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Archive for January, 2017

Having lived in the Washington area for more than three decades, I have many friends who work for the federal government. Most of them will privately admit that they are very lucky since federal salaries and benefits are considerably higher than what they could earn in the private sector. And they’ll also admit that there’s lots of featherbedding, inefficiency, and waste where they work.

While I like my buddies, I don’t think it’s fair that taxpayers around the nation (particularly those with modest incomes) are sending so much money to Washington to subsidize overly generous compensation packages for a bloated federal bureaucracy.

So I’m pleased that President Trump announced a hiring freeze yesterday.

President Trump on Monday ordered an across-the-board employment freeze for the federal government, halting hiring for all new and existing positions except those in national security, public safety and the military. In the two-page order, Mr. Trump said the directive was a stopgap way to control the growth of government until his budget director recommends a long-term plan to significantly reduce the federal work force through attrition.

But keep in mind this is just a tiny step in the right direction.

First, it only addresses part of the problem.

For instance, most bureaucrats are at the state and local level, often carrying out mandates, regulations, and spending of the federal government.

The Wall Street Journal put together a good summary of the situation back in 2014.

When you include state and local governments, it’s clear where the public civilian workforce has been growing in recent decades. Local governments, in particular, have boomed from 4 million employees in the 1950s to over 14 million today. In the mid-1950s, state governments employed half as many people as the federal government. Today, state governments employ nearly twice as many.

Here’s the accompanying chart.

Moreover, federal employment numbers don’t include the gigantic “shadow bureaucracy” of government contractors.

And exactly how many people are technically private employees but actually get their pay from federal taxpayers? Well, because the federal government is so big and bloated, we don’t have an exact number.

Indeed, as reported by Government Executive, there’s not even an official inexact number.

How many contractor employees does the federal government rely on, at what cost per person, and how does that compare with the cost of assigning the same task to a full-time hire? When asked by Rep. Chris Van Hollen, D-Md., ranking member of the House Budget Committee, the Congressional Budget Office took a shot but left the $64,000 question unresolved. “Regrettably, CBO is unaware of any comprehensive information about the size of the federal government’s contracted workforce,” the nonpartisan analysts wrote in response. “However, using a database of federal contracts, CBO determined that federal agencies spent over $500 billion for contracted products and services in 2012.”

But we do know that it’s a very big number. An outside expert crunched the data and concluded that there are 5-1/2 contractors for every federal bureaucrat.

Second, the real issue is that the federal government has accumulated far too much power and is involved in many areas that either belong in the private sector (Department of Agriculture, Department of Energy, Department of Housing and Urban Development, etc) or should be handled by state and local governments (Department of Transportation, Department of Education, etc).

In other words, as I explain at the end of this video, the correct pay for many federal bureaucrats is zero, for the simple reason that their jobs shouldn’t exist.

This is why I explained a few days ago that the real goal for the Trump Administration should be program terminations. The new hiring freeze is good, to be sure, but it’s largely a symbolic gesture.

And that’s not going to solve our very big problem.

P.S. Though the problem is even bigger in Europe.

P.P.S. A study from the European Central Bank found that excessive pay for bureaucrats undermines entire economies by breaking the link between compensation and productivity.

P.P.P.S. If you want to some bureaucrat-themed humor to make all this bad news more palatable, these posters and this video are the place to start. And if you want more, here’s a joke 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 today to build an Ark, and a top-10 list of ways to tell if you work for the government. I also found a good one-liner from Craig Ferguson, along with some political cartoons from Michael Ramirez, Henry Payne, and Sean Delonas.

P.P.P.P.S. I laughed when I read about this, but it’s more gross than funny.

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Red tape is a huge burden on the American economy, with even an Obama Administration bureaucracy acknowledging that costs far exceed supposed benefits.

And the problem gets worse every year.

If I had to pick the worst example of foolish regulation, there would be lots of absurd examples from the federal government, and the crazy bureaucrats at the Equal Employment Opportunity Commission probably would be at the top of the list.

But the worst regulations, at least if measured by the harm to lower-income Americans, probably are imposed by state governments. Yes, I’m talking about the scourge of occupational licensing.

