what system is best for the less fortunate in society?

I suppose that’s a judgement call, but poor people obviously have higher incomes and more opportunity when there’s strong economic growth.

But as Margaret Thatcher famously explained, some people are so consumed by disdain for success that they’re willing to accept more suffering for poor people if they can simultaneously lower the incomes of rich people.

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Poverty, the Welfare State, and the Failure of Centralized Government

As we get deeper into an election season, many politicians feel compelled to discuss how to deal with poverty.  And some of them may even be serious about trying to improve the system.

This hopefully will lead to big-picture discussions of key issues, such as why the poverty rate stopped falling in the mid-1960s.

If so, it helps to look past the headline numbers and actually understand the scope of the problem.

Nicholas Eberstadt of the American Enterprise Institute explains that the official poverty data from the Census Bureau overstates the number of poor people.

…the official poverty rate is a positive embarrassment today. The poverty rate manifestly cannot do the single thing it was intended for: to count the number of people in our country subsisting below a fixed and absolute “poverty line.” Among its many other shortcomings, this index implicitly assumes that a family’s annual reported income is identical to its spending power… But income and spending patterns no longer track for the lowest income strata in modern America. …the bottom quintile of US households spent 130% more than their reported pretax income. The disparity between spending and income levels for poorer Americans has been gradually widening over time.

Though the shortcomings of the Census Bureau sometimes largely don’t matter because advocates of bigger government arbitrarily choose different numbers that further exaggerate the degree of poverty in the United States.

In a column for National Review, the Heritage Foundation’s Robert Rector exposes the dishonest tactic (promoted by the Obama Administration and used by the OECD) of measuring income differences instead of actual poverty.

The Left often claims that the U.S has a far higher poverty rate than other developed nations have. These claims are based on a “relative poverty” standard, in which being “poor” is defined as having an income below 50 percent of the national median. Since the median income in the United States is substantially higher than the median income in most European countries, these comparisons establish a higher hurdle for escaping from “poverty” in the U.S. than is found elsewhere.

Based on honest apples-to-apples numbers, the United States is just as capable as other developed nations of minimizing material deprivation.

A more meaningful analysis would compare countries against a uniform standard. …Garfinkel and his co-authors do exactly that. They measure the percentage of people in each country who fall below the poverty-income threshold in the U.S. ($24,008 per year for a family of four in 2014). The authors reasonably broaden the measure of income to include “non-cash” benefits such as food stamps, the earned-income tax credit, and equivalent programs in other nations. They also subtract taxes paid by low-income families, which are heavy in Europe. …the differences in poverty according to this uniform standard were very small. For example, the poverty rate in the U.S. was 8.7 percent, while the average among other affluent countries was around 7.6 percent. The rate in Germany was 7.3 percent, and in Sweden, it was 7.5 percent. Using a slightly higher uniform standard set at 125 percent of the U.S. poverty-income thresholds, the authors find that the U.S. actually has a slightly lower poverty rate than other affluent countries.

These numbers probably disappoint leftists who want to believe that European nations are somehow more generous and more effective in dealing with poverty.

But Robert explains that advocates of smaller government and individual responsibility should not be happy because the federal government’s profligacy isn’t helping poor people become self sufficient.

It is, of course, a good thing that left-wing claims of widespread deprivation in the U.S. are inaccurate. But government welfare policy should be about more than shoveling out a trillion dollars per year in “free” benefits. When President Lyndon Johnson launched the War on Poverty, he sought to decrease welfare dependence and increase self-sufficiency: the ability of family to support itself above poverty without the need for government handouts. By that score, the War on Poverty has been a $24 trillion flop. While self-sufficiency improved dramatically in the decades before the War on Poverty started, for the last 45 years, it has been at a standstill.

Robert Doar and Angela Rachidi of the American Enterprise Institute make a very similar point about the welfare state failing to promote self sufficiency.

Recently released data show that the official poverty rate was 14.8% in 2014, only slightly below the 15% in poverty in 1970. And this is despite large increases in federal spending on anti-poverty programs.  Spending on these programs has increased almost tenfold in constant dollars since the early 1970s and increased from 1.0% of GDP in 1972 to 3.8% in 2012… Where does this leave us? If helping people achieve self-sufficiency and be free of government assistance is the goal, the safety net has largely failed. But if reducing material hardship is the goal, it performs well.

I would make a very important change to the above passage. Doar and Rachidi write that the poverty rate hasn’t declined “despite large increases” in supposed anti-poverty spending. Based on the evidence, it would be more accurate to say that poverty has stayed high “because of large increases.”

Simply stated, when you subsidize something, you get more of it.

Anyhow, all this matters for three reasons.

• First, dependency is bad news for poor people, particularly when government subsidizes multi-generational poverty and unwed motherhood.
• Second, the current welfare state is bad news for taxpayers, who are financing a $1 trillion income-redistribution system that fails in its most important task.
• Third, the current system is bad news for the economy because millions of people are bribed to be out of the labor force, thus lowering potential output.

Let’s summarize what we know. The official poverty rate exaggerates the actual number of poor people by failing to properly measure income, but that may not matter much since proponents of more redistribution prefer to use dishonest numbers that are even more distorted.

And we also know that the welfare state is capable of redistributing lots of money, but also that it does a terrible job of promoting self sufficiency. Indeed, it’s almost certainly the case that massive levels of redistribution have had a negative effect.

So what’s the solution to this mess?

Folks on the left want even more of the same. But why should we expect that to have any positive effect? Indeed, it’s more likely that an expansion of the welfare state will simply lure more people into lives of sloth and dependency.

Some people on the right want to replace the welfare state with a guaranteed or basic income. This has some theoretical appeal, but it is based on the very shaky assumption that politicians could be convinced to completely repeal all existing redistribution programs.

Which is why the most prudent and effective step is to simply get the federal government out of the business of redistributing income and let state and local governments decide how best to deal with the issue.

This federalism-based approach has several advantages.

1. Since redistributing income is not listed as an enumerated power, ending Washington’s role would be consistent with the Constitution.
2. This federalism model already has been successfully tested with welfare reform in the 1990s and it also is the core feature of proposals to block grant Medicaid.
3. A state-based model is far more likely to result in the degree of experimentation, diversity, and innovation needed to discover how best to actually promote self sufficiency.

By the way, this federalist system may begin with block grants from the federal government (i.e., transfers of cash to state and local governments), but the ultimate goal should be to phase out such subsidies so that state and local governments are responsible for choosing how to raise funds and how to allocate them.

And once welfare is truly a responsibility of state and local governments, we have good evidence that this will lead to better policy.

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In the Debate over Capitalism and Morality, the Score Is: Walter Williams 1 – Pope Francis 0

The biggest mistake of well-meaning leftists is that they place too much value on good intentions and don’t seem to care nearly as much about good results.

Pope Francis is an example of this unfortunate tendency. His concern for the poor presumably is genuine, but he puts ideology above evidence when he argues against capitalism and in favor of coercive government.

Here are some passages from a CNN report on the Pope’s bias.

Pope Francis makes his first official visit to the United States this week. There’s a lot of angst about what he might say, especially when he addresses Congress Thursday morning. …He’ll probably discuss American capitalism’s flaws, a theme he has hit on since the 1990s. Pope Francis wrote a book in 1998 with an entire chapter focused on “the limits of capitalism.” …Francis argued that…capitalism lacks morals and promotes selfish behavior. …He has been especially critical of how capitalism has increased inequality… He’s tweeted: “inequality is the root of all evil.” …he’s a major critic of greed and excessive wealth. …”Capitalism has been the cause of many sufferings…”

Wow, I almost don’t know how to respond. So many bad ideas crammed in so few words.

If you want to know why Pope Francis is wrong about capitalism and human well-being, these videos narrated by Don Boudreaux and Deirdre McCloskey will explain how free markets have generated unimaginable prosperity for ordinary people.

But the Pope isn’t just wrong on facts. He’s also wrong on morality. This video by Walter Williams explains why voluntary exchange in a free-market system is far more ethical than a regime based on government coercion.

Very well stated. And I especially like how Walter explains that markets are a positive-sum game, whereas government-coerced redistribution is (at best) a zero-sum game.

Professor Williams wasn’t specifically seeking to counter the muddled economic views of Pope Francis, but others have taken up that challenge.

Writing for the Washington Post, George Will specifically addresses the Pope’s moral preening.

Pope Francis embodies sanctity but comes trailing clouds of sanctimony. With a convert’s indiscriminate zeal, he embraces ideas impeccably fashionable, demonstrably false and deeply reactionary. They would devastate the poor on whose behalf he purports to speak… Francis deplores “compulsive consumerism,” a sin to which the 1.3 billion persons without even electricity can only aspire.

He specifically explains that people with genuine concern for the poor should celebrate industrialization and utilization of natural resources.

Poverty has probably decreased more in the past two centuries than in the preceding three millennia because of industrialization powered by fossil fuels. Only economic growth has ever produced broad amelioration of poverty, and since growth began in the late 18th century, it has depended on such fuels. …The capitalist commerce that Francis disdains is the reason the portion of the planet’s population living in “absolute poverty” ($1.25 a day) declined from 53 percent to 17 percent in three decades after 1981.

So why doesn’t Pope Francis understand economics?

Perhaps because he learned the wrong lesson from his nation’s disastrous experiment with an especially corrupt and cronyist version of statism.

Francis grew up around the rancid political culture of Peronist populism, the sterile redistributionism that has reduced his Argentina from the world’s 14th highest per-capita gross domestic product in 1900 to 63rd today. Francis’s agenda for the planet — “global regulatory norms” — would globalize Argentina’s downward mobility.

Amen (no pun intended).

George Will is right that Argentina is not a good role model.

And he’s even more right about the dangers of “global norms” that inevitably would pressure all nations to impose equally bad levels of taxation and regulation.

Returning to the economic views of Pope Francis, the BBC asked for my thoughts back in 2013 and everything I said still applies today.

P.S. Let’s close by taking a look at a few examples of how the world is getting better thanks to capitalism.

We’ll start with an example of how China’s modest shift toward markets has generated huge reductions in poverty (h/t: Cato Institute).

Now let’s look at how a wealthier society is also a safer society (h/t: David Frum).

Or how about this remarkable measure of higher living standards (h/t: Mark Perry).

Here’s an amazing chart showing how something as basic as light used to be a luxury good but now is astoundingly inexpensive for the masses (h/t: Max Roser).

These are just a few random examples of how free markets, when not overly stifled by government, can produce amazing things for ordinary people.

We may not notice the results from one year to the next, but the results are remarkable when we examine data over longer periods of time.

And if our specific goal is to help the poor, there’s no question that economic growth is far more effective than government dependency.

Which is why I’ve explained that it’s better to be a poor person in a capitalist jurisdiction.

I’d much rather be a poor person in a jurisdiction such as Hong Kong or Singapore rather than in a “compassionate” country such as France. France might give me lots of handouts, but I’d remain poor. In a free-market society, by contrast, I could climb out of poverty.

P.P.S. Methinks Pope Francis would benefit from a discussion with Libertarian Jesus.

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A Truly Honest Leftist Says Our Incomes Are the “Rightful Property” of Government

In a perverse way, I admire leftists who openly express their desire for bigger government and less liberty.

That’s why I (sort of) applauded when Matthew Yglesias wrote in favor of confiscatory tax rates while admitting the government wouldn’t generate any revenue.

And I gave Katrina vanden Heuvel credit for openly admitting her desire to redefine “freedom” so that it means a claim on other people’s income and property.

Both are proposing horrible policy, of course, but at least they’re honest about their goals and motivations. Unlike politicians, they’re not trying to disguise their intentions behind poll-tested platitudes.

We can now add another person to our list of honest leftists. The new leader of the Labour Party in the United Kingdom, Jeremy Corbyn, is a British version of Bernie Sanders, except he really is a socialist who believes in government ownership and control of business. And the chief economic adviser to Corbyn is Richard Murphy.

And, as reported by the U.K.-based Sun, Mr. Murphy openly says everyone’s income belongs to government.

Chartered accountant Richard Murphy, 57, is the brains behind the “Corbynomics” strategy of renationalisation, higher taxes and printing millions of pounds in “new” money. …his bizarre ideas have already sparked fears among Britain’s top economic experts… One of Murphy’s strategies was revealed in August 2014… The dad-of-two claimed taxpayers’ money was NOT their own – and was instead the state’s “rightful property”. Murphy said: “I would suggest that we don’t as such pay taxes. The funds that they represent are, I suggest, in fact the property of the state.”

To be fair, sometimes people mangle their words. To cite one hypothetical example, accidentally omitting a  word like “not” might totally change the meaning of a sentence and give a journalist an opportunity to make a speaker look foolish.

So maybe Mr. Murphy didn’t really mean to say that the government has first claim on everyone’s income.

But if you continue reading, it becomes apparent that he really does believe that government is daddy and the rest of us are children who may be lucky enough to get some allowance.

“…if we give the state the power to define what we can own, how we can own it and, to a very large degree, what we can do with it – and we do – then I would argue that we also give the state the right to say that some part of what we earn or own is actually its rightful property and that we have no choice but pay that tax owed as the quid pro quo of the benefit we enjoy from living in community. Murphy went on: “Well let me inform you that there is no such thing as ‘taxpayers’ money’: it is the government’s money to do what it will with in accordance with the mandate it has been given and for which it will have to account.

Wow, this truly gives us a window into the soul of statism.

Though let’s be fair to Murphy. He’s simply stating that untrammeled majoritarianism is a moral basis for public policy, even if it means 51 percent of the population ravages 49 percent of the population. And that’s an accurate description of how economic policy works in the United States ever since the Supreme Court decided to toss out the Constitution’s limits on the power of the federal government.

Moreover, Murphy’s view is basically reflected in the “tax expenditure” concept used in Washington and the “state aid” concept in the European Union.

None of this justifies Murphy’s poisonous ideology. Instead, I’m simply making the grim point that statists already have achieved some of their goals.

But maybe it will be easier to counter further attacks on economic liberty now that Murphy has openly said what his side wants.

P.S. There are two types of honest leftists. Richard Murphy, like Matt Yglesias and Katrina vanden Heuvel, are honest in that they openly state what they really believe, even when it exposes their radical agenda.

