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Archive for April, 2016

I’m a proud advocate and defender of capitalism for the simple reason that it is a system that is consistent with human freedom while also producing mass prosperity that was unimaginable for much of human history.

Jurisdictions that embrace capitalism enjoy great progress while nations that veer in the other direction suffer economic decline, as vividly demonstrated by comparisons such as the relative performance of Hong Kong and Argentina.

And, for what it’s worth, the Princess of the Levant even says capitalism is “a sexy word.”

But not everybody agrees.

A column by Greg Sargent in the Washington Post has some very depressing poll numbers.

…the Harvard Institute of Politics has released a new poll of young voters… One key finding in the poll, which surveyed over 3,000 people from ages 18-29, is that these young people see a robust role for government in guaranteeing a right to a basic standard of living, and majorities of them see a large or moderate federal role in regulating the economy and access to health care and higher education. …A narrow majority of respondents in Harvard’s poll said they did not support capitalism.

Writing for Mic, Marie Solis looks at these recent poll numbers and wonders if the real issue is whether “capitalism” is simply an unpalatable word.

A new Harvard University survey found 51% of the participants between the ages 18 and 29 said they do not support capitalism. …The university’s results echo recent findings from Republican pollster Frank Luntz, who surveyed 1,000 Americans between the ages of 18 and 26 and found that 58% of respondents believed socialism to be the “more compassionate” political system when compared to capitalism. …the results may be more indicative of a shifting connotation for the word “capitalism” itself. “The word ‘capitalism’ doesn’t mean what it used to,” he said. “You don’t hear people on the right defending their economic policies using that word anymore.”

Not so fast. I still use “that word.”

But should I? James Pethokoukis of the American Enterprise Institute is sympathetic to the notion that there’s a perception problem. He speculates that the real problem is that capitalism now has a negative connotation.

America’s millennials are hardly some fifth column of communist sympathizers. Nor are they idiots. But they are at least a bit skeptical of “capitalism.” …Yet, oddly, many of those same capitalism skeptics also hold views similar to those of any Ayn Rand-loving free marketeer. For example: Less than a third believe government should play a large role in regulating the economy, reducing income inequality, or stimulating economic growth. Likewise, just a third said they supported socialism.

I fear Pethokoukis is being too optimistic in his reading of the polling data. When you review the questions in the poll and add together those who want a “large” role for government with those who favor a “moderate” role for government, they overwhelm the advocates of laissez-faire who say government should play “little to no role.”

Though maybe I’m just being a pessimist since the folks who want a “moderate” role may think the government today already is playing a “large” role and therefore would want to reduce the size and scope of Washington (though the fact that many people actually blame deregulation for the financial crisis, notwithstanding all the evidence to the contrary, makes me think that would be a Pollyannish interpretation of the polling data).

In any event, let’s return to the issue of whether capitalism is akin to a toxic brand.

Maybe one problem here is the word “capitalism” and what it evokes in the aftermath of the Great Recession and Wall Street bailout. Maybe “capitalism” really isn’t the right word for the free enterprise system, the deep magic that has made America the richest, most powerful nation on Earth. Indeed, wherever and whenever there’s been a bit of economic freedom, amazing things have happened — from Europe in the 1800s to China and India in the late 20th century. …Maybe millennials aren’t capitalists as much as they are “innovists” or “innovationists.” They believe the same dynamic economic system that created those amazing panes of internet-connected glass in their pockets will also create a better world.

It galls me that young people blame capitalism for the financial crisis. Have they ever heard of the Federal Reserve? Or Fannie Mae and Freddie Mac?

Blaming capitalism for the recent mess is like blaming the Red Cross for tornadoes. Sounds like millennials don’t know the difference between capitalism and cronyism.

But I’m digressing again. Time to get back to the central topic. Elizabeth Nolan Brown weighs in with a column for Reason.

…this new poll finds young people torn between “capitalism” and “socialism,” with perhaps little—or, to be more charitable, an ahistorical—understanding of what either means.

I definitely agree with her than millennials are confused about what these terms mean.

But grousing about their lack of knowledge doesn’t solve the problem. But maybe we can make progress if we learn why young people think the way they do.

…words—especially big, emotionally-laden words describing controversial or complicated concepts—connote different things to different people. When pollsters probe young people further about socialism and capitalism, they tend to find that respondents don’t have clear concepts of these economic philosophies. To many millennials, “socialism” doesn’t mean a government-managed economy but something like what we have now, only with more subsidized health care, student-loan forgiveness, and mandatory paid parental leave. …”Capitalism,” meanwhile, doesn’t simply mean private, for-profit enterprise. …Capitalism is Big Banks, Wall Street, “income inequality,” greed. It’s wealthy sociopaths screwing over the little guy, Bernie Madoff, and horrifying sweatshops in China. …However incomplete or caricatured, these are the narratives of capitalism that millennials have grown up with.

She basically comes to the same conclusion as Pethokoukis.