A report published by The American Interest elaborates on this problem.

…it’s important that policymakers don’t lose sight of more subtle ways the government has distorted the economy to favor the politically connected. One example: Onerous occupational licensing laws that force people to undergo thousands of hours of often redundant and gratuitous training to perform jobs like auctioneering, tree trimming, and hair styling. …licensing laws are the result of higher-skilled professionals seeking to protect their market share at the consumers’ expense. …This not just a minor concern for a few key industries; it is a weight dragging down the entire economy, raising prices while blocking access to less-skilled trades. The Obama administration has already recommended that states look at ways to loosen these requirements.

Yes, you read correctly. This is an issue where the Obama Administration was basically on the right side.

I’m not joking. Here are excerpts from a White House statement last year.

Today nearly one-quarter of all U.S. workers need a government license to do their jobs. The prevalence of occupational licensing has risen from less than 5 percent in the early 1950s with the majority of the growth coming from an increase in the number of professions that require a license rather than composition in the workforce. …the current system often requires unnecessary training, lengthy delays, or high fees. This can in turn artificially create higher costs for consumers and prohibit skilled American workers like florists or hairdressers from entering jobs in which they could otherwise excel.

Senator Mike Lee of Utah is a strong advocate of curtailing these protectionist regulations and allowing capitalism to flourish. Using teeth-whitening services as an example, he explained the downside of government-enforced cartels in an article for Forbes.

Should only dentists be allowed to whiten people’s teeth? …This may sound like a silly question… Keep in mind that the Food and Drug Administration already regulates teeth-whitening products for safety and that virtually no one has ever been injured by someone administering these products. But in a number of states throughout the country, dentists began losing teeth-whitening customers to non-dentists who had set up kiosks in shopping malls and were charging less money for the same teeth-whitening services. These upset dentists then went to their state dental-licensing boards and urged those boards to add teeth whitening to the definition of “the practice of dentistry.” These state boards complied… The results were unemployed teeth whiteners, more expensive teeth whitening, and higher profits for the dentists. …An organized cartel (the dentists)…used the threat of government punishment to enforce their monopoly.

Unfortunately, Senator Lee explains, this is a problem that goes way beyond teeth whitening.

…when the deeper question of occupational licensing is applied to the broader economy, it turns out that there are millions of jobs and hundreds of billions of dollars at stake. …dentists are not the only professionals using government power to harm consumers and line their pockets. A 2013 study found that 25% of today’s workforce is in an occupation licensed by a state entity, up from just 5% in 1950. And the number of licensed professionals is not growing because everyone is suddenly becoming a doctor or a lawyer. Instead, it is the number of professions requiring licenses that is growing. Security guards, florists, barbers, massage therapists, interior decorators, manicurists, hair stylists, personal trainers, tree trimmers and auctioneers work in just some of the many, many professions that state legislatures have seen fit to cartelize.

But do consumers get some sort of benefit as a result of all this red tape?

Nope.

According to a study by University of Minnesota Professor Morris Kleiner, “Occupational licensing has either no impact or even a negative impact on the quality of services provided to customers by members of the regulated occupation.” Occupational licensing has grown not because consumers demanded it, but because lobbyists recognized a business opportunity where they could use government power to get rich at the public’s expense. …Consumers end up paying $200 billion in higher costs annually, prospective professionals lose an estimated three million jobs, and millions more Americans find it harder to live where they want due to licensing requirements.

By the way, the barriers to mobility are a major problem. A professor at Yale Law School crunched the numbers and found that occupational licensing has undermined the great America tradition of moving where the jobs are.

Here are some details from the abstract of the study.

Rates of inter-state mobility, by most estimates, have been falling for decades. Even research that does not find a general decline finds that inter-state mobility rates are low among disadvantaged groups and are not increasing despite a growing connection between moving and economic opportunity. …governments, mostly at the state and local levels, have created a huge number of legal barriers to inter-state mobility. Land-use laws and occupational licensing regimes limit entry into local and state labor markets.

In an article for Reason, Ronald Bailey highlights some of the key findings from the scholarly study.