Some other folks on the left have a better type of honesty. They’re willing to admit when there is a contradiction between statist ideology and real-world results. Just look at what Justin Cronin and Jeffrey Goldberg wrote about gun control and what Nicholas Kristof wrote about government-created dependency.

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Debunking a Straw-Man Attack against Libertarianism

I don’t understand why some people are hostile to libertarians.

After all, our philosophy is based on the notion that we want government to be limited so it is less likely to reach into your wallet or your bedroom.

At the risk of oversimplifying, libertarians think it’s okay for government to safeguard life, liberty, and property from force and fraud, but we’re very leery about giving additional powers to the government.

Seems like a reasonable governing philosophy to me, but some people object to being treated like adults and they lash out with very silly attacks on libertarianism.

Consider this article in Slate, which makes it seem as if libertarians are hypocrites if they accept – and express appreciation for – assistance from firefighters.

…an Okanogan, Washington man named Brad Craig thanks firefighters for saving his home. It’s a nice moment, though if you look closely you’ll notice that Craig happened to be wearing a t-shirt that given the circumstances is quite ironic… The shirt says “Lower Taxes + Less Government = More Freedom.” …10 different government organizations are mentioned in the AP story about the large-scale coordinated response that worked to Craig’s benefit.

Wow. I’m not sure whether the author is malicious or clueless, but this is remarkable. He’s basically saying that if you want less government, you must be a hypocrite if you support or benefit from any government.

Which is the same as me asserting that leftists are hypocritical to buy I-Phones because their support for more government means that they therefore must favor total government and no private sector.

There are, of course, some libertarians who persuasively argue that we don’t need government fire departments. And some who even argue that we don’t need any government.

But even if Brad Craig (the guy with the t-shirt) was in one of these categories, that doesn’t make him a hypocrite. Many poor and middle-class families would like a voucherized education system so they could afford to send their kids to private schools. In the absence of such a reform, are they hypocrites for sending their kids to government-run schools?

Obviously not.

Here’s another example. The government today takes money from just about all of us to prop up a poorly designed Social Security system. Are the workers who have been coerced into that system hypocrites if they take Social Security benefits when they retire?

Of course not.

Jim Treacher of the Daily Caller also weighed in on this topic. Here’s some of what he wrote.

I can express a desire for less government interference in my life without rejecting the need for firefighters. Or police, or roads, or Stop signs, or whatever. I understand that it’s actually possible to advocate individual liberty while still admitting the need for government. People have been saying such things for hundreds of years.

Well said.

Let’s close with this look at how libertarians are the reasonable middle ground between two types of statists. I don’t fully agree with all the characterizations (many leftists favor corporate welfare and are not tolerant of other people’s personal choices, for instance, while there are folks on the right who aren’t very committed to economic freedom), but it’s worth reviewing.

If you want to figure out where you belong, there is a short way, medium way, and long way of answering that question.

And while I don’t want put my thumb on the scale as you take these tests, I’ll simply note that decent and humane people tend to be libertarians.

P.S. Here’s a more scholarly look at the difference between libertarians and conservatives.

P.P.S. And here’s my take on why there aren’t any pure libertarian societies.

P.P.P.S. Here’s my collection of libertarian humor.

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The Canadian Version of Great Moments in Human Rights

Just like I have a Bureaucrat Hall of Fame and a Moocher Hall of Fame to draw attention to spectacular cases of overpaid sloth and entitled dependency, I may have to set up something similar to commemorate bizarre examples of government-manufactured human rights.

Most recently, for example, I cited a case in European courts dealing with whether obese people should have “preferential rights.”

Our newest example comes from Canada, where a so-called “human rights adjudicator” has decided that drunks are entitled to “accommodations” for their “special needs.”

A health-care aide’s alcohol addiction qualifies as a disability, and her employer was wrong to fire her… Linda Horrocks is entitled to be reinstated, get three years back pay and an additional $10,000 for injury to her dignity, independent adjudicator Sherri Walsh said in a report released Tuesday. “The issue for determination in this matter is…whether (the employer) made reasonable efforts to accommodate the complainant as soon as it was aware that she had a disability and special needs associated with that disability,” Walsh wrote. …Walsh ruled that alcohol addiction amounts to a disability under the human rights code.

Wow, so guess we have the answer to the question of how “human rights” are protected in Canada.

Sounds like a great deal…so long as one is willing to ignore the right of business owners and shareholders to choose their employees.

Though we shouldn’t laugh too much at the Canadians. After all, the EEOC in the United States made a similar decision restricting the right of a trucking company to weed out a drunk driver.

In other words, the natural tendency of most politicians and bureaucrats is to make odd choices.

If you want to read more “great moments in human rights,” here’s an ever-growing list.

• Academics in both America and Europe, as well as a committee from the Council of Europe, claim there is a right to other people’s money.
• Across Europe, a satellite dish is now a human right.
• The Department of Housing and Urban Development asserts there is a right to “emotional support animals” in college dorms.
• In Finland, broadband access is a basic right.
• In France, it is against the law to say your husband is under-endowed or that your wife is fat.
• There’s now an entitlement for free soccer broadcasts in Europe.
• In Italy, you have the right to…um…your testicles.
• Both the United Nations and the Obama Administration think there’s a right to taxpayer-financed birth control.
• In the United States, the elderly have the right to taxpayer-financed sex-change operations.
• There’s even a right to a “special accommodation” if you’re a pee-shy worker in America.

P.S. Since today’s target was a foolish policy in Canada, I feel somewhat obliged to point out that our neighbors to the north have more economic freedom than the United States, in large part because various Canadian governments have done a good job reducing the burden of government spending and dramatically lowering the corporate tax burden.

P.P.S. Canada also can teach us important lessons on other issues, such as bank bailouts, the tax treatment of savings, and privatization of air traffic control. Heck, Canada even has one of the lowest levels of welfare spending among developed nations.

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Congressman Bera and Planned Parenthood Unwittingly Endorse End to Taxpayer Handouts

Maybe it’s my snarky sense of humor, but I greatly enjoy when statists accidentally promote free markets and small government.

It seems to happens quite a bit at the New York Times.

A New York Times columnist, for instance, pushed for a tax-hiking fiscal agreement back in 2011 based on a chart showing that the only successful budget deal was the one that cut taxes.

The following year, another New York Times columnist accidentally demonstrated that politicians are trying to curtail tax competition because they want to increase overall tax burdens.

In a major story on the pension system in the Netherlands this year, the New York Times inadvertently acknowledged that genuine private savings is the best route to obtain a secure retirement.

But it’s not just people who write for the New York Times.

The International Monetary Fund accidentally confirmed that the value-added tax is a revenue machine to finance bigger government and heavier tax burdens.

A statist in Illinois tried to argue that higher taxes don’t enable higher spending, but his argument was based on the fact that politicians raised taxes so they wouldn’t have to cut spending.

And a journalist at Mother Jones accidentally showed that lower levels of government spending are correlated with greater job creation.

Now we have something else to add to the list. Some advocates of federally subsidized abortion inadvertently and unwittingly have endorsed the notion that there shouldn’t be any taxpayer handouts to the nation’s largest abortion provider.

I don’t know if either Planned Parenthood or Congressman Bera are oblivious, entitled, or mendacious, but this retweeted quote really deserves some sort of prize. They obviously want to promote the status quo of federal subsidies for the organization, but the call to “take gov’t out of the exam room” accidentally makes the libertarian case that government money shouldn’t be involved.

What makes this especially amusing is that Congressman Bera is a doctrinaire statist, receiving an “F” on his spending record from the National Taxpayers Union.

Needless to say, both the Congressman and Planned Parenthood obviously do want the handouts. They simply don’t want any oversight or attention on how the money is spent. But it’s nice that they both inadvertently endorsed the right approach.

P.S. Let’s shift gears and look at another example of “gov’t” in action. I’ve previously written about the fiasco at the Veterans Administration. Not only did the bureaucracy maintain secret waiting lists, but they awarded themselves bonuses.

Well, we now have some data on the horrific consequences of the bureaucracy’s disgusting behavior.

The Department of Veterans Affairs’ Office of Inspector General on Wednesday confirmed that more than one-third of the people thought to be seeking eligibility for VA benefits are deceased, and said many of them have been dead for more than four years. …The OIG’s report…said 307,000 names on the VA’s list of pending enrollees were deceased. That’s 35 percent of the 867,000 people on the list as of last year.

Wow, many segments of the population that have been disadvantaged by Obamacare, including ones that deserve sympathy, such as children, low-income workers, and retirees, as well as those that don’t deserve much sympathy, such as congressional staff, IRS bureaucrats, and Harvard professors.

But I think we can safely say that America’s veterans clearly have suffered the most because of government-run healthcare.

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Warning: Bernie Sanders Will Be Very Expensive to Your Wallet

Almost everyone in Washington is talking about last night’s GOP debate. I sent out a few tweets as I watched, and my main after-the-fact observation is that there was very little discussion about the ever-growing burden of government spending, which is America’s most pressing economic problem.

But I’m a contrarian, so while everyone else is talking about Republicans, I’m going to focus instead on the Democratic side and address the fiscal agenda of Bernie Sanders.

The Vermont Senator has a voting record is almost identical to the scores received by Barack Obama and Hillary Clinton when they were in the Senate, so one might wonder whether there’s a rationale for his candidacy.

But Sanders is tapping into a desire on the part of many Democratic voters who want a candidate who openly and proudly advocates for big government.

And even if neither they nor Sanders actually know the technical distinction between socialism and traditional American-style leftism, there’s an appreciation for the fact that he actually says what he believes.

And he definitely believes that Washington knows best on the issue of spending money.

Writing for the Wall Street Journal, Laura Meckler reports on the price tag for Bernie Sanders’ agenda. It’s a big number, even by Washington standards.

Sen. Bernie Sanders…is proposing an array of new programs that would amount to the largest peacetime expansion of government in modern American history. …he backs at least $18 trillion in new spending over a decade… His agenda includes an estimated $15 trillion for a government-run health-care program that covers every American, plus large sums to rebuild roads and bridges, expand Social Security and make tuition free at public colleges. To pay for it, Mr. Sanders, a Vermont independent running for the Democratic nomination, has so far detailed tax increases that could bring in as much as $6.5 trillion over 10 years, according to his staff. A campaign aide said additional tax proposals would be offered to offset the cost of some, and possibly all, of his health program.

Here’s the breakdown of all the new spending.

The WSJ story also measures the degree to which the Sanders agenda would expand the burden of government spending.

…his agenda articulates the goals of many liberals and is exerting a leftward pressure on the party’s 2016 field. The Sanders program amounts to increasing total federal spending by about one-third—to a projected $68 trillion or so over 10 years. For many years, government spending has equaled about 20% of gross domestic product annually; his proposals would increase that to about 30% in their first year. As a share of the economy, that would represent a bigger increase in government spending than the New Deal or Great Society.

That’s good information, but keep in mind that the burden of government spending already is projected to climb substantially even without all of the new boondoggles being proposed by Sen. Sanders.

So what the Vermont Senator is really advocating is racing even faster in the direction of Greece.

And that means pressure for additional tax hikes. So the bad ideas being proposed by Sanders will just be the beginning.

If the big spenders succeed, we can also expect proposals for an energy tax, a value-added tax, a wealth tax, and a financial transactions tax.

Just in case you think I’m being unfair to Sanders, let’s now cite someone who argues that the $18 trillion figure is needlessly scary because all that’s really happening is that certain activities will be shifted from the private sector to government.

Here are some excerpts from a column in the Washington Post by Paul Waldman.

…while Sanders does want to spend significant amounts of money, almost all of it is on things we’re already paying for; he just wants to change how we pay for them. In some ways it’s by spreading out a cost currently borne by a limited number of people to all taxpayers. …we shouldn’t treat his proposals as though they’re going to cost us $18 trillion on top of what we’re already paying.

He cites a hypothetical example.

If I told you I could cut your health insurance premiums by $1,000 and increase your taxes by $1,000, you wouldn’t have lost $1,000. You’d be in the same place you are now.

In other words, notwithstanding my title, Waldman is saying that Sanders won’t be expensive to your wallet because he’s simply putting the government in charge of paying for certain things that are now privately financed.

That’s actually a (somewhat) fair point, but it overlooks two big issues.

First, there will a lot more redistribution and class-warfare taxation if Sen. Sanders is able to impose his agenda. So the people who are being fleeced today by the IRS will be subject to additional demands to cough up money.

In other words, Sen. Sanders’ plan is a threat to the wallets of the people who actually pay for government.

Second, bigger government will have negative effects even if we limit the analysis to folks who theoretically are held harmless (like Waldman’s example of a person paying $1,000 more in taxes but paying $1,000 less in health premiums).

That’s because people’s willingness to work is driven in part by a desire to purchase certain things, such as health care and/or health insurance. As illustrated by this cartoon parody, that incentive would be eroded if Sanders’ agenda is adopted and folks can get freebies from Uncle Sam.

And people’s willingness to work also is impacted by marginal tax rates. So they’ll have less incentive to engage in productive behavior because of all the tax hikes needed to finance the new spending proposed by Sanders.

Moreover, keep in mind that governments don’t use resources as efficiently as the private sector. That means more waste and less growth.

You don’t have to take my word for it. Even research from establishment organizations like the European Central Bank find that smaller governments are more efficient. And the normally left-leaning World Bank even acknowledged that the evidence is strong about bigger governments harming growth.

Let’s close with a political cartoon that showed up in my inbox. I have no idea if the cartoonist is trying to make fun of Republicans or make fun of Bernie Sanders, but he cleverly shows that Sanders embraces a term that others consider a slur.

If you want some political humor that is clearly anti-Sanders, you can click here for two funny images.

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New Census Bureau Report on Income and Poverty Is a Damning Indictment of Obamanomics

As a libertarian, I sometimes make the moral argument for small government. If it’s wrong to steal other people’s income or property, then shouldn’t it also be wrong to use the coercive power of government to take their income or property?

Defenders of the welfare state respond by saying it’s “the will of the people,” but the libertarian counter-response is to point out that 51 percent of the people shouldn’t be allowed to pillage 49 percent of the people.