We certainly need to consider whether and how the word can be reclaimed, or if we’re better served talking about the “market economy,” “private enterprise,” “free trade,” or “entrepreneurship.” Millennials love the word entrepreneur… Unlike anti-capitalists of yore, young people today don’t seem to see a tension between turning a profit and living righteously. …As John Della Volpe, polling director at Harvard, puts it, millennials aren’t “rejecting the concept” of capitalism. “The way in which capitalism is practiced, in the minds of young people—that’s what they’re rejecting.”

Indeed, she shares some 2014 polling data that shows there is 2-1 support for free markets, which is significantly better than the level of support for capitalism.

This analysis is persuasive. If we can convince more people to support good policy by talking about “free markets” rather than “capitalism,” then I have no objection to using a more effective phrase or word.

For what it’s worth, opponents of economic liberty such as Karl Marx were among the first to use the term “capitalist” and they obviously meant it as a slur. Which is another reasons why advocates of economic liberty shouldn’t feel obliged to use that word.

That being said, I’m not sure whether using a different word or phrase will make a big difference. I remember when Social Security reform was a big issue between 1995-2005. Proponents were repeatedly told that “private” and “privatization” were words to avoid, so we all dutifully said we were for “personal retirement accounts.”

Which was fine, but it didn’t stop leftists from using “privatization.” Moreover, polling data showed considerable support for the idea, notwithstanding demagoguery from advocates of the status quo.

Now that we’ve discussed whether “capitalism” is a bad word, let’s shift gears and look at whether “liberal” should be a good word.

Professor Daniel Klein says the word has been hijacked by statists.

Here I make a plea, addressed to conservatives and libertarians, regarding the word liberal: please do not describe leftists, progressives, social democrats, or Democrats as “liberal.” …Words have deep-seated cognates and connotations; they have character and history. …The term liberal has always had an abundance of positive connotations: generous, open-minded, tolerant, big-hearted. …to oppose “liberals” almost seems tantamount to opposing modern, open civilization.

And “liberal” originally was linked to economic liberty and free markets.

The inception of liberal as a political term should be credited to the Scottish historian William Robertson, who published a book in 1769 that uses the term repeatedly to mean principles of liberty and commercial freedom. Adam Smith…used the term repeatedly in a signal way to refer to the sort of policy he advocated, a system that gives a strong presumption to individual liberty, and hence commercial and market freedom. …The principles of Adam Smith spread throughout Europe, as did the name he used for them, “liberal.” …so “liberal” political movements were born.

But then the statists began to call themselves liberals.

At the end of the nineteenth century, and thereafter, there came a dramatic shift. Collectivism or statism was on the rise. …Especially during the period 1880 to 1940, there came great changes in the meanings of words, changes in semantics. …people started using words in new ways, and often even announced and emphasized the newness of their usage and meaning. …the statists arrogated the term liberal to themselves… The literature of the so-called New Liberals declaimed openly against individual liberty and in favor of state collectivism and socialistic reform.

Interestingly, the bastardization of “liberal” has primarily occurred in the United States and Canada.

…when we step outside North America, we see that, by and large, liberal still means liberal…read and listen to European Parliament member Daniel Hannan, who often uses liberal proudly in its original sense, and who never calls leftists “liberal,” or to read the journal of the Institute of Economic Affairs (London)—Economic Affairs: A Journal of Liberal Political Economy. …In Prague, for example, the leading freedom-oriented organization is called the Liberal Institute. Where liberal still means liberal, such as in Europe and Latin America, leftists have no reluctance in calling their imaginary bogeyman “neoliberalism.”

I can vouch for that. I’m often accused of being a “liberal” or “neo-liberal” when speaking overseas. It took a while to get used to it, but now I smile and say “yup, that’s me.”

And I’ll sometimes use “classical liberal” and “libertarian” interchangeably when speaking in the United States. But given the way the meaning of the word has changed over time, I don’t think it would make sense to the average person if I referred to myself as “liberal.”

That being said, I fully agree with Professor Klein that we shouldn’t let leftists get away with using that term to describe themselves. I prefer to describe them as “statists.”

P.S. Tom Sowell has a more controversial, but technically accurate, term to describe modern leftists.

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What’s the worst loophole (properly defined) in the cluttered internal revenue code?

I think the deduction for state and local taxes is very bad policy since it enables higher tax burdens in states such as California, New Jersey, and Illinois. The exemption for municipal bond interest is another misguided provision since it makes it easier for states to finance spending with debt.

Special favors in the tax code for ethanol also deserve scorn and disdain, and I’m also not a fan of the charitable deduction or the ways in which housing gets preferential treatment.

But if I had to pick just one tax preference to repeal, it would be the so-called healthcare exclusion. This is the policy that enables employers to deduct the cost of health insurance policies they buy for their employees.

You may think that deduction is reasonable. After all, employers also can deduct the wages and salaries they pay their employees. But here’s the catch. Employees pay tax on their wages and salaries, but they don’t have to pay tax on the value of their health insurance, even though such policies obviously are a form of compensation.

Moreover, since this type of compensation is shielded from both income taxes and payroll taxes, the playing field is therefore very tilted, which generates some very perverse results.