From the end of World War II through the 1980s, the Census Bureau reports, about 20 percent of Americans changed their residences annually, with more than 3 percent moving to a different state each year. Now more are staying home. In November, the Census Bureau reported that Americans were moving at historically low rates: Only 11.2 percent moved in 2015, and just 1.5 percent moved to a different state. …Yale law professor David Schleicher blames bad public policy. …Schleicher identifies and analyzes the policies that limit people’s ability to enter job-rich markets and exit job-poor ones. …Why? First, lots of job-rich areas have erected barriers that keep job-seekers from other regions out. The two biggest barriers are land use and occupational licensing restrictions. …Schleicher notes that more than 1,100 occupations require licensing in at least one state, but fewer than 60 are regulated in all states. A 2015 White House report on occupational licensing found that “interstate migration rates for workers in the most licensed occupations are lower by an amount equal to nearly 15 percent of the average migration rate compared to those in the least licensed occupations.”

Let’s close by putting this in practical terms.

Imagine you don’t have a lot of education. And you definitely don’t have out-of-state licenses that are necessary for dozens of professions.

Are you going to move where there are more jobs?

Several decades ago, the answer likely was yes. Now, the incentive for mobility has been curtailed thanks to licensing laws that are really nothing more than regulatory protectionism.

Such laws should be repealed, or struck down by the courts as illegal restraints on trade.

P.S. Here’s some dark libertarian humor on this topic.

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When trying to educate people about the superiority of free enterprise over statism, I generally show them long-run data comparing market-oriented jurisdictions with those that have state-driven economies. Here are some of my favorite examples.

It’s my hope that when readers look at these comparisons, they will recognize the value of economic freedom because it is very obvious that ordinary people become far more prosperous when government is small.

But there’s also another way of determining which approach is superior. Just look and see what happens when people are allowed to vote with their feet. Or, just as important, look at places where people are not allowed to vote with their feet.

The Berlin Wall and the Iron Curtain, for instance, existed to prevent people from escaping the horror of Soviet communism. Likewise, people in North Korea and Cuba don’t have the freedom to emigrate.

Totalitarian governments realize that their citizens would escape en masse if they had the chance.

In free countries, by contrast, there’s no need to imprison people.

And that’s why this Imgur image is not only funny, but also a good summary of population shifts around the world.

I’ll definitely have to add this to my collection of libertarian humor.

To be sure, not everybody who moves from a statist hellhole to a prosperous capitalist society is motivated by an appreciation for liberty. They may simply want a better life and have no idea that national prosperity is a function of economic liberty.

And they may not even want to earn a better life. They may simply want to get on the gravy train of government handouts (which is why I’m not a fan of America’s dependency-inducing refugee program).

But I’m digressing. The simple moral of today’s story is that decent societies don’t have to imprison their citizens. That only happens in place where government is not only big, but also evil.

P.S. Unlike some libertarians, I like borders.

P.P.S. People also vote with their feet inside nations, and the lesson to be learned is that smaller governments attract more people.

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I was sitting directly under a television in a Caribbean airport yesterday when Trump got inaugurated, so I inadvertently heard his speech.

The bad news is that Trump didn’t say much about liberty or the Constitution. And, unlike Reagan, he certainly didn’t have much to say about shrinking the size and scope of Washington.

On the other hand, he excoriated Washington insiders for lining their pockets at the expense of the overall nation. And if he’s serious about curtailing sleaze in DC, the only solution is smaller government.

But is that what Trump really believes? Does he intend to move policy in the right direction?

Well, as I’ve already confessed, I don’t know what to expect. The biggest wild card, at least for fiscal policy, is whether he’ll be serious about the problem of government spending. Especially entitlements.

I’ve been advising the Trump people that he needs some genuine spending restraint (or even some semi-serious spending restraint) if he actually wants to enact his big tax cut and have it be durable. And I’ve also been reminding them that Reagan’s 1984 landslide was in part a reward for having implemented policies that triggered strong growth.

However, I gave that same advice to Bush’s people last decade and they didn’t listen, so I’m not overflowing with optimism that I’ll have more luck this time around.