Indeed, as Walter Williams has cogently explained, that’s why America’s Founding Fathers were such strong opponents of what they viewed as “untrammeled majoritarianism.”

But since I realize that some people aren’t persuaded by philosophical arguments, much of my work focuses on the practical or utilitarian case for small government.

That’s why I repeatedly show how market-oriented jurisdictions out-perform statist nations.

I’ve even challenged my left-wing friends to come up with a single example of a successful big-government economy.

Needless to say, the only response is the sound of chirping crickets.

Now let’s add one more piece of evidence to our arsenal. I’ve already shared lots of data and information when making the case that Obama’s big-government policies have not worked, but, in the spirit of Mae West, there’s no such thing as too much proof that statism doesn’t work.

Especially when the evidence comes from the Obama Administration!

Here are two damning charts from a just-released Census Bureau report on income and poverty in the United States.

The first chart shows that median household income, adjusted for inflation, is nearly $1300 lower today than it was when Obama took office.

That’s a horrible outcome, particularly since the recession ended back in the summer of 2009.

By the way, I agree with critics who say that the household income data is a less-than-ideal measure of prosperity. That being said, it’s still a benchmark that allows us to see how well the economy does in some periods compared to others.

And if you look at the above chart, you clearly can see that households obviously did comparatively well during the market-oriented Reagan and Clinton eras.

Now let’s look at some data that should be very compelling for leftists who claim to be especially concerned about the less fortunate. Here are the latest Census Bureau numbers on the number of people living in poverty as well as the overall poverty rate.

As you can see, there’s been no progress during the Obama years, even if you absolve him of any blame for the deteriorating numbers caused by the recession.

By the way, I can’t resist pointing out that this chart shows how the poverty rate was declining until the so-called War on Poverty started in the mid-1960s.

And if you can click here to learn more about how bad government policies have trapped people in poverty. And if you’re interested in several hundred years of data on poverty and government policy, click here.

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America’s Unfortunate Loss of Economic Liberty in the 21st Century

Last month, I cited data from Economic Freedom of the World to explain that the United States was becoming less competitive because of creeping protectionism and reductions in the rule of law and property rights.

Now I have more bad news to share.

Last year, the United States ranked #12 for economic liberty.

But according to the new rankings released yesterday, the United States now has dropped to #16. Here are the new rankings (based on a 0-10 scale), with Hong Kong and Singapore once again leading the pack.

Why did the United States drop? In part, because our score fell from 7.81 to 7.73, but also because of what happened to the scores of other nations.

The bottom line is that Georgia, Taiwan, Qatar, Ireland, and the United Kingdom jumped ahead of the United States, while Finland fell behind America.

Now let’s get more depressed.

If you dig through the archives and get the rankings for 2000, you can see that the latest fall from #12 to #16 is part of a very disturbing pattern. The United States used to be #3 in the world, with a score of 8.5.

Wow, falling from 8.5 to 7.73. That’s definitely an indictment of statist policy during the Bush and Obama years.

But I’m going to share even more depressing data.

The folks at the Fraser Institute who put together Economic Freedom of the World retroactively alter scores and rankings as they get more data (sort of the way the U.S. government periodically revises GDP and employment data).

So if you look at their big excel spreadsheet, you’ll see that the United States actually wound up ranked #2 in 2000 with a score of 8.65, marginally ahead of Singapore, which had a score of 8.61.

So we’ve actually dropped from #2 to #16 in the rankings, and our score has plunged from 8.65 to 7.73.

I’ve saved the worst for last. I crunched the numbers to see which nations suffered the biggest declines since 2000. As you can see, the United States has the unfortunate distinction of being on a list with basket case economies such as Venezuela and Argentina.

To make matters worse, at least the U.K. has been moving in the right direction in recent years, with a slight increase from 7.80 to 7.87 between 2010 and 2013. And Iceland also has been trying to improve. Its score has jumped from 6.43 to 6.87 over the past three years.

The United States, by contrast, has downward momentum.

P.S. The nation with the biggest improvement since 2000 is Romania. Thanks to reforms such as the flat tax, its score has skyrocketed from 5.31 to 7.69, an increase of 2.38 points. At this rate, they’ll easily pass the United States in next year’s rankings.

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Fiscal Policy, Tax Cuts, and “Voodoo Economics”

Is “supply-side economics” a bad thing or good thing?

It depends on what one means by the phrase. If it means that all tax cuts are self financing or that low tax burdens are the sole key to prosperity, then critics are right about it being a form of “voodoo economics.” See this Kevin Williamson column for more details.

But if the term is simply a shorthand way of saying that low marginal tax rates on productive behavior are a good thing because of better incentives for work, saving, investment, and entrepreneurship (not to mention tax compliance and good government), then supply-side economics should be non-controversial. See this piece by Alan Reynolds for more details.

As you might expect, folks on the left prefer the first definition of supply-side economics and they are instinctively hostile to big tax cuts. Especially during an election cycle.

Here’s the basic argument, from an article by John Cassidy in The New Yorker. He focuses his ire on Governor Bush, but his comments could just as easily been directed against other GOP candidates.

Here’s his basic premise.

…the Republican Party is heading on economic policy: back to the old-time religion of tax cuts. …Jeb Bush, the G.O.P. establishment’s standard-bearer, announced, as the centerpiece of his 2016 campaign, a plan to cut federal income-tax rates across the board. …wouldn’t this plan inflate the deficit, which President Obama and Congress have just spent five years trying to reduce, and also amount to another enormous handout to the one per cent? Not in the make-believe world of “voodoo economics”.

Mr. Cassidy is particularly incensed by the notion that some people believe tax cuts “pay for themselves” by generating sufficiently large amounts of additional taxable income.

The “voodoo” accusation arose from the claim that, because the policies would encourage people to work harder and businesses to invest more, a lot more taxable income would be produced, and the reductions in tax rates wouldn’t lead to a commensurate reduction in the amount of tax revenues that the government collected. Indeed, some early voodoo economists, such as Arthur Laffer, claimed that there wouldn’t be any drop in revenues. By 1988…more than half a decade of gaping budget deficits had discredited the most extreme and foolhardy version of voodoo economics.

For what it’s worth, there are several problems with the above passages.

First, while some GOPers did make exaggerated claims about the power of tax cuts, the Reagan White House never claimed the tax cuts would by self financing and instead made the very reasonable argument that lower tax rates would improve economic performance.

Second, the lower tax rates on upper-income taxpayers did lead to huge increases in taxable income and big increases in tax revenue, so there are a few examples where lower tax rates “pay for themselves.”

Third, the 1980-1982 double-dip recession was the main reason for higher deficits. Once the Reagan tax cuts were implemented, red ink began to shrink and even the Congressional Budget Office projected deficits would continue falling if Reagan’s policies were left on auto-pilot.

But let’s argue about the present rather than the past. Citing the work of some pro-Bush economists, Cassidy argues that tax cuts won’t generate as much growth as Governor Bush says he will deliver.

…the four conservative luminaries whom the Bush campaign rounded up to advise him…said that Bush’s tax plan would raise the growth rate of the economy by 0.5 per cent a year, and that the regulatory changes he is proposing would add another 0.3 per cent to the annual growth rate. But because the annual growth rate over the past five years has been 2.2 per cent, that gets us to three per cent growth, not the four per cent that Bush is promising to deliver.

Since economists are lousy forecasters, I won’t pretend to know how much additional growth the Bush economic plan would produce. But I’ll be the first to admit that Cassidy has found a gap between Bush’s rhetoric and the numbers produced by his advisers.

But does that mean big tax cuts are implausible and unrealistic?

Cassidy certainly would like readers to conclude that Bush’s plan doesn’t add up.

…the economists’ paper…makes the familiar argument that tax cuts, by stimulating growth, will lead to “revenue feedbacks.” On this basis, which is known on Capitol Hill as “dynamic scoring,” the economists reduce the estimated fiscal cost of the Bush tax cuts by two-thirds. But even a third of $3.6 trillion is a lot of red ink.

Though he (sort of) acknowledges that the Bush folks have a counter-argument.

So are the economists actually contradicting Bush and saying that his plan would expand the deficit? Not quite. …they write, “The remaining revenue loss would be offset by reasonable, incremental feedback effects from the tax and regulatory reforms, meaningful spending restraint across the federal budget…” Of course, Bush hasn’t said yet where he would cut spending

I don’t know if Governor Bush intends to produce a detailed list of ways to restrain government spending. Nor do I know whether he would follow through if he got elected (his record in Florida can be interpreted in different ways).

But I know that it’s actually very simple to have large tax cuts along with concomitant spending restraint.

And Bush’s economic advisers also understand. Take a look at these passages from their report. Citing a version of my Golden Rule, they point out that huge savings are possible simply by reducing how fast the government’s budget expands every year.

Budget discipline and economic prosperity go hand in hand. …federal spending restraint is essential to maximizing economic growth. …the Governor’s economic reforms require strong fiscal discipline on the federal budget ledger’s spending side. …the required budget goal can be achieved by reducing the growth in federal outlays from its current upward trajectory by one percentage point per year. From 2017 to 2025, federal expenditures are projected to increase at an annual rate of 4.2 percent. Limiting the increase to 3.2 percent will produce over $400 billion in budget savings in 2025 and $1.4 trillion in savings between 2017 and 2025.

Needless to say, we should have big – and immediate – reductions in government spending.

And if government is allowed to expand, it would be better if the budget grew at the rate of inflation (2 percent) rather than 3.2 percent.

That being said, it’s remarkable that even a little bit of spending restraint is capable of generating huge savings over a 10-year period. And those savings make big tax cuts very plausible. Even for the folks who myopically fixate on red ink when they should be worried about the overall burden of government spending.

So the real issue is not whether sizable tax cuts are plausible. It’s whether advocates of good tax policy are willing to impose accompanying discipline on the spending side of the fiscal ledger.

That means a President like Ronald Reagan or Bill Clinton rather than George Bush or Barack Obama.

Interestingly, Jeb Bush admits spending grew too fast while his brother was in office. Check out what he said toward the end of this interview.

For what it’s worth, I think the Bush White House was just as guilty as the GOP Congress, if not more, but that’s another fight over what happened in the past.

What really matters is that if Jeb Bush (or any other candidate for President) is serious about charting a different path and putting government on a diet, then big tax cuts are very realistic.

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Secession in the Modern World: Should Sardinia Leave Italy and Join Switzerland?

What’s the best country in the world?

My emotional response is that the United States belongs in the top spot.

But a more dispassionate analysis suggests that Switzerland is more deserving of the honor.

It has the 4th-freest economy according to the most recent rankings from Economic Freedom of the World, eight spots above the United States.

And it is ranked #2 in the Human Freedom Index, 18 spots higher than America.

There are several specific reasons why Switzerland is a good role model.

• It still maintains real federalism, and government is constrained when it takes place at the canton and municipal level.
• It has a lower burden of government spending, in part because of a very successful limit on yearly spending increases.
• The nation’s financial privacy laws, though weakened by foreign pressure, still provide some protection for human rights.
• There is a strong tradition of gun ownership.

Perhaps most important, the Swiss people are eminently sensible, as seen by their votes in favor of a spending cap and against class-warfare taxation, minimum-wage mandates, single-payer healthcare, and the death tax.

I’m not sure I would trust my fellow Americans to show similarly sound judgement.

So it’s surely true that there are lots of reasons to admire Switzerland.

Indeed, it’s such an attractive country that many people in Sardinia want to secede from Italy and have their island become a Swiss canton.

Here are some passages from a report in the Wall Street Journal.

“In Sardinia, people want to be Swiss.” Welcome to “Canton Marittimo,” or “Canton of the Sea,” a bid by Mr. Caruso, a 51-year-old dentist from Sardinia, and his comrade Enrico Napoleone, a car dealer there, to liberate Sardinia from Italy and tether it to Switzerland. …With a population of 1.5 million, the island, which lies between Italy and Spain, is today home to more than 10 parties calling for secession from Rome, emphasizing a culture, dialect, and history distinct from Italy’s mainland. …Mr. Caruso says…“Switzerland is the ideal nation to help us secure our culture and traditions.” … “Most of the local population would go for it, starting tomorrow,” said Matteo Colaone, a spokesman for Domà Nunch, a separatist group in the Italian regions surrounding Milan.

And what do the Swiss think about this idea?

At least one lawmaker likes the idea of adding cantons, though the government’s official position is not very welcoming.

In 2010, a member of Swiss parliament named Dominique Baettig proposed amending the constitution to aid regions in neighboring countries that want to become new cantons. Switzerland’s executive branch swiftly condemned it as “an unfriendly political act.” …There is little evidence the Swiss would want to adopt a rocky island that has many more sheep than people and per-capita economic output just one fourth that of Switzerland’s.

Here’s a video report on the topic from the WSJ.

In any event, it’s easy to understand why Sardinians are anxious to leave Italy and become part of Switzerland.

Here are some excerpts from a story in the U.K.-based Guardian.

“We think of Switzerland as a good teacher who could lead us on a path of excellence.” As the 27th canton, Sardinia, so goes the argument, would bring the Swiss its miles of stunning coastline and untapped economic potential. Sardinia could retain considerable autonomy, while also reaping the benefits of direct democracy, administrative efficiency and economic wealth.

Whereas staying in Italy means endless statism.

…their frustrations with inefficient public spending, complex layers of decision-making and intimidating bureaucracy can be heard throughout the country. …being a small businessman in Italy was “a continuous battle”. “It is fighting every day with a problem that the administration, the bureaucracy, creates instead of solves,” he said.

And while the Swiss government doesn’t seem overly excited about adopting Sardinia, ordinary Swiss citizens seem to like the idea.

An online poll of 4,000 people asking, in German, “should we accept Sardinia?” produced a 93% yes vote.

I suspect that an actual referendum in Switzerland wouldn’t be that lopsided, and the final result would probably depend on whether Swiss voters thought Sardinians were simply seeking good policy or whether they were looking for big handouts (Switzerland does have some redistribution from rich cantons to those with more modest incomes).

The bottom line is that there’s scholarly evidence suggesting that supporters of decentralization, self-determination, and limited government should favor the ability of regions to either declare independence or choose to join neighboring countries (assuming there’s a mutual desire for union).

That why I think secession or radical decentralization is/was the right approach in Ukraine, Belgium, and Scotland.