First, some background. As part of a broader analysis of the non-taxation of fringe benefits, Scott Greenberg of the Tax Foundation explains how government has created a big incentive to take income in the form of fringe benefits rather than wages and salaries.

…eighty years ago, it was relatively uncommon to offer workers compensation other than their regular wages and salaries. In 1929, only 1.9 percent of employee pay took the form of fringe benefits. By 2014, fringe benefits had risen to 19.2 percent of worker compensation.

Here’s a chart looking at the historical data.

Greenberg says this distortion in the tax code is unfair.

…the growing trend of unreported fringe benefits is “inequitable and inefficient.” This claim is spot on. For an illustration, imagine two employees, one of whom makes a salary of $100,000, and one of whom makes a salary of $80,000 and benefits worth $20,000, which largely go unreported. Although both workers receive the same overall compensation, the first employee is subject to a significantly higher tax burden than the second, which seems plainly unfair.

Moreover, the distortion lures people into making economically foolish choices.

Furthermore, this arrangement incentivizes companies to shift more compensation towards benefits, to help employees avoid taxes. This leads to an inefficient allocation of resources, towards services that employers might not have been willing to pay for in the absence of tax incentives.

He’s correct

Writing for the Weekly Standards, Ike Brannon looks specifically at the biggest tax-free fringe benefit.

…allowing employers to provide health insurance tax-free to their workers is terrible policy, a truism that any honest economist—whether liberal, conservative, or otherwise—would agree with. …First, workers end up with more health insurance than they would ever purchase on their own (since tax-free health insurance is worth more than income that’s taxed at 30%-50%), which gives people less take-home pay to spend as they see fit. Second, more generous health insurance entails lower co-pays as well as other provisions that insulate the worker from the actual cost of their health care. As a result, people become less sensitive to prices when seeking health care, and they consume more of it—most of which does nothing to improve health outcomes, numerous studies have shown.

For further details on this unfortunate tax preference, A. Barton Hinkle looks at the evolution of the health exclusion in a column for Reason.

…the original sin of the American health-care marketplace…was committed back in World War 2, when inflation led workers to demand higher wages – which many employers could not afford to pay because of price controls. …With wages frozen, employers needed another way to compete for labor made scarce by the draft. So some began offering health coverage. The practice took root, spread, and outlasted the war. In 1949 the National Labor Relations Board ruled that health benefits counted as wages for the purpose of union negotiations. Five years later, the IRS ruled that health coverage was not taxable income. The result was a double incentive for employers to offer fatter health benefits in lieu of fatter paychecks. …The result: a skyrocketing, ultimately unsustainable increase in national outlays for health care. …In short, for decades the federal government has encouraged employers to provide gold-plated health-care plans.

Joe Antos of the American Enterprise Institute explains how the “healthcare exclusion” is bad fiscal policy, bad health policy, and bad economic policy.

If we hope to move to an efficient healthcare system that is fair to everyone, Congress will have to take on the largest subsidy in the tax code. …Premiums paid for employment-based health insurance are excluded from federal income and payroll taxes.

When describing provisions that allow people to keep more of their own money, I would prefer to say largest distortion rather than largest subsidy, but I realize I’m being pedantic. Regardless of word choice, the net effect of this preference is negative.

The tax exclusion…fuels the rapid growth of health spending, contributes to stagnating wage growth, and disadvantages low-wage workers. Because there is no limit on how much can be excluded from taxes, workers are encouraged to buy more expensive coverage than they would otherwise…makes consumers less sensitive to prices and promotes the use of medical services, including services that may not provide much value to the patient.

Let’s take a closer look at some of the problems associated with the exclusion.

The exclusion has caused a shift in compensation from taxable cash wages to greater health benefits which are not taxed. Between 1999 and 2015, the average employer contribution for family coverage nearly tripled while wage rates increased by only about half.

By the way, our leftists friends should oppose the exclusion for class-warfare reasons.

…workers in higher tax brackets benefit the most from the exclusion. The Joint Committee on Taxation found that the average savings for tax filers with incomes less than $30,000 was about $1,650 compared to about $4,580 for those with incomes over $200,000.

To deal with these negative effects, Antos proposes a modified version of the “Cadillac tax” from Obamacare combined with tax credits for consumers who purchase their own health insurance.

That’s better than the status quo, but the ideal solution is a flat tax, which would eliminate the deduction provided to employers for compensation in the form of fringe benefits.

In their book on tax reform, Professors Hall and Rabushka explain the obvious beneficial consequence of a level playing field for all forms of compensation.

The flat tax eliminates the distortion toward fringe benefits created by the fact that employers can deduct them, thereby receiving a subsidy that can be passed on to their employees. The best alternative, and one we expect your employer to select, is to offer you higher pay in exchange for lower fringes. You can then use the extra cash to buy whatever combination of benefits you desire.

This will make the healthcare marketplace much more efficient.

Here’s what I wrote about the healthcare exclusion way back in 2009, as part of a column on government-created inefficiency in the health sector.