But hope springs eternal, so I’m starting the Trump era with my fingers crossed that we’ll get some good reform and good results. I talk about these issues in this interview with Dana Loesch.

If I can elaborate on a couple of points from the interview, I am especially interested to see whether Republicans can actually deliver a big reduction in the corporate tax rate. Trump wants 15 percent, which would be great. House Republicans have proposed 20 percent, which also would be a big shift in the right direction.

But there are a lot of details to be addressed before a big fiscal package can be approved, including whether Trump will do something to control spending and also how he will deal with the controversial provision on border adjustability in the House plan.

Regarding employment, I mentioned that we have the good news of a lower unemployment rate combined with the bad news of too many people out of the labor force.

I shared my views on this issue for a story in USA Today.

The share of Americans working or looking for jobs is near historic lows. About 10 million prime-age men aren’t in the labor force — a lingering casualty of the Great Recession. Wage increases were stagnant at about 2% for most of the 7 ½-year-old recovery. “Several million people are not earning income, not producing,” says Dan Mitchell, senior fellow at the conservative Cato Institute. “I don’t think it’s good for the economy and it’s not good for those people.” Mitchell at least partly blames the substantial increase in the disability and food stamp rolls during and after the recession, which he says encouraged some Americans to remain idle. “We’ve expanded the welfare state,” he says.

At the risk of stating the obvious, fewer people work when you increase the benefits of not working.

Last but not least, I will confess a sin of omission. Dana mentioned the uptick in consumer spending over the holidays. That’s an important economic indicator, to be sure, but I should have taken the opportunity to explain that consumer spending and consumer sentiments are symptoms of an improving economy rather than causes of an improving economy. The focus of policy should be on how to produce higher incomes, not on how existing income is allocated.

P.S. Speaking of sins of omission, I missed an important point earlier this month in my column on Obama’s legacy. Fortunately, Ramesh Ponnuru of National Review picked up the ball with the very important point that Obama utterly failed in his desire to be a Reagan-type transformational President.

Obama…wanted to be the liberal Reagan, or rather the liberal anti-Reagan: the person who pulled American politics back to the left a generation after Reagan pulled it to the right. …the Obama project has failed. He did manage to pull his own party to the left. …On criminal justice, on entitlements, on immigration, on abortion, on religious liberty, Democrats staked out positions and adopted rhetoric that were much less moderate than they had previously been. …The Democratic strategy of the Obama years has left the party locked out of power in the White House, the Senate, and the House… At no point in Obama’s presidency did his political success make Republicans consider assimilating some of his views into their philosophy, as Bill Clinton had done with Reaganism. Republicans are even less likely to make such an adjustment now. …it is clear enough already that Obama is no Reagan.

Which gives me another opportunity to call attention to the best poll of the past eight years.

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Because of what he’s said on entitlements, infrastructure, child care, and other issues, I’ve been skeptical about Donald Trump.

But if recent headlines are true, I may develop a man crush.

Here’s a story from The Hill.

Donald Trump is ready to take an ax to government spending. Staffers for the Trump transition team have been meeting with career staff at the White House ahead of Friday’s presidential inauguration to outline their plans for shrinking the federal bureaucracy, The Hill has learned. The changes they propose are dramatic. The departments of Commerce and Energy would see major reductions in funding, with programs under their jurisdiction either being eliminated or transferred to other agencies. The departments of Transportation, Justice and State would see significant cuts and program eliminations. The Corporation for Public Broadcasting would be privatized, while the National Endowment for the Arts and National Endowment for the Humanities would be eliminated entirely. Overall, the blueprint being used by Trump’s team would reduce federal spending by $10.5 trillion over 10 years. …At the Department of Justice, the blueprint calls for eliminating the Office of Community Oriented Policing Services, Violence Against Women Grants and the Legal Services Corporation and for reducing funding for its Civil Rights and its Environment and Natural Resources divisions. At the Department of Energy, it would…eliminate the Office of Electricity, eliminate the Office of Energy Efficiency and Renewable Energy and scrap the Office of Fossil Energy, which focuses on technologies to reduce carbon dioxide emissions. Under the State Department’s jurisdiction, funding for the Overseas Private Investment Corporation, the Paris Climate Change Agreement and the United Nations’ Intergovernmental Panel on Climate Change are candidates for elimination.