And as Walter Williams points out, secession can be peaceful, such as when Norway left Sweden early last century.

So I hope Sardinia moves forward.

Yes, it would be best for them to become part of Switzerland (and there already is an Italian-speaking canton). But even if the Swiss ultimately aren’t interested, the Sardinians at least would have a chance to escape Italy’s dysfunctional economic policies if they became independent.

P.S. The seven villages of Liechtenstein have the right to secede.

P.P.S. On a lighter note, here’s what would happen if the American right and left decided to secede from each other.

P.P.S. In our final postscript, let’s look at some fresh data about Switzerland.

Check out this chart (h/t: Constantin Gurdgiev) looking at how growth rates have changed in various European nations. As you can see, the 2002-2014 period has been grim for all nations compared to the years between 1980-2001. But Switzerland has had the smallest decline.

By the way, the left is always arguing that high tax burdens are necessary to help the poor. But as you can see from this chart (h/t: Fabian Wallen), every single income group is better off in low-tax Switzerland than high-tax Sweden.

In other words, big government is bad news for everyone (other than insiders), but it’s especially bad for poor people. Bono realizes that capitalism is the right model for upward mobility. Now let’s hope Pope Francis learns the same lesson.

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By the Numbers: America’s Unfortunate Fiscal Evolution from Madisonian Constitutionalism to Wilsonian Statism

I’m a big fan of fiscal data.

In part this is because I’m a policy wonk, but I also like budget numbers because they generally provide strong evidence for my philosophical belief in small government and spending restraint.

For instance, I enjoy sharing my table showing nations that have experienced great success with multi-year limits on spending growth, particularly since I enjoy putting my leftist friends in an uncomfortable position by asking them for a similar list of countries that have made progress by raising taxes (hint: that’s called the null set).

Given my affinity for budget data, I was excited to learn that the Joint Economic Committee (JEC) just released “An Economic History of Federal Spending and Debt.”

This new publication is filled with fiscal information starting in the late 1700s.

To give you an indication, check out this chart which, in one fell swoop, provides more than 200 years of data on spending, revenue, and debt, along with information on major wars and economic dislocations.

Since that’s an intimidating amount of information, I thought it might be a good idea to break out the most important set of numbers in that chart.

But I warn you that I’m not about to share good news. This chart shows how peacetime federal spending dramatically expanded during the 20th century.

Since I’ve already decided that data on dependency in Denmark was the most depressing powerpoint slide in the world, I guess we’ll call this the most tragic chart in the world.

Especially since it symbolizes a very unfortunate change in the attitude about the proper role of the federal government.

A progressive philosophical shift in federal spending began under President Woodrow Wilson. …George Will—writing on Wilson’s underlying philosophy—succinctly contrasted Wilson with James Madison by noting, “Wilsonian government, meaning (in Wilson’s words) government with ‘unstinted power,’ is hostile to Madison’s Constitution, which, Madison said, obliges government ‘to control itself.’”

In other words, the left decided that government was a force for progress rather than a threat to liberty, so they wanted to undermine the Constitution’s limits on the federal government.

And once the Supreme Court acquiesced to this perversion of the Constitution’s clear intent, any limits of federal power were swept away (evinced most recently by John Roberts’ tortured Obamacare decision).

And if you want to feel even sadder, check out the projections showing that America will become Greece in the absence of genuine entitlement reform.

Here’s a table from the JEC report that shows how bad attitudes, bad jurisprudence, and bad policy have led to a dramatic expansion in the burden of government spending. The most important column, which I’ve circled, shows that we used to have a very small federal government that consumed, on average, less than 3 percent of economic output. But now we have a Leviathan that diverts more than 20 percent of GDP to Washington programs.

The report isn’t just numbers. There’s also some very useful analysis.

For instance, it notes that FDR’s New Deal did not work (as I’ve repeatedly explained, though it also should have acknowledged that Hoover made the same mistakes).

On balance, empirical research provides little support for the contention that President Franklin D. Roosevelt’s Keynesian policies helped to pull the United States out of the Great Depression.

It also makes important points about the economic impact of government spending.

While more spending and a bigger federal government can mean more federal jobs, these jobs come at the expense of private sector resources, meaning fewer private sector jobs and lost economic opportunities. …there is an inverse relationship between federal spending and private payroll employment.

And it echoes arguments that I’ve made about the progress that was achieved during the Clinton years.

…though spending increased in real dollar terms during this period, as a percent of the economy, spending actually declined. In FY1995, non-interest mandatory spending equaled 9.75 percent of GDP and discretionary spending equaled 7.19 percent of GDP. In spite of the spending increases, by FY2001, mandatory spending amounted to only 9.56 percent of GDP and discretionary spending amounted to only 6.16 percent of GDP.

Perhaps most important, the study endorses Mitchell’s Golden Rule!

…a politically viable path to a balanced budget and fiscal stability: Restrain the growth in federal spending below the rate of economic growth, and a sustainable fiscal environment will follow.

Last but not least, it endorses a spending cap modeled after the Swiss Debt Brake.

The ideal base for a spending cap would be similar to a GDP-cap, but it would provide greater spending restraint in economic booms and greater flexibility in economic downturns. Fortunately, such a measurement, which helps to smooth the business cycle, does exist: Potential GDP. …basing a spending cap on potential GDP is very helpful for budgeting purposes, as it creates a more predictable budget path over an extended period of time.

There is a lot of additional information in the JEC report, so if you have any interest in America’s fiscal history, it’s worth your time to read the whole thing.

P.S. Other developed nations basically have made the same fiscal mistake as the United States. Nations in Western Europe and Japan also used to have very small governments. Once the welfare state began, however, economic liberty morphed into bloated welfare states.

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Everything You Ever Wanted to Know about Bureaucracy and Government

I’ve used the “everything you ever wanted to know” hook on many occasions, dealing with diverse issues such as demographics, entitlements, fiscal policy, France, Greece, corporate inversions, supply-side economics, income inequality, the Ryan budget, Social Security reform, comparative economic systems, and healthcare economics.

I even once made the grandiose claim that one of my speeches revealed everything you ever wanted to know about economic policy.

Needless to say, I was exaggerating in every instance. All I’m really doing is sharing things that are very useful in making a broader point about various public policy issues.

And that’s what I’m going to do today by sharing something that will tell you “everything you need to know” about bureaucracy and government.

It’s based on this column, authored by Professor Fred McChesney, about ever-expanding fire departments in the Washington Post.

Let’s start with some unambiguously good news.

…being a firefighter these days doesn’t involve a lot of fighting fire. Rapid improvements in fire safety have caused a dramatic drop in the number of blazes, according to the National Fire Protection Association. Buildings are constructed with fire-resistant materials; clothing and curtains are made of flame-retardant fabrics; and municipal laws mandate sprinkler systems and smoke detectors. The striking results: On highways, vehicle fires declined 64 percent from 1980 to 2013. Building fires fell 54 percent during that time. When they break out, sprinkler systems almost always extinguish the flames before firefighters can turn on a hose.

But here’s the part that tells us a lot about government and bureaucracy.

…as the number of fires has dropped, the ranks of firefighters have continued to grow — significantly. There are half as many fires as there were 30 years ago, but about 50 percent more people are paid to fight them.

And that means a lot of time doing nothing. At a very high cost (especially in California).

Firefighters responded to 487,500 structure fires across the United States in 2013, which means each of the nation’s 30,000 fire departments saw just one every 22 days, on average. And yet, taxpayers are paying more people to staff these departments 24-7. As a result, the amount of money shelled out for local fire services more than doubled from 1987 to 2011, to $44.8 billion, accounting for inflation. …Firefighters earned a median salary of $45,250 in 2012,according to the U.S. Bureau of Labor Statistics, but overtime can more than double that. In Los Angeles, for example, the average firefighter was paid more than $142,000 in 2013, including overtime and bonuses, the Los Angeles Times reported.

This doesn’t make sense. Why spend so much to achieve so little?

The answer is that politicians are scared of powerful unions (labor bosses, for instance, have targeted – and defeated – tough-on-crime lawmakers for being in favor of criminals simply because of disagreements about fringe benefits).

…firefighter unions have fought hard to grow their ranks as fires decline. …union-negotiated minimum-staffing levels that often mandate four firefighters per engine be on duty at all times, regardless of the cost or workload. …the International Association of Fire Fighters has an annual budget of nearly $60 million, most of it derived from its 278,000 members. IAFF calls itself “one of the most active lobbying organizations in Washington,”… Its political action committee, FIREPAC, spent nearly $6.4 million in 2014.

So what’s the solution?

Professor McChesney suggests that volunteer firefighters are part of the solution.

…cities and towns should consider throwing out the very concept of the career firefighter and return to the tradition of volunteers. …Municipalities that have stuck with the volunteer model got it right — and that is most of them. About 69 percent of all firefighters in the country are volunteers.

To be sure, volunteer firefighters often exist in small communities, but McChesney points out that medium-sized cities also can be very successful (and frugal) by using volunteer fire departments.

Protecting a sizable city with a volunteer force is possible. Since 1930, the city of Pasadena, Tex., has used 200 active and 50 semi-active volunteer firefighters to protect its now more than 150,000 residents. If all towns up to that size moved to all-volunteer forces, the national payroll of career firefighters would be reduced by more than half. Using the median firefighter salary, municipalities would save more than $8.8 billion a year in base pay.

Another option, of course, is to contract with private companies, which is another approach that is very successful.

But no reform will be possible without ending special union privileges.

And to understand why union bosses will fight reform, just keep in mind that they want to protect a system that gives them wages and benefits far above what they would receive in the absence of government coercion.

To cite one example of above-average compensation, here are some excerpts from a report in a California newspaper.

When Peter Nowicki retired in 2009, the then-50-year-old chief of the tiny Moraga Orinda Fire District made national news by trading his $194,000 salary for a starting pension of $241,000 a year.

I suppose taxpayers should count themselves as being lucky since Nowicki’s salary was a mere pittance compared to the $516,000-per-year deputy police chief in San Francisco. Or the $800,000-plus received by a state-employed psychiatrist.

That being said, what enabled this guy to get a pension that was almost $50,000 higher than his salary?

The answer is that he manipulated the system, perhaps in an illegal fashion.

Nowicki, aided by fire district directors, grossly spiked his pension. …The fire board approved two Nowicki contract amendments in that last year, increasing his salary and benefits without proper public transparency, in violation of the state’s open-meeting laws, and retroactively, in apparent violation of the state Constitution… Three days after the second contract amendment, and after 26 years of work, Nowicki announced to his staff that he was retiring because his pension would exceed his paycheck.

Interestingly, he was aware that the system is a scam, and maybe even felt guilty about ravaging taxpayers.

…after 26 years of work, Nowicki announced to his staff that he was retiring because his pension would exceed his paycheck. “I’m very fortunate to be a part of such a lucrative system, yet I philosophically find it to be very troubling at the same time,” he wrote. ” … Nonetheless, I’ve reached the financial plateau and it’s no longer economically feasible to continue in my current capacity.”

But even though he found the system “very troubling,” that didn’t stop him from deliberately screwing over taxpayers.

Then-Director Pete Wilson said that the board deliberately approved the changes to help Nowicki increase his pension and that the chief presented them calculations documenting the effect.

The point isn’t to demonize Mr. Nowicki.

Instead, think about the fact that we have a corrupt system where politicians reward unions with fat contracts and unions reward politicians with campaign cash and election-year support.

As illustrated by this superb cartoon by Michael Ramirez.

That’s a great deal…assuming you’re not a taxpayer.

But for those of us who work, produce, and pay tax, it’s very discouraging that so many bureaucrats have figured out how to become part of the top 1 percent. And it’s doubly discouraging when you consider how excessive pay and benefits are threatening the fiscal viability of state and local governments.

Now let’s get to the bottom line. This issue perfectly captures how government endlessly expands even when the ostensible purpose for a government activity shrinks. And the reason for that endless expansion is that insiders figure out how to rig the system for their advantage.

P.S. To close with some humor, here’s a very snarky video about overpaid firefighters.

And at the bottom of this post, you’ll find an amusing joke about firefighting that pokes fun at libertarians.

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Time for another Government Shutdown?

A new fiscal year starts October 1, and this is terrifying news for Republicans in Washington. They’re scared that if they don’t give Obama everything he wants, they’ll get “blamed” when the President vetoes annual spending bills and shuts down the government.

If this sounds like déjà vu all over again, that’s for a good reason. There were big shutdown fights during the Clinton years, a near-shutdown fight in 2011, and then another major shutdown fight in 2013 (as well as rumors of possible shutdown fights in 2012 and 2014). And Republicans ostensibly were at fault in every case.

Now, thanks to big disagreements about whether to renege on the Budget Control Act and/or whether to subsidize Planned Parenthood, it could happen again.

At least if Republicans don’t preemptively surrender.

I realize I’m a lone voice crying in the wilderness, but there’s a strong case to be made that GOPers should exhibit some backbone and fight for spending restraint even if President Obama decides to pick a shutdown fight.

First, fighting can lead to better policy.

During Bill Clinton’s presidency, a multi-year period of spending restraint starting in 1995 and ending in the late 1990s paid big dividends. The burden of federal spending dropped from more than 20 percent of GDP to less than 18 percent of economic output, and a big budget deficit became a big budget surplus.

The fiscal fights in recent years (involving not just a shutdown and shutdown threats, but also sequester battles and debt limit conflicts) also led to better fiscal outcomes. There was a de facto spending freeze starting in 2010 and ending in 2014, and the burden of government spending fell during those years, dropping from more than 24 percent of GDP to 20.3 percent of economic output.

Second, it’s unclear whether shutdowns actually lead to political blowback. Yes, the polling data seems to show that the GOP gets blamed when there’s an actual shutdown in Washington, and they obviously face unified hostility from the media and various interest groups whenever they hold firm.

That being said, there’s precious little evidence that they suffer on election day.

Republicans retained control of the House and Senate after their shutdown fight with Bill Clinton, and even picked up two Senate seats in 1996.

The 2013 shutdown fight over Obamacare was followed by a massive GOP landslide in 2014, which rewarded Republicans for opposing Obamacare.