…social engineering in the tax code created this mess. Specifically, most of us get some of our compensation in the form of health insurance policies from our employers. And because that type of income is exempt from taxation, this encourages so-called Cadillac health plans.  …our gold-plated health plans now mean we use insurance for routine medical costs. This means, of course, we have the paperwork issues discussed above, but that’s just a small part of the problem. Even more problematic, our pre-paid health care system is somewhat akin to going to an all-you-can-eat restaurant. We have an incentive to over-consume since we’ve already paid. Except this analogy is insufficient. When we go to all-you-can-eat restaurants, at least we know we’re paying a certain amount of money for an unlimited amount of food. Many Americans, by contrast, have no idea how much of their compensation is being diverted to purchase health plans. …this messed-up approach causes inefficiency and higher costs. We consumers don’t feel any need to be careful shoppers since we perceive that our health care is being paid by someone else. Should we be surprised, then, that normal market forces don’t seem to be working? (though it is worth noting that costs keep falling and quality keeps rising in the few areas – such as laser-eye surgery and cosmetic surgery – that are not covered by insurance) Imagine if auto insurance worked this way? Or homeowner’s insurance? Would it make sense to file insurance forms to get an oil change? Or to buy a new couch? That sounds crazy. The system would be needlessly bureaucratic, and costs would rise because we would act like we were spending other people’s money.  But that’s what would probably happen if government intervened in the same way it does in the health-care sector.

By the way, to make sure politicians don’t get a windfall of new revenue, the healthcare exclusion should only be repealed as part of a reform that also lowers tax rates.

Here’s a video from the Center for Freedom and Prosperity that highlights how the healthcare exclusion is a major cause of the third-party payer problem.

And if you like videos, I strongly recommend this Reason TV explanation of how simple and affordable healthcare can be in the absence of government-created third-party payer.

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We can learn a lot of economic lessons from Europe.

Today, we’re going to focus on another lesson, which is that higher taxes lead to more red ink. And let’s hope Hillary Clinton is paying attention.

I’ve already made the argument, using European fiscal data to show that big increases in the tax burden over the past several decades have resulted in much higher levels of government debt.

But let’s now augment that argument by considering what’s happened in recent years.

There’s been a big fiscal crisis in Europe, which has forced governments to engage in austerity.

But the type of austerity matters. A lot.

Here’s some of what I wrote back in 2014.

…austerity is a catch-all phrase that includes bad policy (higher taxes) and good policy (spending restraint). But with a few notable exceptions, European nations have been choosing the wrong kind of austerity (even though Paul Krugman doesn’t seem to know the difference).

And when I claim politicians in Europe have chosen the wrong kind of austerity, that’s not hyperbole.

As of 2012, there were €9 of tax hikes for every €1 of supposed spending cuts according to one estimate. That’s even worse than some of the terrible budget deals we’ve seen in Washington.

At this point, a clever statist will accuse me of sour grapes and state that I’m simply unhappy that politicians opted for policies I don’t like.

I’ll admit to being unhappy, but my real complaint is that higher tax burdens don’t work.

And you don’t have to believe me. We have some new evidence from an international bureaucracy based in Europe.

In a working paper for the European Central Bank, Maria Grazia Attinasi and Luca Metelli crunch the numbers to determine if and when “austerity” works in Europe.

…many Euro area countries have adopted fiscal consolidation measures in an attempt to reduce fiscal imbalances…in most cases, fiscal consolidation did not result, at least in the short run, in a reduction in the debt-to-GDP ratio…calls for a more temperate approach to fiscal consolidation have increased on the ground that the drag of fiscal restraint on economic growth could lead to an increase rather than a decrease in the debt-to-GDP ratio, as such fiscal consolidation may turn out to be self-defeating. …The aim of this paper is to investigate the effects of fiscal consolidation on the general government debt-to-GDP ratio in order to assess whether and under which conditions self defeating effects are likely to materialise and whether they tend to be short-lived or more persistent over time.

Now let’s look at the results of their research.

It turns out that austerity does work, but only if it’s the right kind. The authors find that spending cuts are successful and higher tax burdens backfire.

The main finding of our analysis is that…In the case of revenue-based consolidations the increase in the debt-to-GDP ratio tends to be larger and to last longer than in the case of spending-based consolidations. The composition also matters for the long term effects of fiscal consolidations. Spending-based consolidations tend to generate a durable reduction of the debt-to-GDP ratio compared to the pre-shock level, whereas revenue-based consolidations do not produce any lasting improvement in the sustainability prospects as the debt-to-GDP ratio tends to revert to the pre-shock level. …strategy is more likely to succeed when the consolidation strategy relies on a durable reduction of spending, whereas revenue-based consolidations do not appear to bring about a durable improvement in debt sustainability.

Unfortunately, European politicians generally have chosen the wrong approach.

This is an important policy lesson also in view of the fact that revenue-based consolidations tend to be the preferred form of austerity, at least in the short run, given also the political costs that a durable reduction in government spending entail.

Here are a few important observations from the study’s conclusion.