This warms my heart. It might even send a thrill up my leg, to borrow a phrase from Chris Matthews.

But that’s not all.

The Washington Examiner also has a report that has me salivating.

Making good on a promise to slash government, President-elect Trump has asked his incoming team to pursue spending and staffing cuts. Insiders said that the spending reductions in some departments could go as high as 10 percent and staff cuts to 20 percent, numbers that would rock Washington if he follows through. At least two so-called “landing teams” in Cabinet agencies have relayed the call for cuts as part of their marching orders to shrink the flab in government. …The teams also are looking at staffing cuts over four years through attrition, a hiring freeze and reorganization. The plan is winning cheers in conservative, anti-tax and anti-spending corners in Washington that have long sought massive cuts in the bureaucracy. …Trump is likely to face a wall of opposition from Democrats and federal unions who consider much of the federal workforce on their side.

Sounds great, right?

But before getting too excited, keep in mind that these articles simply refer to options that Trump’s team is preparing. It’s still an open question whether Trump actually embraces these policies.

So my man crush is on hold until I see whether Trump actually decides to do what’s right for the nation.

But if he does, I have some very helpful three-part advice for successful fiscal policy.

  1. The budget is a garden.
  2. Counterproductive agencies, programs, and departments are like weeds in the garden.
  3. Don’t trim weeds, pull them out by the roots.

In other words, don’t cut programs by 10 percent, 20 percent, or even 50 percent. If you do that, it’s like cutting off a weed at ground level. If the root system is still there, it’s just a matter of time before it regrows and begins to suffocate the good plants (i.e., the private sector).

Instead, shut them down. Eliminate them. Raze the buildings. And pour a foot of salt on the ground so nothing can regrow.

Simply stated, it’s very easy to restore a budget cut at some point in the future. But if a part of government is totally wiped out, then special interests have to go through all the effort of recreating that function. And that’s not overly easy given the separation-of-powers system that the Founding Fathers wisely created.

Another advantage of killing off programs and agencies is that voters will see that they were never needed in the first place.

Get rid of the National Endowment for the Arts and people will quickly see that the hysterical claims of its supporters were nonsense.

Shut down the Department of Commerce and, other than cronyists, folks won’t even notice that it’s gone.

Cut off all funding for the Organization for Economic Cooperation and Development and the only losers will be the bureaucrats who no longer get to enjoy business-class junkets to Paris.

I’ve already identified several cabinet departments that should be terminated.

  • Get rid of the Department of Housing and Urban Development.
  • Shut down the Department of Agriculture.
  • Eliminate the Department of Transportation.
  • Abolish the Department of Education.
  • Pull the plug on the Department of Energy.
  • Phase out the Department of Veterans Affairs.
  • Dump the Small Business Administration.

John Stossel also has a bunch of suggestions for Trump’s first week.

…there’s a lot of good Trump and Pence could do their first day, or, let’s be generous, their first week. …Monday: Abolish the Department of Commerce. …Commerce just happens; it doesn’t need a department. Today the Department of Commerce spends $9 billion a year subsidizing companies with political connections, gathering economic data, setting industry standards and doing a bunch of things companies ought to do for themselves. Get rid of it. Tuesday: Abolish the Department of Labor. The Department inserts itself into almost every protracted argument between workers and management. Why should we let government referee every argument? Let workers, bosses, unions and their lawyers fight it out. …The Labor Department also spends about $9 billion gathering information on workers. Top labor-union bosses make six-figure salaries. I’m sure their organizations could spend a little on statistics and workplace studies. Leave the poor, oppressed taxpayer out of it.

For the rest of the week, he suggests wiping out the Small Business Administration, the Department of Education, and the Department of Energy, so you can see we’re on the same wavelength.

The bottom line is that President Trump (I didn’t think I’d ever write those words) is in a position to…um, well…make America great again.