So maybe the lesson is that voters don’t really care about shutdowns, particularly if they don’t take place close to an election. And I’ll pat myself on the back for predicting  – both at the start and the end of the 2013 shutdown – that there wouldn’t be any negative political consequences.

That being said, these policy and political arguments apparently aren’t very convincing to GOPers on Capitol Hill.

As reported by The Hill, Republican leaders think the possibility of a shutdown fight is a “crisis” to be avoided.

House Republicans will huddle in a pivotal closed-door meeting Wednesday morning as they face mounting pressure to defund Planned Parenthood — including threats to shut down the government. …Boehner and his Senate counterpart, Majority Leader Mitch McConnell (R-Ky.), are in no mood to reprise the shutdown of 2013. They believe another headline-grabbing crisis would severely damage the party at a time when they’re trying to show that Republicans can govern and take back the White House.

By the way, this isn’t just a fight about Planned Parenthood getting subsidies while selling parts of aborted babies.

Obama also says he’ll shut down the government if Republicans don’t give him more spending.

Here are some excerpts from a story in the Washington Examiner.

President Obama…called on Republicans to pass his budget when Congress reconvenes next month. He also threatened to veto any budget that did not increase spending. …”And if they don’t, they’ll shut down the government for the second time in two years,” said Obama.

Wow, let’s think about what’s actually going on. First, the President is reneging on the deal he agreed to back in 2011, which says something about ethics, character, and honesty. Second, his threatened veto, should it occur, is the only reason there would be a shutdown.

So why would that be the fault of Republicans?

Even more remarkable, President Obama even claims a shutdown would harm the economy.

President Obama on Thursday warned Congress not to “kill” the growing economy by risking a government shutdown this fall.

He must have a short memory (or no shame) because he made the same Keynesian-based argument that a sequester would hurt the economy. And he was wrong.

And he made the same claim about the 2013 shutdown and how it supposedly would hurt the economy. And was wrong then as well.

So what’s the bottom line?

At a minimum, advocates of fiscal responsibility should fight to protect the spending caps. There also should be a natural alliance between libertarians and social conservatives to end Planned Parenthood’s handouts.

Simply stated, some fights are worth having.

Though it’s important to understand this doesn’t guarantee victory.

The Wall Street Journal has a sober assessment of the challenge facing the GOP.

…the real GOP problem isn’t John Boehner or Mitch McConnell. It’s James Madison, who designed a government of checks and balances that is hard to overcome without the White House. …the party simply doesn’t have the votes to pass most of its preferred policy outcomes, much less to override a Democratic President.

The editors at the WSJ still think Republicans should fight, but the battlefield should be a separate piece of legislation rather than annual spending bills.

They should still fight and frame the issues to educate the public. They can even use budget reconciliation to send a budget to Mr. Obama’s desk with only GOP votes. But the project for the next 14 months should be to achieve what they can within divided government… Another failed government shutdown will make that harder.

I agree and disagree. Yes, not all fights need to be part of the annual appropriations legislation.

But unilaterally ceding the fight on the yearly spending bills would be wrong since Obama could successfully impose a higher burden of government spending.

I can understand why Obama wants to gut the spending caps. After all, they led to his biggest-ever defeat on fiscal policy.

That doesn’t mean, though, that the GOP leadership should hand him a victory without a fight.

P.S. There’s a humorous fringe benefit to government shutdowns, as you can see by clicking here, here, here, here, and here.

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Assessing Jeb Bush’s Pro-Growth Tax Plan

In my 2012 primer on fundamental tax reform, I highlighted the three biggest warts in the current system.

1. High tax rates that penalize productive behavior such as work and entrepreneurship.

2. Pervasive double taxation that undermines saving and investment.

3. Corrupt loopholes and cronyism that lure people into using resources inefficiently.

These problems all need to be addressed, along with additional problems with the internal revenue code, such as worldwide taxation and erosion of constitutional freedoms and civil liberties.

Based on these criteria, I’ve already reviewed the tax reform plan put forth by Marco Rubio. And I’ve analyzed the proposal introduced by Rand Paul.

Now let’s apply the same treatment to the “Reform and Growth Act of 2017” that former Florida Governor Jeb Bush has unveiled in today’s Wall Street Journal.

Bush identifies three main goals, starting with lower tax rates.

First, I want to lower taxes and make the tax code simple, fair and clear. …We will cut individual rates from seven brackets to three: 28%, 25% and 10%. At 28%, the highest tax bracket would return to where it was when President Ronald Reagan signed into law his monumental and successful 1986 tax reform.

This is a positive step, effectively wiping out the tax-rate increases imposed by Presidents George H.W. Bush, Bill Clinton, and Barack Obama.

Then Governor Bush takes aim at tax loopholes.

Second, I want to eliminate the convoluted, lobbyist-created loopholes in the code. For years, wealthy individuals have deducted a much greater share of their income than everyone else. We will retain the deductibility of charitable contributions but cap the deductions used by the wealthy and Washington special interests, enabling tax-rate cuts across the board for everyone.

This also is a step in the right direction, though it’s unclear what Bush is proposing – if anything – for other big tax loopholes such as the mortgage interest deduction, the healthcare exclusion, the state and local tax deduction, and the municipal bond exemption.

The final big piece of Jeb’s plan deals with America’s punitive treatment of business income.

Third, I believe that the tax code should no longer be an impediment to the nation’s competitiveness with China, Europe and the rest of the world. …To stop American companies from moving out of the country, I will cut the corporate tax rate from 35%—the highest in the industrial world—to 20%, which is five percentage points below China’s. We will end the practice of world-wide taxation on U.S. businesses, which fosters the insidious tactic called corporate “inversions.” …We will also allow businesses to fully and immediately deduct new capital investments—a critical step to increase worker productivity and wages.

All of these reforms are very good for growth.

A lower corporate tax rate, particularly combined with territorial taxation and “expensing” of investment expenditures, will make American companies far more competitive.

More important, these reforms will fix flaws in the tax code that reduce capital formation. And that will mean more investment and higher wages for American workers.

There are other positive features mentioned in the column that are worth celebrating. Governor Bush’s plan eliminates the death tax, which is an especially punitive form of double taxation.

His proposal also gets rid of the alternative minimum tax (AMT), which is a convoluted part of the tax code seemingly designed to grab more money from taxpayers in a very complicated fashion.

Now let’s move to a part of Bush’s plan that seems bad, but arguably is good. He’s proposing to get rid of interest deductibility for companies, which will increase double taxation (remember, investors who buy corporate bonds pay tax on the interest payments they receive from firms).

…we will eliminate most corporate tax deductions—which is where favor-seeking and lobbying are most common—and remove the deduction for borrowing costs. That deduction encourages business models dependent on heavy debt.

So why is this feature arguably good when one of the key goals of tax reform is eliminating double taxation?

For two reasons. First, we already have double taxation of dividends (i.e., equity-financed investment), so imposing double taxation on borrowing (i.e., debt-financed investment) creates a level playing field and addresses the bias for debt in the tax code.

To be sure, it would be best to level the playing field by having no double taxation of any kind, but presumably the Bush team also was paying attention to revenue constraints.

And this is the second reason why this portion of the plan arguably is good. The revenue implications of this change are non-trivial, so one could argue that it is helping to finance pro-growth changes such as a lower corporate tax rate and immediate expensing of business investment.

Let’s close by highlighting some unambiguously worrisome features of the Bush plan.

According to his column, an additional 15 million Americans no longer will have any income tax liability, largely because the plan almost doubles the standard deduction. It’s good for people not to have to pay tax, of course, but we already have a system where almost half of all households are exempt from the income tax. So the concern is that we have a growing share of the population that perceives government as a no-cost dispenser of goodies.

And one of those goodies is the Earned Income Tax Credit, which is a form of income redistribution operated through the tax code. And Bush is proposing to expand the EITC, though there aren’t any details about this part of his plan.

Presumably Bush is including these provisions to somewhat fend off the class-warfare attack that his plan provides big tax cuts for the “rich” while not doing enough for the rest of the population. Yet upper-income taxpayers already pay the lion’s share of the income tax.

Even the IRS has acknowledged that the top 3 percent pay more than half the burden!

So a fair tax cut, by definition, will benefit the rich since they’re the ones who are carrying the load.

In any event, the purpose of good tax policy is to generate faster growth by improving incentives for work, saving, investment, and entrepreneurship, and that’s where you get the big benefits for lower- and middle-income taxpayers.

Simply stated, the close you get to a Hong Kong-style flat tax, the closer you get to robust Hong Kong-type growth rates.

The bottom line is that Bush’s tax plan isn’t a touchdown. Like the Rubio plan and Paul plan, it’s not a Hall-Rabushka flat tax, which is the gold standard for tax reform. But it’s a big step in that direction. Bush takes the ball from the wrong side of the field and puts it on the right side of the field.

If implemented (and accompanied by the spending restraint needed to make the plan sustainable), Bush’s proposal would be a significant boost for the American economy and American taxpayers.

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Debating the Carbon Tax

When the International Monetary Fund endorsed a giant energy tax on the American economy, I was not happy.

And not just because the tax hike would have been more than $5,000 for an average family of four. I also was agitated by the hypocrisy.

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

And when the similarly un-taxed bureaucrats at the Paris-based Organization for Economic Cooperation and Development added their support for a big tax hike on energy, I was irked for that reason, and also because they wanted to use much of the money to make government bigger.

…the OECD is basically saying is that an energy tax will be very painful for the poor. But rather than conclude that the tax is therefore undesirable, they instead are urging that the new tax be accompanied by new spending.

Moreover, I also criticized Barack Obama’s former top economist for endorsing a big energy tax.

So does this mean I’m against energy taxation? The answer is yes, but with a big caveat. I want the government to collect tax (hopefully a small amount because we have a small government) in the way that does the least amount of damage to the American economy.

So while my instinct is to oppose any proposed tax, I’m theoretically open to the notion that we can make the tax system less destructive by replacing very bad taxes with taxes that aren’t as bad.

And that’s what some pro-market economists want to do with an energy tax. Here’s some of what Greg Mankiw wrote for the New York Times.

Policy wonks like me have long argued that the best way to curb carbon emissions is to put a price on carbon. The cap-and-trade system President Obama advocates is one way to do that. A more direct and less bureaucratic way is to tax carbon. When polled, economists overwhelmingly support the idea. …It encourages people to buy more fuel-efficient cars, form car pools with their neighbors, use more public transportation, live closer to work and turn down their thermostats. A regulatory system that tried to achieve all this would be heavy-handed and less effective.

In other words, Mankiw argues that not only could the revenue be used to finance equal-sized tax cuts, but the carbon tax would end any need for destructive regulations.

Which creates a win-win scenario, he argues, citing British Columbia as an example.

Bob Inglis, the former Republican congressman from South Carolina, heads the Energy and Enterprise Initiative at George Mason University A recent winner of the John F. Kennedy Profile in Courage Award, which is given to public officials, he has been pushing for climate change solutions that are consistent with free enterprise and limited government. Environmentalists in the United States would do well to look north at the successes achieved in a Canadian province. In 2008, British Columbia introduced a revenue-neutral carbon tax similar to that being proposed for Washington. The results of the policy have been what advocates promised. The use of fossil fuels in British Columbia has fallen compared with the rest of Canada. But economic growth has not suffered.

Professor Mankiw makes some reasonable points, but now let’s get the other side.

Three of my colleagues at the Cato Institute have just produced a working paper on carbon taxation. They directly address the claims of pro-market advocates of energy taxation.

Within conservative and libertarian circles, a small but vocal group of academics, analysts, and political officials are claiming that a revenue‐neutral carbon tax swap could even deliver a “double dividend”—meaning that the conventional economy would be spurred in addition to any climate benefits. The present study details several serious problems with these claims.

Much of the debate revolves around scientific issues such as the potential long-run harm of carbon emissions.

In the policy debate over carbon taxes, a key concept is the “social cost of carbon,” which is defined as the (present value of) future damages caused by emitting an additional ton of carbon dioxide. …the computer simulations used to generate SCC estimates are largely arbitrary, with plausible adjustments in parameters—such as the discount rate—causing the estimate to shift by at least an order of magnitude. Indeed, MIT economist Robert Pindyck considers the whole process so fraught with unwarranted precision that he has called such computer simulations “close to useless” for guiding policy.

Models about climate change also play a big role.

Additionally, we show some rather stark evidence that the family of models used by the U.N.’s Intergovernmental Panel on Climate Change (IPCC) are experiencing a profound failure that greatly reduces their forecast utility.

As well as the use of cost-benefit analysis.

…the U.N.’s own report shows that aggressive emission cutbacks—even if achieved through an “efficient” carbon tax—would probably cause more harm than good.

I’m not overly competent to discuss the issues listed above.

But the debate also revolves around what happens with the revenue generated by a carbon tax. For instance, is it used to lower other taxes? Or does it get diverted to fund bigger government?

The Cato authors argue that carbon taxes can be just as damaging – and maybe even more damaging – than existing taxes on labor and capital. And they also fear that revenues from a carbon tax would be used to increase the burden of government spending.

…carbon taxes cause more economic damage than generic taxes on labor or capital, so that in general even a revenue‐ neutral carbon tax swap will probably reduce conventional GDP growth. (The driver of this result is that carbon taxes fall on narrower segments of the economy, and thus to raise a given amount of revenue require a higher tax rate.) Furthermore, in the real world at least some of the new carbon tax receipts would probably be devoted to higher spending (on “green investments”) and lump‐sum transfers to poorer citizens to help offset the impact of higher energy prices. Thus in practice the economic drag of a new carbon tax could be far worse than the idealized revenue‐ neutral simulations depict.

I have mixed feelings about the above passages.

On a per-dollar-raised basis, my gut instinct is that a carbon tax does less damage than revenue sources such as the corporate income tax. So you theoretically would get more growth with a revenue-neutral swap.

But my colleagues are probably right that a carbon tax is more damaging than other taxes, such as the payroll tax (which, after all, is a comparatively less-destructive flat tax on labor income).

Indeed, this is what we see in some of the evidence they cite in their study. You only get better economic performance if carbon tax revenue is used to lower the tax burden on capital.

In any event, the most persuasive argument against the carbon tax is that a big chunk of the new revenue would probably be used to make government even bigger. And this is why I argued back in June that supporters of limited government should reject the siren song of carbon taxation.