…the findings of our analysis are in line with those of the literature on successful consolidation, namely that the composition of fiscal consolidation matters and that a durable reduction in the debt-to-GDP ratio is more likely to be achieved if consolidation is implemented on the expenditure side, rather than on the revenue side. In particular, when fiscal consolidation is implemented via an increase in taxation, the debt-to-GDP ratio reverts back to its pre-shock level only in the long run, thus failing to generate an improvement in the debt ratio, and producing what we call a self-defeating fiscal consolidation. …fiscally stressed countries benefit from an immediate reduction in the level of debt when reducing spending.

In other words, restraining the growth of spending is the best way to reduce red ink. Heck, it’s the only way.

When debating my leftists friends, I frequently share this table showing nations that have obtained very good results with multi-year periods of spending restraint.

My examples are from all over the world and cover all sorts of economic conditions. And the results repetitively show that when you deal with the underlying problem of too much government, you automatically improve the symptom of red ink.

I then ask my statist pals to show me a similar table of data for countries that have achieved good results with higher taxes.

I’m still waiting for an answer.

Which is why the only good austerity is spending restraint.

P.S. Paul Krugman is remarkably sloppy and inaccurate when writing about austerity. Check out his errors when commenting on the United Kingdom, Germany, and Estonia.

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There’s a very powerful statement, variously attributed to Alexis de Toqueville, Benjamin Franklin, or Alexander Tytler, that basically warns that democracy is doomed when people figure out they can vote themselves money.

There’s no evidence that any of them actually spoke or wrote those words, though I guess it doesn’t matter that the quote didn’t originate with someone like Franklin. What does matter is that it accurately captures something very important, which is the tendency for governments to over-tax and over-spend once people decide that it’s okay to use government coercion to take other people’s money.

But it’s still nice to be able to cite something accurate. With this in mind, I came up with my Theorem of Societal Collapse. And I think it’s actually more accurate than the vote-themselves-money quote because democracy doesn’t necessarily lead to statism. What leads to bad outcomes is democracy combined with bad values.

And a pervasive belief in redistributionism is a bad value. Heck, it’s a self-destructive value. Consider Greece. When you add together the people getting welfare and disability to the people getting pension payments to the people on the government payroll, it turns out that a majority of people in the country are riding in the wagon of government dependency.

That’s bad. But what makes the Greek situation so hopeless is that those are the same people who vote. Which means there’s very little chance of getting a government that would implement good policy.

After all, why would the recipients of other people’s money vote for politicians who support limits on redistribution?

But I’m not just blaming voters. Politicians also deserve scorn and disdain because they are the ones who often seek votes by promising to take other people’s money.

Some observers would like to believe that these politicians will use their supposed superior expertise and knowledge about public policy to make appropriate tradeoffs and prevent the system from becoming over-burdened.

But that’s somewhat naive.

Indeed, there’s an entire school of thought in economics, known as “public choice,” which is based on making real-world assumptions about the self-interested behavior of politicians and interest groups. Here’s a partial description from the Library of Economics and Liberty.

As James Buchanan artfully defined it, public choice is “politics without romance.” The wishful thinking it displaced presumes that participants in the political sphere aspire to promote the common good. …public officials are portrayed as benevolent “public servants” who faithfully carry out the “will of the people.” …public choice, like the economic model of rational behavior on which it rests, assumes that people are guided chiefly by their own self-interests… As such, voters “vote their pocketbooks,” supporting candidates and ballot propositions they think will make them personally better off; bureaucrats strive to advance their own careers; and politicians seek election or reelection to office. Public choice, in other words, simply transfers the rational actor model of economic theory to the realm of politics. …collective decision-making processes allow the majority to impose its preferences on the minority.

In other words, both voters and politicians can have an incentive for ever-larger government, even if the end result is Greek-style fiscal chaos because taxes and spending reach ruinous levels.

I call this “Goldfish Government” because some think that a goldfish lacks the ability to control its appetite and therefore will eat itself to death when presented with unlimited food.

Indeed, public choice scholars explicitly recognize that unconstrained democracy can lead to bad results.

Public choice scholars have identified…deep…problems with democratic decision-making processes.

That’s the bad news.

The good news is that their research suggests ways to compensate for the natural tendency of ever-expanding government.

Like that founding father of the American constitutional republic, public choice recognizes that men are not angels and focuses on the importance of the institutional rules… If, for example, democratic governments institutionally are incapable of balancing the public budget, a constitutional rule that limits increases in spending and taxes to no more than the private sector’s rate of growth will be more effective.

Hmmm…., a rule that limits the government so it doesn’t grow faster than the private sector.

Sounds like an idea worth embracing.

But while I like anything that builds support for the Golden Rule, I’m not sure it’s a sufficient condition for good policy.

Simply stated, we have too many examples of nations that followed the Golden Rule for several years, only to then fall off the wagon with a new splurge of spending.

There are two ways to deal with this problem. First, make the spending restraint part of a jurisdiction’s constitution, as we see in Switzerland and Hong Kong.

Second, augment the internal constraint of a spending cap with the external constraint of tax competition. Bluntly stated, destructive tax policies will be less likely when politicians are afraid that taxpayers will move across borders.

I spoke about this topic at a recent conference in Slovakia.

I also discuss the critical role of demographic change toward the end of my speech.