But that means pursuing a fiscal policy consistent with America’s founding principles.

I’m not expecting miracles, but it would be nice to see some semi-serious spending restraint when the dust settles. And any good results will be much more durable if they’re based on program terminations instead of haircuts.

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Time for a boring and wonky discussion about taxes, capital formation, and growth.

We’ll start with the uncontroversial proposition that saving and investment is a key driver of long-run growth. Simply stated, employees can produce more (and therefore earn more) when they work with better machines, equipment, and technology (i.e., the stock of capital).

But if we want to enjoy the higher incomes that are made possible by a larger and more productive capital stock, somebody has to save and invest. And that means they have to sacrifice current consumption. The good news is that some people are willing to forego current consumption if they think that saving and investment will enable them to have higher levels of future consumption. In other words, if they make wise investments, it’s a win-win situation since society is better off and they are better off.

And these investment decisions help drive financial markets.

Now let’s focus specifically on long-run investments. If you have some serious money to invest, one of your main goals is to find professionals who hopefully can identify profitable opportunities. You want these people, sometimes called “fund managers,” to wisely allocate your money so that it will grow in value. And in some cases, you try to encourage good long-run investments by telling fund managers that if your investments increase in value (i.e., earn a capital gain), they get to keep a share of that added wealth.

In the world of “private equity” and “venture capital,” that share of the added wealth that goes to fund managers is known as “carried interest.” And as a Bloomberg article notes, it has played a big role in some of America’s great business success stories.

Venture capitalists…helped transform novel business ideas into some of the world’s most valuable companies, including Apple, Alphabet Inc., Amazon.com Inc., Facebook Inc., and Microsoft Corp. According to a 2015 study by Stanford University, 43 percent of public U.S. companies founded since 1979 had raised venture cash.

An article from the National Center for Policy Analysis has some additional data on the key role of investors who are willing to take long-run risks.

…up to 25 percent of pre-initial public offering (preIPO) startup funding comes from private equity or venture capital backers. Increasing the tax burden on these entities would damage a valuable access-to-capital pipeline for some startups — particularly in the energy, technology and biotech sectors where large up-front investments could be required.

The obvious conclusion is that we should be happy that there are people willing to put their money in long-run investments and that we should not be envious if they make good choices and therefore earn capital gains. And most people (other than the hard-core left) presumably will agree that people who take big risks should be able to earn big rewards.

That consensus breaks down, however, when you add taxes to the equation.

There’s the big-picture debate about whether there should be “double taxation” of income that is saved and invested. There are two schools of thought.

  • On one side, you have proponents of “consumption-base” taxation, and they favor reforms such as the flat tax that eliminate the tax code’s bias against saving and investment. These people want to eliminate double taxation because a bigger capital stock will mean a more prosperous economy. Advocates of this approach generally believe in equality of opportunity.
  • On the other side, you have advocates of the “Haig-Simons” or “comprehensive income tax” approach, which is based on the notion that extra layers of tax should be imposed on income that is saved an invested. These people want double taxation because it is consistent with their views of fairness. Advocates of this approach generally believe in equality of outcomes.

In the United States, we’ve historically dealt with that debate by cutting the baby in half. We have double taxation of capital gains and dividends, but usually at modest rates. We have double taxation of interest, but we allow some protection of savings if people put money in IRAs and 401(k)s.

But the debate never ends. And one manifestation of that ongoing fight is the battle over how to tax carried interest.

Folks on the left want to treat carried interest as “ordinary income,” which simply means that they want regular tax rates to apply so that there’s full double taxation rather than partial double taxation.

So who supports such an idea? To quote Claude Rains in Casablanca, it’s the usual suspects. Strident leftists in Congress and their ideological allies are pushing this version of a capital gains tax hike.

Rep. Sander Levin (D-Mich.), Sen. Tammy Baldwin (D-Wis.) and a group of millionaires made a push on Wednesday for consideration of legislation to close the carried-interest tax “loophole.” “We have to eliminate this loophole to make that sure everyone is paying their fair share and especially so that we can invest in an economy that creates jobs and lifts working American wages,” Baldwin said during a news conference on Capitol Hill. …The carried interest tax break is “the most egregious example of tax unfairness,” said Morris Pearl, chair of the Patriotic Millionaires — a group of 200 Americans with annual incomes of at least $1 million and/or assets of at least $5 million.