Last but not least, I should point out that the evidence from British Columbia is not very persuasive according to the authors of the Cato study.

…in British Columbia—touted as the world’s finest example of a carbon tax—the experience has been underwhelming. After an initial (but temporary) drop, the B.C. carbon tax has not yielded significant reductions in gasoline purchases, and it has arguably reduced the B.C. economy’s performance relative to the rest of Canada.

Now we’re back in an area where I’m unable to provide helpful commentary. Other than a one-time analysis of fiscal policy in Alberta, I’ve never delved into the economic performance and competitiveness of Canadian provinces, so I’ll resist the temptation to make any sweeping statements.

Returning to the big issue, my bottom line is that a carbon tax might be a worthwhile endeavor if Professor Mankiw somehow became economic czar and was allowed to impose policies that never could be altered.

In that scenario, I have confidence that we would get a pro-growth revenue-neutral swap. Which means the negative impact of a carbon tax would be more than offset by the pro-growth effect of eliminating or permanently reducing other taxes.

Unfortunately, we don’t have this scenario in the real world. Instead, I fear that well-meaning proponents of a carbon tax are unwittingly delivering a new source of revenue to a political class in Washington that wants to finance bigger government.

P.S. This is the same reason why I’m so strongly opposed to the value-added tax even though it theoretically doesn’t do as much damage – per dollar collected – as our onerous income tax. Simply stated, I don’t trust politicians to behave honorably if they get a new source of revenue.

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Which European Nations Have the Biggest Subsidies that Trap People in Poverty?

Back in 2013, my colleagues at the Cato Institute, Michael Tanner and Charles Hughes, released a study looking at the value of welfare programs in various states.

The most shocking finding was that the overall package of welfare benefits was greater than the median salary in eight states!

And more than 80 percent of the median salary in half the states.

That sounds like a hammock, not a safety net. No wonder taxpayers feel like they’re getting ripped off.

This system has been bad for taxpayers and bad for poor people.

Now Mike and Charles have a new study that looks at excessive welfare handouts in Europe. They start with an elementary observation about how people can be trapped in dependency when government benefits are too high.

If welfare benefits become too generous, they can create a significant incentive that encourages recipients to remain “on the dole” rather than to seek employment. Benefits in European Union (EU) countries vary widely, but in many of them, benefits are high relative to what an individual could expect to earn from a low-wage or entry-level job.

And he highlights some of his main finding.

■ Welfare benefits in nine EU countries exceeded €15,000 ($18,200) per year. In six countries, benefits exceeded €20,000 ($24,300). Denmark offers the most generous benefit package, valued at €31,709 ($38,558).

■ In nine countries, welfare benefits exceeded the minimum wage in that country.

■ Benefits in 11 countries exceeded half of the net income for someone earning the average wage in that country, and in 6 countries it exceeded 60 percent of the net average wage income

Since poor people can be just as rational as rich people, think about the perverse incentive structure this creates. If you work, you give up leisure time and expose yourself to all sorts of additional costs, such as transportation, childcare, and taxes.

So why endure those headaches when you can relax on the dole?

Let’s look at some charts from the study. We’ll start with one on the overall fiscal burden of the welfare state.

As you can see, nations in Northern Europe generally have greater levels of income redistribution, measured as a share of GDP.

Very depressing numbers, particularly when you consider that European nations used to have small governments with very little redistribution.

But this data only tells us about the overall burden on taxpayers. It doesn’t give us much information about the incentives of poor people.

So now let’s look at a chart showing potential welfare benefits for a single parent with two children.

Wow, Denmark must be a paradise for slackers. No wonder “Lazy Robert” is so happy.

Though you have to wonder how long the system can survive. The number of people producing wealth has been stagnant while the number of people riding in the “party boat” has been climbing.

Sooner or alter, those trend lines will cause big problems.

You’ll notice that the United States also is included in the above chart and that handouts in America are not that different than they are on the other side of the Atlantic Ocean.

Indeed, the value of redistribution programs in the United States is greater than what’s provided in France and only slightly behind the value of such programs in Sweden.

The numbers are even more remarkable when you look at American states compared to European nations.

Wow, Lazy Robert should move to Hawaii!

But it’s not just Hawaii. Many other states, mostly from the northeast (and California of course), also provide excessive benefits.

No wonder a record number of Americans are trapped in poverty.

Let’s now shift gears and look at a very interesting finding from the Cato study. Mike and Charles uncovered an inverse relationship between handouts and labor regulations.

In looking at the relationship between welfare and work, one additional factor should be considered. There appears to be an inverse relationship between the generosity of welfare benefits and the rigidity of labor-market regulations. That is, those countries with high benefits tend to have more flexible labor markets, and vice versa. …Nordic countries, in addition to Germany, the Netherlands, and a few others, have chosen to pursue what is often referred to as the “Nordic,” “Danish,” or “flexicurity” model. That version of the welfare state combines a largely deregulated labor market, one that makes it easier to hire and fire workers, with a generous safety net to cushion workers from the consequences of those policies. …In contrast, in much of southern Europe, countries such as Italy, Portugal, and Spain have smaller safety nets but much more tightly regulated labor markets. They effectively shift much of the social cost to employers.

While these nations obviously have different approaches, the bottom line is still similar.

…in southern Europe, the welfare benefits may not deter work to the same extent, but finding a job may be more difficult. Then again, in countries with flexicurity, it might be easier to find a job, but benefits and effective marginal tax rates are high enough to discourage workers from doing so. The result in both models is that workers are more likely to remain on welfare and out of work for longer than they otherwise would.

P.S. I’m actually in Hawaii as I’m writing this, so the results from the last chart got me thinking. Hawaii is one of the worst states in the Moocher Index and it does have relatively high welfare benefits, so you won’t be shocked to learn there’s a very high tax burden. But a surprisingly small share of the population utilizes food stamps, and the number of welfare bureaucrats is amazingly low.

P.P.S. Left-wing international bureaucracies such as the Paris-based Organization for Economic Cooperation and Development fabricate deliberately dishonest numbers when advocating more welfare spending in the United States. But we’d be much better off if we learned from the success of welfare reform in the 1990s and got the federal government out of the business of income redistribution.

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Why Doesn’t Hillary Learn any Lessons from the Slow Suicide of California and other High-Tax States?

Here’s a quiz for readers.

When politicians increase taxes, the result is:

• a) More spending?
• b) More red ink?
• c) Fewer jobs?
• d) Out-migration of productive taxpayers?
• e) Reduced competitiveness?
• f) Less investment?
• g) A bigger underground economy?
• h) More corruption?
• i) Less economic output?

This is a trick question because the answer is (j), all of the above.

But let’s look at some of the evidence for (d), which deals with the fact that the geese with the golden eggs sometimes choose to fly away when they’re mistreated.

The Internal Revenue Service has a web page where you can look at how many taxpayers have left or entered a state, as well as where they went or where they came from.

And the recently updated results unsurprisingly show that taxpayers migrate from high-tax states to low-tax states.

Let’s look at some examples, beginning with Maryland. Here are some excerpts from a report in the Daily Caller.

Wealthy taxpayers and job-creating businesses fled Maryland at an accelerating rate as then-Gov. Martin O’Malley implemented a long list of tax hikes during his first five years in the state capital. More than 18,600 tax filers left Maryland with $4.2 billion in adjusted gross income from 2007 – O’Malley’s first year as governor — through 2012, according to a Daily Caller News Foundation analysis of the most recently available Internal Revenue Service state-level income and migration data. …Nearly 5,600 state-tax filers left Maryland in 2012 and took $1.6 billion with them, more than double the 2,300 who departed with $732 million in 2011. The fleeing 5,600 filers had average incomes of nearly $291,900. …Most of 2012’s departing residents moved to the more business-friendly Virginia, according to the data. …Florida was the third most common destination for Marylanders.

Here’s a chart looking at the income that moved into the state (green) compared to the much greater amount of income that left the state (red).

The story then makes a political observation.

O’Malley’s economic record may partially explain why his campaign for the 2016 Democratic presidential nomination has yet to gain traction among voters outside of Maryland.

Though I wonder whether this assertion is true. Given the popularity of Bernie Sanders, I can’t imagine many Democrat voters object to politicians who impose foolish tax policies.

Now let’s shift to California.

A column in the Sacramento Bee (h/t: Kevin Williamson) explores the same IRS data and doesn’t reach happy conclusions.

An unprecedented number of Californians left for other states during the last decade, according to new tax return data from the Internal Revenue Service. About 5 million Californians left between 2004 and 2013. Roughly 3.9 million people came here from other states during that period, for a net population loss of more than 1 million people. The trend resulted in a net loss of about $26 billion in annual income.

And where did they go?

Many of them went to zero-income tax states.

About 600,000 California residents left for Texas, which drew more Californians than any other state.

Here’s a map from the article and you can see other no-income tax states such as Nevada, Washington, Tennessee and Florida also enjoyed net migration from California.

Last but not least, let’s look at what happened with New York.

We’ll turn again to an article published by the Daily Caller.

More taxpaying residents left New York than any other state in the nation, IRS migration data from 2013 shows. During that year, around 115,000 New Yorkers left the state and packed up $5.65 billion in adjusted gross income (AGI) as well. …Although Democrat Governor Andrew Cuomo acknowledged that New York is the “highest tax state in the nation” and it has “cost us dearly,” he continues to put forth policies that economically cripple New York residents and businesses.

Once again, much of the shift went to state with no income taxes.

New York lost most of its population in 2013 to Florida — 20,465  residents ($1.35 billion loss), New Jersey — 16,223 residents ($1.1 billion loss), Texas — 10,784 residents ($354 million loss).

Though you have to wonder why anybody would move from New York to New Jersey. That’s like jumping out of the high-tax frying pan into the high-tax fire.

At this point, you may be wondering why the title of this column refers to lessons for Hillary when I’m writing about state tax policy.

The answer is that she wants to do for America what Jerry Brown is doing for California.

Check out these passages from a column in the Wall Street Journal by Alan Reynolds, my colleague at the Cato Institute.

Hillary Clinton’s most memorable economic proposal, debuted this summer, is her plan to impose a punishing 43.4% top tax rate on capital gains that are cashed in within a two-year holding period. The rate would drift down to 23.8%, but only for investors that sat on investments for six years. This is known as a “tapered” capital-gains tax, and it isn’t new. Mrs. Clinton is borrowing a page from Franklin D. Roosevelt, who trotted out this policy during the severe 1937-38 economic downturn, dubbed the Roosevelt Recession.

FDR had so many bad policies that it’s difficult to pinpoint the negative impact of any specific idea.

But there’s certainly some evidence that his malicious treatment of capital gains was spectacularly unsuccessful.

In the 12 months between February 1937 and 1938, the Dow Jones Industrial stock average fell 41%—to 111 from 188.4. That crash presaged one of the nation’s worst recessions, from May 1937 to June 1938, with GDP falling 10% and industrial production 32%. Unemployment swelled to 19% from 14%. Harvard economist Joseph Schumpeter, in his 1939 opus “Business Cycles,” noted that “the so-called capital gains tax has been held responsible for having accentuated, if not caused, the slump.” The steep tax on short-term gains, he argued, made it hard for small or new firms to issue stock. And the surtax on undistributed profits, Schumpeter wrote, “may well have had a paralyzing influence on enterprise and investment in general.” …A 2011 study from the Federal Reserve Bank of St. Louis reported…“The 1936 tax rate increases,” they concluded, “seem more likely culprits in causing the recession.” …A 2012 study in the Quarterly Journal of Economics attributes much of the 26% decline in business investment in the 1937-38 recession to higher taxes on capital.

So what’s Alan’s takeaway?

Hillary Clinton’s fix for an economy suffering under 2% growth is resuscitating a tax scheme with a history of ushering in recessions. The economy would be better off if the idea remained buried.

Maybe we should ask the same policy about her that we asked about FDR: Is she misguided or malicious?

P.S. Some folks may argue that Hillary has more leeway than governors to impose class-warfare tax policy because it’s harder to emigrate from America than it is to move across state borders.

That’s true.

The United States has odious exit taxes that restrict freedom of movement. And even though record numbers of Americans already have given up their passports, it’s still a tiny share of the population.

Likewise, not that many rich Americans have taken advantage of Puerto Rico’s status as a completely legal tax haven.

But while it’s true that it’s not easy for an American to escape the jurisdiction of the IRS, that doesn’t mean they’re helpless.

There are very simple steps that almost all rich people can take to dramatically lower their tax liabilities. So Hillary and the rest of the class-warfare crowd should think twice before repeating FDR’s horrible tax mistakes.

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If Gun Control Works in Europe, Where Do Terrorists Get their Weapons?

Earlier this year, I argued that it was unfair and immoral to deny European Jews from being able to protect themselves with firearms.

They get targeted by terrorists and other thugs who can strike at any time, often with suicidal intent, and even the most effective law enforcement can’t be in all places at all times.

Leftists argue that gun control is nonetheless the right policy because everyone gets disarmed.

But if that’s true, J.D. Tuccille of Reason asks how terrorists in Europe manage to get so many weapons when there are strict gun control laws.

…how did the misfired terrorist acquire his intended implements of destruction in supposedly gun-phobic Europe? Could it be that firearms aren’t quite so unavailable as right-thinking policy-peddlers assure us on their way to insisting that Americans should be disarmed in (supposed) likewise fashion? It’s a question that was also raised in the wake of the Charlie Hebdo attack by terrorists wielding AK-style rifles, pistols, and submachine guns. Observers were puzzled because France’s gun laws are relatively restrictive, and the terrorists clearly hadn’t bothered to navigate the byzantine red tape to acquire their weapons. So, where did they come from? In both cases, the answer is the same. Black markets thrive where legal availability is restricted or forbidden. …Europe has, by and large, more restrictive firearms laws than most American states. But those laws haven’t had much effect on the actual availability of guns, since they’ve been met by defiance and helped breed a brisk underground trade. And they’re certainly no barrier to small numbers of terrorists who have dedicated themselves to harming others and see the law as no hurdle to achieving that goal. The main impact then of restrictive gun laws may be to strip law-abiding people of means with which they might defend themselves while leaving criminals and terrorists well-armed.