P.S. America’s Founding Fathers had the right solution. They set up a democratic form of government, but they strictly limited the powers of the central government. This system worked remarkably well for a long period, but then the Supreme Court decided that the enumerated powers listed in the Constitution were just a suggestion.

P.P.S. While it’s bad news to combine democracy with bad value, I want to emphasize that the problem is bad values. Most non-democratic societies have policies that are so evil and destructive (think Cuba and North Korea) that they make France seem like a beacon of economic liberty.

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What do left-wing firebrand Congressman Alan Grayson, Treasury Secretary Jacob Lew, Obama’s top trade negotiator Michael Froman, liberal financier Donald Sussman, and big-money Democratic donor Tom Steyer. all have in common?

The answer is that they all engage in tax avoidance and tax planning by utilizing tax havens. Like many other Democrats (and Democrat donors), they understand it would be very foolish to deliberately pay more tax than is required.

Yet they all want the rest of us to pay higher taxes!

And now we can add Secretary of State John Kerry to our list of tax haven hypocrites.

Here’s some of what we know from, the Daily Caller‘s exposé.

Secretary of State John Kerry and his wife Teresa Heinz have invested millions of U.S. dollars through family trusts in at least 11 offshore tax havens, according to The Daily Caller News Foundation’s Investigative Group. …Two other trusts appear to have been set up by the Heinz family since Kerry was appointed by President Barack Obama in 2013 to succeed Hillary Clinton as secretary of state. …that doesn’t sit well with some who would normally be supportive of Kerry. “Well I say it doesn’t look good by any means,” said Susan Harley, deputy director of Congress Watch, a progressive lobby organization founded by Ralph Nader.

Actually, since the only “tax havens” listed are the Cayman Islands, Gibraltar, Guernsey, and the British Virgin Islands, it appears that the story should have stated 11 trust investments in tax havens, not trust investments in 11 tax havens.

But I’m nitpicking. As you can see, the Kerry family makes wide use of structures in these low-tax jurisdictions.

Utilizing Cayman-based structures is a sensible choice for the Kerry family, by the way.

Just like it is perfectly appropriate for people to use Panama-organized structures when engaging in international business and investment.

The only reason this is even a story because John Kerry is a left-wing hypocrite who wants everyone else to pay high taxes, but he conveniently arranges his affairs so his family’s money is protected.

Heck, he even moored his yacht in Rhode Island to dodge several hundred thousand dollars of tax that otherwise would have been owed to the state of Massachusetts.

Once again, this was a perfectly reasonable choice. But it’s a bit galling that a wealthy statist like Kerry takes these steps while simultaneously supporting ever-higher tax burdens on those of us who weren’t born with silver spoons in our mouths.

And since we’re on the topic of leftist hypocrites and tax havens, it turns out that the crank who pushed for big government and high taxes when he was Greece’s Finance Minister also seems to like the “offshore” world for his own money.

Here are some blurbs from a story in the U.K.-based Times.

He describes himself as a Marxist libertarian but a lifestyle of glamorous photo-shoots, evenings in chic bars and weekends in luxurious island villas may have convinced the man who brought Greece to the verge of bankruptcy to become a highly-paid capitalist. Yanis Varoufakis, Greece’s former finance minister, is allegedly charging almost £40,000 for speeches he is invited to make worldwide, seeking payment via an HSBC bank account in Oman, according to reports.

Just like with Kerry, there’s nothing wrong or illegal in Varoufakis’ actions. Giving speeches for money and keeping money in another jurisdiction are perfectly legitimate behaviors.

Heck, given the Greek government’s rampant corruption and wasteful habits, I think it’s defensible for people to go one step farther and evade as well as avoid.

But not for Varoufakis. When an advocate of class warfare decides he doesn’t want to live under the rules he would like to impose on the rest of us, he’s simply being a hypocrite and is undeserving of any sympathy.

Not to mention that anyone who think that you can be a Marxist and a libertarian at the same time obviously is a blithering nincompoop.

Let’s shift to another issue for our final glaring example of left-wing hypocrisy. Writing for USA Today, Professor Glenn Reynolds of the University of Tennessee is irked by statists with very big carbon footprints who attend ritzy conferences to concoct plans to impose hardship on the rest of us.

…opulent conferences seem to be our political class’s response to pretty much everything, but they do ring hollow when the topic is what sort of sacrifices should be imposed on the rest of us. …Perhaps people aren’t inclined to treat climate change as a crisis because, despite all the talk, the political class itself isn’t acting as if it’s a crisis. Shouldn’t “shared sacrifice” start at the top?

Glenn has a few modest ideas to resolve this problem of inequity.

First, no more jetting around. Congress should provide that no federal money — either at agencies or at institutions receiving federal funds — should pay for travel to attend conferences or meetings. …Second, to set an example, no air conditioning in federal offices. Sure, it’s uncomfortable without it, but we won World War II with mostly un-air conditioned offices, so we can manage without A/C today. …Third, no more fundraising jaunts on Air Force One. Typically, presidents schedule a fundraiser, then find an elementary school or something to tour in the same town to make the trip “official business.” Congress should provide that no fundraising appearances can be made on any presidential trip charged to the taxpayers. …Fourth, no more UN conferences except online.