Folks on the right, by contrast, don’t think there should be any double taxation. And that means they obviously don’t favor an increase in the double taxation on certain types of capital gains. And that included carried interest, which they point out is not some sort of “loophole.” As Cliff Asness has explained, the treatment of carried interest is “consistent with the way employee-incentive stock options and professional partnerships are taxed.

But this isn’t just a left-right issue. Some so-called populists want higher capital gains taxes on carried interest, including the President-Elect of the United States. Kevin Williamson of National Review is not impressed.

Trump doesn’t understand how our economy works. …The big, ugly, stupid tax hike he’s planning is on Silicon Valley and its imitators around the country, the economic ecosystem of startup companies and the venture capitalists who put up the cash to turn their big ideas into viable products, dopey computer games, social-media annoyances, and companies that employ hundreds of thousands of people at very high wages. Which is to say, he wants to punish the part of the U.S. economy that works, for the crime of working. The so-called carried-interest loophole, which isn’t a loophole, drives progressives batty.

Kevin points out how carried interest works in the real world.

If you’re the cash-strapped startup, you go to venture capitalists; if you’re the established business, you go to a private-equity group. In both cases, the deal looks pretty similar: You get cash to do what you need to do, and the investor, rather than lending you money at a high interest rate, takes a piece of your company as recompense (for distressed companies being reorganized by private-equity firms, that’s usually 100 percent of the firm) on the theory that this will be worth more — preferably much more – than the money they put into your business. Eventually, the investor sells its stake in the company and pays the capital-gains tax on its capital gain.

And he doesn’t hold Trump in high regard.

Donald Trump does not understand this, because he isn’t a real businessman — he’s a Potemkin businessman, a New York City real-estate heir with his name on a lot of buildings he doesn’t own and didn’t build and whose real business is peddling celebrity and its by-products. He’s a lot more like Paris Hilton than he is like Henry Ford or Steve Jobs. Miss Hilton sells perfumes and the promise of glamour, Trump sells ugly neckties and the promise of glamour.

In her syndicated column, Veronique de Rugy explains why Republicans shouldn’t make common cause with the class-warfare crowd.

Trump…has seemingly swallowed a key assumption of the left. During the campaign, Trump and Hillary Clinton both pledged to raise taxes on carried interest. …sensing an opening, Senate Minority Leader Chuck Schumer recently indicated that he’d be willing to work with Trump on the issue. Of course he would. Democrats have been trying for years to raise taxes on capital. In fact, they see the reduced rate on all capital gains as a loophole. Their goal is to treat all capital gains as ordinary income because they want higher tax burdens overall. …Republicans need to remember that the left’s goal is not fairness but higher taxes. Treating carried interest as ordinary income for tax purposes would simply be the first step toward higher taxes on capital in general. That would be bad for economic growth and for our wallets.

Chuck Devore of the Texas Public Policy Foundation also has a sensible take on the economics of this issue.

…If the investment professional sees his marginal tax rate on capital gains from carried interest almost double, from 23.8 percent to 43.4 percent, he’ll change his behavior and charge more for his services. Pension funds and colleges will get less… Increasing taxes on investment success would mean less investment and consequently, fewer jobs, less innovation, and less prosperity. According to the Tax Foundation, the U.S. already levies the 6th-highest capital gains taxes among the 34 developed nations of the Organization for Economic Co-operation and Development… Generating capital gains means that money was used efficiently, benefiting not just the professional investment manager, but savers and the world. Losing money, on the other hand, is nothing to celebrate.

I agree.

The carried interest right is really a proxy for the bigger issue of whether there should be increased double taxation of capital gains. Which would be the exact opposite of what should happen if we want America to be more competitive and prosperous.

For more background on the issue of carried interest, this video from the Center for Freedom and Prosperity is very succinct and informative.