Amen. Bad guys obviously aren’t concerned about obeying laws, so gun control simply makes it difficult for honest people to possess firearms.

But terrorists get the weapons they want. That’s true in France. It was true in the United Kingdom when the IRA was active. And it was true when the Black September terrorists attacked during the Munich Olympics in 1972.

But what about the argument that more guns mean more violence?

Also writing for Reason, Steve Chapman looks at gun ownership and murder rates. Many of America’s safest states have lots of guns and few restrictions.

Vermont has some of the loosest gun laws in America. The Law Center to Prevent Gun Violence gives it an “F.” The state requires no background checks for private gun sales, permits the sale and possession of “assault weapons,” and allows concealed guns to be carried in public—without a license. … In 2013, it had the third-lowest homicide rate in the country—less than one-sixth that of Louisiana. Utah, which also got an “F” on its laws from the Law Center to Prevent Gun Violence, had the fourth-lowest homicide rate. These places refute the belief that loose gun rules and high ownership are bound to produce frenzies of carnage.

And even when there is a lot of crime, there’s little reason to believe that it’s because of guns.

It’s true that many states have a lot of guns and a lot of killings. But that doesn’t mean the former causes the latter. It’s just as plausible that high murder rates lead more residents to buy guns, in self-defense.

Chapman looks at some of the overseas evidence.

Britain is often cited for having few guns and—therefore—few gun murders. As Florida State University criminologist Gary Kleck noted in his 1997 book, Targeting Guns, Britain also has a lower rate of murders with hands and feet. But “no one is foolish enough to infer from these facts that the lower violence rates were due to the British having fewer hands and feet.” Homicide is rare in Israel and Switzerland despite widespread public access to lethal weaponry.

For even more data, check out this video.

But here’s the clincher. Take a look at this data from the National Rifle Association.

Wow, tens of millions of additional weapons and a big drop in crime.

Gee, maybe John Lott has been right all along?

While many nations keep trying to impose more and more restrictions on legal gun ownership, at least one country is moving in the right direction.

Here are some excerpts from an encouraging story about developments from Panama.

…the government is set to lift the ban on firearm imports, in an effort to promote personal safety. Public Safety Minister Rodolfo Aguilera said the country will follow in the footsteps of the United States and Switzerland, where the right to bear arms is believed to lead to fewer homicides. …Aguilera…explained that relaxed gun laws have allowed the United States to reduce the homicide rate over the last 20 years. “…for criminals, anything that is prohibited becomes more attractive,” said Hefer Morataya, director of SICA’s Central American Programme of Small Arms Control.

I’m not sure I agree with the final excerpt. Criminals are attracted to the notion of using force and fraud to do bad things and that means they’ll probably have guns whether they’re legal or illegal. Making guns illegal simply makes it easier for them to engage in criminal behavior since they know that law-abiding people are disarmed.

Which is the point I made when putting together my IQ test for criminals and liberals.

P.S. You can  see some amusing pro-Second Amendment posters here, here, here, here, and here. And some amusing images of t-shirts and bumper stickers on gun control here, here, and here.

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The Baffling EB-5 Immigration Controversy

In most cases, I can understand why immigration is a controversial issue.

Take amnesty, for instance. Opponents make reasonable points about the downside of rewarding folks who cut in line while supporters make reasonable points about deportation being harsh and impractical.

There’s also a fight relating to welfare, with critics (and not just in America) saying that immigrants are more likely to be poor and a burden on taxpayers and advocates pointing out that it makes more sense to wall off the welfare state rather than walling off the country.

The “anchor baby” issue is another emotional topic, with people on both sides of the issue making both legal and practical arguments about whether children born in the United States should automatically become citizens.

And then there’s the biggest question of all, which is deciding on the “right” number of immigrants, with answers ranging from none to completely open borders.

I get why these topics don’t have answers that are satisfactory to all sides.

But there is one immigration controversy that leaves me most puzzled. Why are some people opposed to the “EB-5” program designed to attract rich investors to America?

As I noted when defending Governor Scott Walker’s support for the program, this should be a slam-dunk issue. The program attracts people who will create jobs and won’t be a burden on taxpayers. Isn’t that a win-win situation?

Apparently not. Check out these excerpts from a hostile column by Kenric Ward in Roll Call.

Set to expire by year end, the EB-5 immigration program is up for renewal on Capitol Hill. Can Americans expect the biggest supporters of controversial investor visas to bring them under control? There are ample reasons to scrap the pay-for-play system that has been exposed by numerous government investigations. …Ostensibly, the EB-5 program uses foreign capital to create U.S. jobs. In fact, no one knows how many jobs. No one knows exactly where the money comes from, or where it winds up. Such niggling details don’t matter to lawmakers. They glibly call EB-5 a job-creating tool. That’s their story, and they’re sticking to it. …a visas-for-cash program was ill-conceived and ultimately unenforceable. The American model that uses hundreds of freewheeling middlemen as “job creators” is even more ripe for cronyism and outright fraud.

By the way, Mr. Ward makes a very valid point about cronyism. I’ve also criticized this aspect of the program, which almost seems designed to reward politicians and other insiders.

But I don’t want to throw the baby out with the bathwater.

Other people, however, think the baby is the problem.

This Washington Post story basically says the program is unfair because rich people get to come to America.

…unions and immigrant advocates are focusing attention this week on a federal visa program that they deride as “Immigration Reform for the 1%.” The target of a series of press conferences in a half-dozen cities is the EB-5 immigrant investor program, which allows foreigners to get green cards by investing at least $500,000 in American businesses, as long as the money creates at least 10 jobs. Created by Congress in 1990 as a way to stimulate the U.S. economy, the program is supported by business groups and has increasingly been used in recent years by real estate developers and other firms seeking foreign investors. …“We have this program that gives a pretty fast track to immigrants from the 1 percent and gives incredible advantages to developers,” said Isaac Ontiveros, a research analyst for UNITE HERE, a union that represents nearly 300,000 hotel, casino and food service workers. He estimated that one-third of businesses funded by EB-5 are hotels or casinos.

Though I wonder whether Mr Ontiveros is simply looking to hold up reauthorization of the program in hopes of adding amnesty to the legislation.

Ontiveros added: “How does this help the 11 million people in this country who are stuck in immigration reform limbo?” …some critics saying the program doesn’t do enough to benefit targeted poor areas, especially rural ones… Ontiveros said…“We want those in Congress and at the local level to be aware of the inequities of this program,” he said.

In any event, I actually agree with Ontiveros that the program is inequitable. But that’s precisely the point. Lawmakers in America are picking and choosing who to let in the country and they’re deciding that it’s better to have successful investors.

Now let’s look at the issue from the other side. Why do upper-income people from overseas want to become Americans?

Well, an article in Quartz explains that they often come from nations that have unpalatable policies and that they want greater long-run stability.

The world’s wealthy and super-rich are increasingly on the hunt for second passports as they seek to protect their wealth, optimize their children’s education and move to countries with…greater economic and political stability. A report from New World Wealth reveals the top eight countries that have become popular second citizenship destinations for 264 000 of the world’s millionaires from 2000-2014. …Most countries with large outflows of millionaires have stringent tax regimes, prompting the super-rich to move to countries that are more favourable for their wealth.

This chart shows the countries with the greatest number of departing millionaires.

I imagine that folks escape France and Italy because of excessive taxation, while they leave the other countries because of a desire to redomicile in places where the quality of life is better and rule of law is stronger.

By the way, it’s a good sign when rich people want to come to the United States and a worrisome indicator when they don’t. Indeed, America would attract more really rich people if we didn’t have an onerous worldwide tax system.

P.S. In my humble opinion, the most troubling aspect of our immigration system is the way the refugee program is funding terrorists with welfare checks.

P.P.S. To close on a happier note, here some immigration-themed humor, starting with this amusing video about Americans sneaking into Peru and ending with this satirical column about Americans sneaking into Canada.

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Four Simple Steps to Earn a Spot in the Bureaucrat Hall of Fame: Downloading Porn, Obstruction of Justice, Overseas Shopping Trips, and Not Showing Up on the Job

I wrote back in June that I was relieved about a bureaucrat from the National Weather Service getting elected to the Bureaucrat Hall of Fame.

I realize I was being jingoistic, but after selecting bureaucrats from France and India, I had been worried that foreigners were beginning to dominate the award.

But now Americans are on a roll. We have a new honoree, and she hails from one of those bureaucracies that shouldn’t exist – the Commerce Department in Washington.

Here are some remarkable excerpts from a report in the Washington Post.

A high-ranking official at the Commerce Department took at least seven government computers home, an IT smorgasbord from iPads to Dell desktops that she rarely used for work. And if that wasn’t enough, she allowed her kids to download pornography and “racially offensive materials,” an investigation found.

My main reaction is to ask why she was given seven computers. I realize that government bureaucracies waste money and have a callous disregard for taxpayer-provided equipment, but what possible rationale could there be for that many devices?

And my secondary thought is to wonder whether she “allowed” her kids to download inappropriate material or they did it behind her back.

If it’s the latter, then I’m not really sure why it matters. And I’m not even upset that she then tried to erase the info. I can understand why a parent would want to get rid of evidence that their kids were looking at porn.

When investigators started asking questions, they said, she tampered with evidence by erasing the offending material on some of the computers.

Though it’s far less excusable that she tried to penalize lower-level bureaucrats as part of her efforts to hide her misbehavior.

…and in retaliation moved to discipline a woman on her staff who cooperated with the probe.

If the information we’ve looked at was the extent of the matter, this bureaucrat wouldn’t be eligible for the Hall of Fame. However, she also engaged in other behaviors that make her a stellar candidate.

Including lavish trips with taxpayers picking up a big chunk of the cost.

This accumulation of misdeeds described by the Commerce Department watchdog in an investigative report released last week also included a layover in Paris en route to a European conference, partly funded by taxpayers. The official told colleagues her primary reason for going to the conference was to shop, the report said.

And she apparently didn’t think goofing off at her desk was a valuable use of her time, so she played hooky so she could goof off elsewhere.

Investigators said they also found a suspicious pattern of inconsistencies in when the official said she was working and what the swipe records on her security badge showed, including one day when she said she was on the clock for eight hours — but really worked just 20 minutes.

But here’s the clincher, the final piece of evidence that she belongs in the Bureaucrat Hall of Fame.

The statement doesn’t say whether the employee, a GS-15 on the federal pay scale, faces misconduct charges. She now works in another job at Commerce.

Isn’t that wonderful. Based on the GS-15 pay rules, she’s getting paid at least $125,000 per year (and perhaps as much as $158,000) and so far gets to keep her job notwithstanding serial misconduct.

A truly deserving candidate for the Hall of Fame!

P.S. I’ve previously written about America’s very quick and very successful recovery from a deep recession thanks to good fiscal policy in the early 1920s.

Writing for the New York Times, Ronald Radosh and Allis Radosh argue that the President during that time, Warren Harding, is mistreated by history. They start by noting Harding’s low ranking.

From the first poll of historians ranking the presidents, conducted in 1948 by Arthur M. Schlesinger Sr., to the most recent one in 2015, Harding has always come in either at the very bottom of the list, or one above James Buchanan.

They then point out that Harding took office during a grim period.

By the time Harding was inaugurated, in March 1921, the nation was in the doldrums, experiencing a postwar depression. In 1918, four million doughboys came home from the war and many could not find jobs. Unemployment hit African-American soldiers especially hard, and race riots broke out in the Midwest industrial belt. Harding, much like Ronald Reagan in 1980, brought an upbeat message to Americans.

And the part of that upbeat message that gets me juiced is smaller government.

A fiscal conservative, he pledged to right the nation’s finances and resuscitate the economy by lowering taxes, reducing the debt, balancing the budget and making government smaller and more efficient. …By…June 1922, the federal budget had been balanced, revenues exceeded expenditures and the public debt had been reduced. Spending had been $6.3 billion in 1920; by 1922 it had dropped to $3.3 billion.

Harding even had enough principles to reject politically popular spending bills. What a remarkable contrast with a recent Republican who was profligate with other people’s money.

Most telling was Harding’s veto of the popular so-called bonus bill, which would have given veterans an expensive bonus paid over time through deficit spending. The country, he told Congress in a speech, simply did not have the money. He argued it would also set a precedent to use public funds to pay for anything if it was “publicly appealing.”

And there were many other reasons to admire Harding. Unlike his predecessor, the notoriously racist Woodrow Wilson, he supported full equality and protection of the law for all Americans.

Harding immediately stressed his commitment to equal opportunity for all Americans, men and women, “whatever color, blood or creed.” …Harding was a racially enlightened president, especially for the time. During the campaign and his presidency, he supported an anti-lynching bill proposed by Republicans. …In October 1921, Harding traveled to Birmingham, Ala., where, in a powerful speech to a mixed-race (though segregated) audience, he demanded justice for African-Americans. In the first speech in the South by a sitting president on race, he argued for full economic and political rights for all African-Americans.

He also defended the rights of political minorities, again in contrast to Woodrow Wilson’s noxious actions.

Harding also stood out on civil liberties. On his first Christmas in office, Harding commuted the sentence of the Socialist Party leader Eugene V. Debs, who had been imprisoned under the Sedition Act under Wilson… Later, Harding commuted the sentences of the remaining political prisoners still incarcerated.

Pretty impressive.

I know that Reagan and Coolidge are the two best Presidents of the past 100 years, but I’ve never given much thought about who would be in third place. Seems like Harding might be the obvious choice.

Picking the bottom three would be harder because we’ve had so many bad Presidents. Wilson almost surely belongs on that list, but it would be tough to narrow down the list because FDR, Obama, Hoover, Carter, and Nixon would provide strong competition.

P.P.S. Returning to our original topic, here’s my collection of bureaucracy humor. I’ve targeted particular bureaucracies, such as the Postal Service,IRS, TSA, Department of Energy, and National Park Service.

We also have jokes about an Indian training for a government job, a slide show on how bureaucracies operate, a cartoon strip on bureaucratic incentives, a story on what would happen if Noah tried to build an Ark today, and a top-10 list of ways to tell if you work for the government.

There’s also a good one-liner from Craig Ferguson, along with some political cartoons from Michael Ramirez, Henry Payne, and Sean Delonas.