Those are all good ideas, but we also need some rules to help other hypocrites (like Leonardo DiCaprio and Prince Charles) practice what they preach.

P.S. In addition to being hypocrites, many leftists also have bad judgement about tyrannical regimes. I wrote last year about Paul Samuelson’s misguided endorsement of the Soviet economic system just as it was about to collapse.

Well, another well-know left-wing economist actually wrote an article to praise the “Korean Miracle.” But Joan Robinson was writing about North Korea rather than South Korea!

It’s true that she didn’t have this evidence available when she was gushing about the Pyongyang being a “city without slums,” but it’s still remarkable that she went out of her way to praise a totalitarian dictatorship.

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Just like with nations, there are many factors that determine whether a state is hindering or enabling economic growth.

But I’m very drawn to one variable, which is whether there’s a state income tax. If the answer is no, then it’s quite likely that it will enjoy better-than-average economic performance (and if a state makes the mistake of having an income tax, then a flat tax will be considerably less destructive than a so-called progressive tax).

Which explains my two main lessons for state tax policy.

Anyhow, I’ve always included Tennessee in the list of no-income-tax states, but that’s not completely accurate because (like New Hampshire) there is a tax on capital income.

That’s the bad news. The good news is that the Associated Press reports that Tennessee is getting rid of this last vestige of  income taxation.

The Tennessee Legislature has passed a measure that would reduce and eventually eliminate the Hall tax on investment income. The Hall tax imposes a general levy of 6 percent on investment income, with some exceptions. Lawmakers agreed to reduce it down to 5 percent before eliminating it completely by 2022.

It’s not completely clear if the GOP Governor of the state will allow the measure to become law, so this isn’t a done deal.

That being said, it’s a very positive sign that the state legislature wants to get rid of this invidious tax, which is a punitive form of double taxation.

Advocates are right that this will make the Volunteer State more attractive to investors, entrepreneurs, and business owners.

Keep in mind that this positive step follows the recent repeal of the state’s death tax, as noted in a column for the Chattanooga Times Free Press.

Following a four-year phase out, Tennessee’s inheritance tax finally expires on Jan. 1 and one advocacy group is hailing the demise of what it calls the “death tax.” “Tennessee taxpayers can finally breath a sigh of relief,” said Justin Owen, head of the free-market group, the Beacon Center of Tennessee, which successfully advocated for the taxes abolishment in 2012.

On the other hand, New York seems determined to make itself even less attractive. Diana Furchtgott-Roth of the Manhattan Institute writes for Market Watch about legislation that would make the state prohibitively unappealing for many investors.

New York, home to many investment partnerships, now wants to increase state taxes on capital gains… New York already taxes capital gains and ordinary income equally, but apparently that’s not good enough. …The New York legislators want to raise the taxes on carried interest to federal ordinary income tax rates, not just for New York residents, but for everyone all over the world who get returns from partnerships with a business connection to the Empire State. Bills in the New York State Assembly and Senate would increase taxes on profits earned by venture capital, private equity and other investment partnerships by imposing a 19% additional tax.

Diana correctly explains this would be a monumentally foolish step.

If the bill became law, New York would likely see part of its financial sector leave for other states, because many investors nationwide would become subject to taxes that were 19 percentage points higher….No one is going to pick an investment that is taxed at 43% when they could choose one that is taxed at 24%.

Interestingly, even the state’s grasping politicians recognize this reality. The legislation wouldn’t take effect until certain other states made the same mistake.

The sponsors of the legislation appear to acknowledge that by delaying the implementation of the provisions until Connecticut, New Jersey and Massachusetts enact “legislation having an identical effect.”

Given this condition, hopefully this bad idea will never get beyond the stage of being a feel-good gesture for the hate-n-envy crowd.

But it’s always important to reinforce why it would be economically misguided since those other states are not exactly strongholds for economic liberty. This video has everything you need to know about the taxation of carried interest in particular and this video has the key facts about capital gains taxation in general

Not let’s take a look at the big picture. Moody’s just released a “stress test” to see which states were well positioned to deal with an economic downturn.

Is anybody surprised, as reported by the Sacramento Bee, that low-tax Texas ranked at the top and high-tax California and Illinois were at the bottom of the heap?

California, whose state budget is highly dependent on volatile income taxes, is the least able big state to withstand a recession, according to a “stress test” conducted by Moody’s Investor Service. Arch-rival Texas, meanwhile, scores the highest on the test because of “lower revenue volatility, healthier reserves relative to a potential revenue decline scenario and greater revenue and spending flexibility,” Moody’s, a major credit rating organization, says. …California not only suffers in comparison to the other large states, but in a broader survey of the 20 most populous states. Missouri, Texas and Washington score highest, while California and Illinois are at the bottom in their ability to withstand a recession.

Of course, an ability to survive a fiscal stress test is actually a proxy for having decent policies.

And having decent policies leads to something even more important, which is faster growth, increased competitiveness, and more job creation.