And if you want more info on the overall issue of capital gains taxation, I’m quite partial to my video on the topic.

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While my colleagues are stuck in the cold of Washington for inauguration week, I’m enjoying a few days in the Caribbean. More specifically, I’m sharing my views today on Trump and the global economy at the annual Business Outlook Conference in the British Virgin Islands.

Yes, another example of the sacrifices I make in the battle for liberty.

But it’s fortuitous that I’m here for reasons other than the weather. This is a good opportunity to expose Oxfam. Many people have a vague impression that this group is a well-meaning charity that seeks to help lift up poor people.

If you take a close look at the organization’s activities, however, you’ll see that it’s become a left-wing pressure group.

Consider, for example, Oxfam’s recent report on “Tax Battles,” which discusses the supposed “dangerous global race to the bottom on corporate tax.”

Based on Oxfam’s ideologically driven agenda, Bermuda and the Cayman Islands are the worst of the worst, followed by the Netherlands, Switzerland, and Singapore. The British Virgin Islands, meanwhile, is number 15 on Oxfam’s list.

And what awful sins did BVI and the other jurisdictions commit to get on the list?

Well, the report suggests that their guilty of helping taxpayers minimize their tax burdens.

To create the list, Oxfam researchers assessed countries against a set of criteria that measured the extent to which countries used three types of harmful tax policies: corporate tax rates, the tax incentives offered, and lack of cooperation with international efforts against tax avoidance.

In other words, places with good business tax policy are ostensibly bad because politicians have less money to waste.

By the way, the folks at Oxfam are grotesquely hypocritical.

The world’s most important jurisdiction for corporate tax planning is Delaware and it didn’t even appear on the list. Why? I have no idea.

But I can tell you that there is a single building in Delaware that is home to 285,000 companies according to a report in the New York Times.

1209 North Orange Street… It’s a humdrum office building, a low-slung affair with a faded awning and a view of a parking garage. Hardly worth a second glance. If a first one. But behind its doors is one of the most remarkable corporate collections in the world: 1209 North Orange, you see, is the legal address of no fewer than 285,000 separate businesses. Its occupants, on paper, include giants like American Airlines, Apple, Bank of America, Berkshire Hathaway, Cargill, Coca-Cola, Ford, General Electric, Google, JPMorgan Chase, and Wal-Mart. These companies do business across the nation and around the world. Here at 1209 North Orange, they simply have a dropbox. …Big corporations, small-time businesses, rogues, scoundrels and worse — all have turned up at Delaware addresses in hopes of minimizing taxes, skirting regulations, plying friendly courts or, when needed, covering their tracks. …It’s easy to set up shell companies here, no questions asked.

Most leftists get upset about Delaware, just like they get upset about BVI and the Cayman Islands.

But Oxfam’s people are either spectacularly clueless or they made some sort of bizarre political calculation to give America a free pass.

For purposes of today’s discussion, however, what matters most is that Oxfam is ideologically hostile to jurisdictions with good policy. The fact that they’re also hypocritical is just icing on the cake.

By the way, putting out shoddy reports is a pattern for the organization.

It recently got a lot of press attention because of a report on “An Economy for the 99 Percent” with the dramatic claim that the world’s 8-richest people have the same wealth as the world’s bottom-50 percent.

Oxfam wants people to somehow conclude that billions of people are poor because those 8 people are rich. But that’s nonsense.

My colleague Johan Norberg has waged a one-man campaign to debunk Oxfam’s shoddy methodology and dishonest implications.

Here are two very clever tweets on the topic.

Amen. Ethical people want to reduce poverty. Envious people want to punish the successful.

And here’s a tweet noting that the classical liberal policies opposed by Oxfam have led to a much better world.

And here’s one of his “Dead Wrong” videos on the topic of inequality and poverty.

And since we’re looking at videos, here’s my video on Obama’s anti-tax haven demagoguery.

You’ll notice that 1209 North Orange Street makes a cameo appearance.

The moral of the story is that BVI (and other so-called tax havens) should be applauded, not criticized.

And Oxfam should end the pretense of being a charity. It’s a left-wing hack organization.

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