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Redistribution Is Morally Dubious, Economically Harmful, and It Doesn’t Work

Like Sisyphus pushing the rock up a hill, I keep trying to convince my leftist friends that growth is the best way to help the poor. I routinely share new evidence and provide real-world data in hopes that they will realize that good results are more important than good intentions.

In a triumph of hope over experience, let’s see once again if we can get the boulder to the top of the hill.

James Piereson of the Manhattan Institute has a superb article in Commentary about “The Redistribution Fallacy.” Here are some passages, starting with an observation that American voters are very skeptical about using government coercion to equalize incomes.

Public-opinion polls over the years have consistently shown that voters overwhelmingly reject programs of redistribution in favor of policies designed to promote overall economic growth and job creation. …While voters are worried about inequality, they are far more skeptical of the capacity of governments to do anything about it without making matters worse for everyone. …Leaving aside the morality of redistribution, the progressive case is based upon a significant fallacy. It assumes that the U.S. government is actually capable of redistributing income from the wealthy to the poor. …Whatever one may think of inequality, redistributive fiscal policies are unlikely to do much to reduce it, a point that the voters seem instinctively to understand.

Piereson points out that big changes in tax policy don’t have much impact, presumably because upper-income taxpayers take sensible and easy steps to protect themselves when they’re targeted by government, but they’re willing to earn and report a lot more income when they’re not being persecuted.

…there are perfectly obvious reasons on both the tax and the spending side as to why redistribution does not succeed in the American system—and probably cannot be made to succeed. …The highest marginal income-tax rate oscillated up and down throughout the 1979–2011 period. It began in 1979 at 70 percent during the Carter presidency. It fell first to 50 and then to 28 percent in the Reagan and Bush years. It rose to 39.6 percent in the 1990s under the Clinton presidency, and went down again to 35 percent from 2003 to 2010. It is now back up to 39.6 percent. The highest rate on capital gains moved within a narrower band, beginning at 28 percent in 1979 and falling as low as 15 percent from 2005 to 2011. The highest rate is currently 23.8 percent. Over this period, regardless of the tax rates, the top 1 percent of the income distribution lost between 1 and 2 percent of the income share after taxes were levied. …At the other end, the poorest quintiles gained almost nothing (about 1 percent on average) in income shares due to cash and in-kind transfers from government. In 2011, for example, the poorest 20 percent of households received 5 percent of (pre-tax) national income, and 6 percent of the after-tax income.

Moreover, it’s laughably inaccurate to claim that the United States doesn’t have a progressive tax system.

Many in the redistribution camp attribute this pattern to a lack of progressivity in the U.S. income-tax system; a higher rate of taxation on the wealthy should solve it, they think. …A 2008 study published by the Organization for Economic Cooperation and Development found that the United States had the most progressive income-tax system among all 24 OECD countries measured in terms of the share of the tax burden paid by the wealthiest households. …The top 20 percent of earners paid 93 percent of the federal income taxes in 2010 even though they claimed 52 percent of before-tax income. Meanwhile, the bottom 40 percent paid zero net income taxes—zero. For all practical purposes, those in the highest brackets already bear the overwhelming burden of federal income tax, while those below the median income have been taken out of the income-tax system altogether.

Indeed, it’s worth noting that the reason that government is much bigger in Europe is not because they tax the rich more, but rather because they have higher burdens on low- and moderate-income taxpayers (largely because of the value-added tax).

Simply stated, there aren’t enough rich people to finance a giant welfare state, particularly when they can easily choose to avoid confiscatory tax levels.

And this explains why honest American leftists occasionally will admit that they’re real goal is higher taxes on the middle class. That’s where the money is.

But I’m digressing. Let’s get back to Piereson’s article.

He also explains that redistribution doesn’t work on the spending side of the fiscal ledger.

Turning to the spending side of fiscal policy, we encounter a murkier situation because of the sheer number and complexity of federal spending programs. The House of Representatives Budget Committee estimated in 2012 that the federal government spent nearly $800 billion on 92 separate anti-poverty programs that provided cash assistance, medical care, housing assistance, food stamps, and tax credits to the poor and near-poor. …most of the money goes not to poor or near-poor households but to providers of services. The late Daniel Patrick Moynihan once tartly described this as “feeding the horses to feed the sparrows.” This country pays exorbitant fees to middle-class and upper-middle-class providers to deliver services to the poor. …This is one reason that five of the seven wealthiest counties in the nation are on the outskirts of Washington D.C. and that the average income for the District of Columbia’s top 5 percent of households exceeds $500,000, the highest among major American cities.

Gee, I’m shocked to learn that big government is a racket that lines the pockets of Washington insiders.

So what’s the bottom line?

The federal government is an effective engine for dispensing patronage, encouraging rent-seeking, and circulating money to important voting blocs and well-connected constituencies. It is not an effective engine for the redistribution of income. …those worried about inequality should abandon the failed cause of redistribution and turn their attention instead to broad-based economic growth as the only practical remedy for the sagging incomes of too many Americans.

Amen.

If you want an example of how statism hurts the less fortunate, look at what’s happened to Venezuela.

It used to be one of the richest nations in Latin America, but bad policies in recent decades have resulted in stagnation and deprivation.

Now, Venezuela is a basket case.

It’s so bad that even establishment media outlets can’t help but notice, as illustrated by this passage from an article in The Economist.

Though the poor initially benefited from “Bolivarian socialism”, economic mismanagement has made them poorer.

In other words, Venezuela is a real-world example of the famous parables about socialism in the classroom and buying beer with class-warfare taxation. Demagogic politicians don’t understand (or don’t care) that when you punish production and reward sloth, you get less of the former and more of the latter.

Which brings me back to Piereson’s concluding points. If you care about the poor, strive for more economic growth with policies based on free markets and small government.

Nations that follow that approach vastly out-perform the countries that choose statism.

That’s looking at the big picture. Now let’s look at an example that confirms Piereson’s point about redistribution programs mostly benefiting interest groups rather than poor people.

John Graham of the Independent Institute has a very sobering column about Medicaid in the Providence Journal. It turns out that record amounts of spending for the program doesn’t yield much benefit for poor people.

Medicaid is the largest means-tested welfare program in the United States.  …new research suggests that only 20 to 40 cents of each Medicaid dollar improves recipients’ welfare. …How much does Medicaid increase recipients’ actual welfare? In other words: Does $100 of Medicaid spending increase the dependent’s well-being by $100? More? Less? …recipients’ behavior indicates they only valued their benefits at one-fifth to two-fifths of the money spent is a serious indictment of the program.

So who does benefit from the program’s ever-growing fiscal burden?

Medicaid spending is driven by providers, especially hospitals, which have relentless lobbying operations. …The study group found that 60 percent of Medicaid spending comprises transfers to such providers

But here’s the most amazing conclusion from this new research.

Medicaid enrollment did not improve mortality or any physical health measure.

The only logical conclusion is that we need to reform Medicaid. Heck, let’s fix the entire mess created by the Washington-created welfare state.

It’s been bad for taxpayers and bad for poor people.

P.S. If you want to see sloppy and biased analysis (paid for with your tax dollars), take a look at efforts to rationalize that redistribution is good for growth from the International Monetary Fund and Organization for Economic Cooperation and Development.

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Does Donald Trump Think Washington Politicians Should Have More of Our Money to Help America Become Greece?

There’s a famous quote attributed to George Washington.

Government is not reason, it is not eloquence — it is force. Like fire it is a dangerous servant and a fearful master; never for a moment should it be left to irresponsible action.

But it’s apparently an urban legend. There’s no evidence Washington wrote or spoke those words.

That being said, I obviously appreciate the sentiment.

So much so that I’m tempted to make up a similar quote and start a rumor that it comes from Washington.

Politicians don’t have reason or sense – they are consumed by ambition. Like fire they are capable of causing great damage and only have value in very controlled circumstances.

That statement surely would apply to the ruling class in Washington, particularly those running for President. And it also would apply to many of the “outsider” candidates as well, including Donald Trump.

In other words, we should accept the fact that politicians are pathologically ambitious narcissists (which is why these jokes and cartoons are so funny) and simply try to figure out whether they might be vehicles for good and necessary reforms.

I have a very straightforward rule for determining whether politicians “have value in very controlled circumstances.” Simply stated, if they are open to tax hikes, then I can state – with 99 percent confidence – that they have no desire to control the size, cost, and power of the federal government.

Based on that rule, I’m skeptical about Donald Trump.

To understand my doubts, here are some passages from a story on the topic in the New York Times.

For years, Republicans have run for office on promises of cutting taxes… But this election cycle, the Republican presidential candidate who currently leads in most polls is taking a different approach… Mr. Trump has…suggested he would increase taxes on the compensation of hedge fund managers. And he has vowed to change laws that allow American companies to benefit from cheaper tax rates by using mergers to base their operations outside the United States.

These policy positions are raising a lot of eyebrows.

“All of those are anti-growth policies,” said David McIntosh, the president of the Club for Growth… “Those aren’t the types of things a typical Republican candidate would say,” said Michael R. Strain, a scholar at the conservative American Enterprise Institute, referring to the candidate’s comments on hedge funds, support for entitlement spending and the imposing of trade tariffs.

And Trump’s failure to sign the no-tax-hike pledge exacerbates the concerns, particularly when combined with his inconsistent statements on tax reform.

Mr. Trump and former Gov. Jeb Bush of Florida are the only leading Republican candidates who have not signed a pledge to not raise taxes. …In an interview with Fox News last week, Mr. Trump said a flat tax would be a viable improvement to America’s tax system. Moments later, he suggested that a flat tax would be unfair because the rich would be taxed at the same rate as the poor.

Trump’s views – to the extent that they can be deciphered – are causing angst for some GOPers, as illustrated by these excerpts from a column in the Washington Post.

Trump’s surging campaign has pushed the party in a different direction, one that often clashes with free-market principles that have long underpinned GOP economic policy. …Traditional supply-side thinkers…have urged candidates to flatten tax rates and reduce regulations to unleash faster economic growth.

Byron York of the Washington Examiner writes about Trump’s fiscal policy in the context of traditional Republican orthodoxy.

Trump is preparing a tax proposal that will again set him far apart from the party’s powers-that-be. …Trump has been sending signals that his tax proposal, which he says will be “comprehensive,” will include higher rates for some of the richest Americans, a position generally at odds with Republican orthodoxy. “I want to see lower taxes,” Trump said at an appearance in Norwood, Mass., on Friday night. “But on some people, they’re not doing their fair share.”

And if his campaign manager is accurately channeling Trump’s views. the candidate even equates higher taxes with making America great.

Trump campaign manager Corey Lewandowski would say little about Trump’s intentions, but noted that “Mr. Trump has said that he does not mind paying what is required to make our country great again.” Raising taxes on anyone, even the super rich, has generally been anathema to Republicans for a generation.

Wow, what’s next, a Biden-esque assertion that higher tax payments are patriotic?!?

Though, to be fair, it’s unclear whether Trump actually wants the federal government to have more money.

Perhaps the tax increases that he supports would be offset by tax cuts elsewhere, which is what would happen with major tax reform proposals such as the flat tax.

Though the fact that Trump so far has refused to sign the no-tax-hike pledge obviously makes me suspicious of his true goals.

In his column for the New York Times, Ross Douthat also wonders whether Trump will upend existing GOP thinking.

In movement conservatism, there’s an ongoing, interesting tension between starve-the-leviathan theories and the supply-side vision, exemplified by the Wall Street Journal editorial page among other sources, in which low taxes on high incomes and investment can allegedly make the public coffers fuller. …my own (modest) faction, the reform conservatives, whose preferred tax vision (in its varying forms) basically seeks a rebalancing of conservative tax policy, an approach that’s still responsive to supply-side and pro-growth ideas but also addresses both the anxieties of middle class families… The Republican Party is the limited-government, anti-tax party, and the weird rise of Trumpism isn’t going to change that basic fact. But the way anti-tax sentiment manifests itself, and the policies associated with those sentiments, can alter with time and circumstances, and for the G.O.P.’s sake they need to change right now.

I’m mostly in the starve-the-beast camp, though I like the supply-side approach (perfectly captured in this image) because of the recognition of how good tax policy boosts growth.

And I see the “reform conservatives” as allies even if their ideal version of tax reform has a few warts.

So I’m willing to have a “big tent”…on the sole condition that I get to exclude those who want higher taxes.

And it remains to be seen whether Trump’s in that distasteful group.

P.S. Speaking of distasteful, keep in mind that when Trump says favorable things about trade protectionism, he’s really saying that he wants higher taxes on American consumers.

P.P.S. I care about policy rather than politics, so don’t hold your breath waiting for me to endorse any candidate (indeed, I’ve only made one presidential endorsement in the past six years).

But given my passionate support for the Georgia Bulldogs, I might overlook some of Donald Trump’s dubious views simply because he has support from someone who made my college years very enjoyable.

Herschel Walker…, the former running back stated the Republican hopeful is his No. 1 choice for president. “There’s not a doubt in my mind right now he is my frontrunner,” Walker told USA Today. …”(Trump) wanted to win and he was prepared to go out and do whatever it took to win,” Walker said. “He was a guy that always did what he said he was going to do.” …”When are we going to get back to what’s best for this country?” Walker said. “I think that’s what’s Donald is pushing to do.”

That being said, I’m only aware of one other time Herschel endorsed a politician and that guy lost.

P.P.P.S. Today’s column has focused on Trump’s worrisome views on tax policy. Well, one of the reasons he may be weak on taxes is because he has no desire to control spending. You don’t have to believe me. These are his own words.

“I’m not going to cut Social Security like every other Republican and I’m not going to cut Medicare or Medicaid,” Trump told The Daily Signal. “Every other Republican is going to cut, and even if they wouldn’t, they don’t know what to do because they don’t know where the money is. I do.”

Huh?!?

Let’s take a look at “where the money is.”

If “The Donald” doesn’t think we need genuine entitlement reform, there are only a few possible explanations.

• He’s clueless.
• He’s dishonest.
• Or he wants the status quo and that’s why he’s leaving the door open for massive tax hikes.

If it’s the final option, he’s the GOP version of Bernie Sanders.

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