Though perhaps this coyote joke does an even better job of capturing the difference between the two states.

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The ongoing cluster-you-know-what of Obamacare is a source of unhappy satisfaction.

Part of me is glad the law is such a failure, but it’s tragic that millions of people are suffering adverse consequences. These are folks who did nothing wrong, but now are paying more, losing employment, suffering income losses, and/or being forced to find new plans and new doctors.

And it seems we get more bad news every day, as noted in a new editorial from Investor’s Business Daily.

ObamaCare rates will skyrocket next year, according to its former chief. Enrollment is tumbling this year. And a big insurer is quitting most exchanges. That’s what we learned in just the past few days.

Why do we know these three bad things are happening? Because that’s what we’re being told by Mary Tavenner, the former head of the Center for Medicare and Medicaid Services for the Obama Administration who has now cashed out and is pimping for the health insurance companies that got in bed with the White House to foist Obamacare on the American people.

IBD gives us the sordid details.

Why will 2017 rates spike even higher? In addition to the cost of complying with ObamaCare’s insurance regulations and mandates, there’s the fact that the ObamaCare exchanges have failed to attract enough young and healthy people needed to keep premiums down. Plus, two industry bailout programs expire this year, Tavenner notes. Oh, and she admits that people are gaming ObamaCare just like critics said they would: buying coverage after they get sick — since insurance companies can no longer turn them down or charge them more — then dropping it when they’re done with treatments. “That churn increases premiums. So you have to kind of price over that.”

And that’s just one slice of bad news.

Here’s more.

ObamaCare enrollment has already dropped an average of more than 14% in five states since February — a faster rate of decline than last year — as people get kicked off for not paying premiums. Finally, we learned on Tuesday that UnitedHealth Group (UNH) is planning to drop out of almost every ObamaCare market it currently serves after losing $1 billion on those policies. …Skyrocketing premiums, fewer choices in the marketplace, and people fleeing ObamaCare in droves after signing up. This isn’t exactly what Obama promised when he signed ObamaCare into law.

For those who were paying attention, none of this is a surprise. It was always a fantasy to think that more government intervention was going to improve a healthcare system that already was cumbersome and expensive because of previous government interventions.

By the way, IBD isn’t the only outlet to notice the ongoing disaster of Obamacare.

Let’s look at some other recent revelations.

Chris Jacobs writes that “For millions of Americans, the Left’s insurance utopia has rapidly deteriorated into a bleak dystopia” and that “the ‘cheaper prices’ that the president promised evaporated as quickly as the morning dew.”

John Graham explains that “CBO estimates Obamacare will leave 27 million uninsured through 2019 – an increase of almost one quarter” and that “CBO estimates 68 million will be dependent on the program this year through 2019 – an increase of almost one third in the welfare caseload.”

Betsy McCaughey opines that, “Obamacare is already hugely in the red. …over the next ten years Obamacare will add $1.4 trillion to the nation’s debt” and that “Insurers struggling with Obamacare are already drastically reducing your choice of doctors and hospitals to cut costs.”

Devon Herrick reveals that “Obamacare has caused more people to reach for their wallets after a medical encounter — not less” and that “all but the most heavily subsidized Obamacare enrollees would be better off financially if they skipped coverage and pay for their own medical care out of pocket.”

Jeffrey Anderson observes that “it seems possible that Obamacare has actually reduced the number of people with private health insurance” and that “Obamacare is basically an expensive Medicaid expansion coupled with 2,400 pages of liberty-sapping mandates.”

John Goodman notes that “Prior to Obamacare, many employers of low-wage workers offered their employees a “mini med” plan, covering, say, the first $25,000 of expenses” and that “Those plans are now gone… employees…are…completely uninsured”

The CEO of CKE Restaurants warns that “fewer people buying insurance through the exchanges, the economics aren’t holding up” and that “Ten of the 23 innovative health-insurance plans known as co-ops—established with $2.4 billion in ObamaCare loans—will be out of business by the end of 2015 because of weak balance sheets.”

Critics of Obamacare now get to say “we told you so.”

As the Washington Examiner opines:

…conservatives screamed a simple fact from the rooftops: Obamacare will not work. No one wanted to listen then, but their warnings are now coming into fruition. Obamacare, as constructed, attempted to fix a dysfunctional health care payment system by creating an even more complicated system on top of it, filled with subsidies, coverage mandates, and other artificial government incentives. But its result has been a system that plucked Americans out of coverage they like and forced them to pay more for less. …Taxpayers and insurance customers alike should demand replacing Obamacare with a system that reduces costs and improves quality by injecting actual choice and competition into the insurance market.

I especially like the last part of the excerpt. Which is why we need to go well beyond simply repealing Obamacare if we want to restore market forces to the healthcare sector.

P.S. I wrote about that it’s tragic that so many people are suffering because of Obamacare. I should add that there are some victims who actually are getting what they deserve.

P.P.S. In the long run, I fear taxpayers will be the biggest (and most undeserving) victims.

P.P.P.S.Though, in fairness, the law does have at least one redeeming feature.

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