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Archive for April, 2018

Like many libertarians, I’ve always assumed that Thomas Jefferson was one of the best Founding Fathers.

He certainly was an advocate of liberty and I’ve cited him several times (see here, here, here, here, here, and here) over the years.

But maybe being quotable is not enough.

There’s a fascinating article in the latest issue of Cayman Financial Review that looks at the emergence of economic liberty in the Anglo-Saxon world and it makes a persuasive argument that Alexander Hamilton was a more effective advocate of free markets.

Written by a Washington-area economist who uses a nom de plume because of his position in government, the article starts by explaining that England’s Whig Revolution in the early 1700s helped create the conditions for astounding British prosperity. Notwithstanding resistance from the landed elites.

In England, the Whig Revolution was a series of events – the successful invasion of William  of Orange to dethrone James II in 1688, the selection of George I to succeed Queen Anne in 1714, and the selection of Robert Walpole as the first Prime Minister in 1721 – that created the Westminster parliamentary system… Most important, the Whig Revolution also created the institutional and legal framework that transformed England into a modern capitalist economy and sparked the Industrial Revolution. The adoption of Dutch commercial law, the creation of the Bank of England, and the circulation of its bank notes monetized the English economy. English courts abandoned the medieval “just price” doctrine, which let judges nullify contracts after the fact based on the concept that all goods and services had an objective value and any deviation from this just price should therefore be unlawful. …Traditional guilds collapsed. Entrepreneurs were free to create new firms, determine output and prices, borrow from banks, and issue stock. New manufacturing firms lured workers away from the estates of the landed gentry to rapidly growing English cities with wages paid in paper currency. …Rapid economic, political, and social change inevitably produced a reaction led by the arch-Tory Henry St. John, the First Viscount Bolingbroke. …To Bolingbroke, the Whig Revolution corrupted England… Bolingbroke rejected the legal and political reforms that created a modern capitalist economy. …But he failed to turn back the clock.

The same battle occurred on the other side of the ocean. albeit several decades later.

And most of America’s Founders apparently were not on the right side.

The Whig Revolution, which had allowed England to develop a modern capitalist economy, did not immediately cross the Atlantic. …In the 1770s, colonial legislatures still regulated the prices for many goods and services and forbade arbitrage and speculation. Colonial courts still accepted “just price” doctrine, allowing judges, all whom were members of a small oligarchy, to overturn contracts when market prices moved against colonial elites. And when crops failed or prices fell, colonial legislatures frequently declared “debt holidays” to prevent creditors from seizing the property of the colonial oligarchs. …Most of the America’s founders were from the small, wealthy elite in the colonies. Identifying with the English gentry rather than the rising middle class, Bolingbroke greatly influenced most of the founders’ views of economics and politics. Most founders, especially Thomas Jefferson and James Madison, agreed with Bolingbroke about the primacy of agriculture, shared his fears of banks and a paper currency, and dreaded industrialization. Most founders accepted Bolingbroke’s policy recommendations.

But Alexander Hamilton had a more enlightened outlook.

Alexander Hamilton was different than other founders. …Hamilton immigrated to America in 1773. Serving as General George Washington’s aide-de-camp, Hamilton observed how a weak Continental Congress imperiled the war effort. …Hamilton had a very different prospective from other founders with the notable exceptions of Washington and John Marshall. Hamilton wanted America to become a dynamic meritocracy. …Hamilton wanted poor, but talented individuals like himself to have avenues other than land ownership to earn wealth. Moreover, Hamilton rejected slavery because it prevented slaves from their full economic potential and made masters indolent and lazy. Moreover, Hamilton rejected racism. “The contempt we have been taught to entertain for the blacks, makes us fancy many things that are founded neither in reason nor experience.” During the Revolution, Hamilton proposed emancipating slaves that agreed to fight in Continental Army. Later Hamilton founded the New York Society for the Manumission of Slaves. Instead of Bolingbroke, Hamilton embraced the Whig Revolution and wanted to bring its economic benefits to the United States. …Moreover, Hamilton was staunch defender of property rights even when it was politically costly to him. As a lawyer in New York City, he successfully argued for the restoration of property of Englishmen and Loyalists that had been seized after the Revolutionary War in violation of the Treaty of Paris and the law of nations.

What about Hamilton’s protectionism?

He’s semi-guilty, but the author explains that Hamilton was mostly looking for a way of funding a modest-sized government.

And as I wrote last month, a modest tariff to fund a very small central government (as all the Founders preferred) would be a great improvement over what we have now.

Moreover, Hamilton even understood the basic principle of the Laffer Curve a couple of hundred years before Art Laffer’s famous napkin sketch.

While some future policymakers misused Hamilton to justify their protectionism, Hamilton was not a protectionist in the modern sense. …In a world in which income and value-added taxes had not been invented, …Hamilton favored a revenue tariff that averaged about 10 percent over a property tax to fund the federal government. Hamilton sought to maximize the federal government’s revenue and provide a modest margin of protection to domestic manufacturers rather than to block imports. Indeed, Hamilton argued: “It is a signal advantage of tax on articles of consumption, that they contain in their own nature a security against excess. They prescribe their own limit; which cannot be exceeded without defeating the end proposed – that is an extension of the revenue.”

I’m not fully convinced that Alexander Hamilton is a libertarian hero (that would entail support for free banking rather than his version of central banking), but I’m looking at him much more favorably after reading this article.

And I’m now significantly less sympathetic to Thomas Jefferson.

I’ll close on a wonky note. In my column about the would-be nation of Liberland, I cited some research on the relationship between “state capacity” and economic prosperity. The notion is that an economy won’t prosper unless a government is both strong enough and effective enough to deter aggression and to provide rule of law (while otherwise leaving the private sector unmolested).

I’m certainly no expert on the Founding Fathers, but it seems that Hamilton had that point of view.

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California is a lot like France. They’re both wonderful places to visit.

And they’re both great places to live if you already have a lot of money.

But neither jurisdiction is very friendly to people who want to get rich. And, thanks to tax competition, that’s having a meaningful impact on migration patterns.

I’ve previously written about the exodus of successful and/or aspirational people from France.

Today we’re going to examine the same process inside the United States.

It’s a process that is about to get more intense thanks to federal tax reform, as Art Laffer and Steve Moore explain in a column for the Wall Street Journal.

In the years to come, millions of people, thousands of businesses, and tens of billions of dollars of net income will flee high-tax blue states for low-tax red states. This migration has been happening for years. But the Trump tax bill’s cap on the deduction for state and local taxes, or SALT, will accelerate the pace. …Consider what this means if you’re a high-income earner in Silicon Valley or Hollywood. The top tax rate that you actually pay just jumped from about 8.5% to 13%. Similar figures hold if you live in Manhattan, once New York City’s income tax is factored in. If you earn $10 million or more, your taxes might increase a whopping 50%. …high earners in places with hefty income taxes—not just California and New York, but also Minnesota and New Jersey—will bear more of the true cost of their state government. Also in big trouble are Connecticut and Illinois, where the overall state and local tax burden (especially property taxes) is so onerous that high-income residents will feel the burn now that they can’t deduct these costs on their federal returns. On the other side are nine states—including Florida, Nevada, Texas and Washington—that impose no tax at all on earned income.

Art and Steve put together projections on what this will mean.

Over the past decade, about 3.5 million Americans on net have relocated from the highest-tax states to the lowest-tax ones. …Our analysis of IRS data on tax returns shows that in the past three years alone, Texas and Florida have gained a net $50 billion in income and purchasing power from other states, while California and New York have surrendered a net $23 billion. Now that the SALT subsidy is gone, how bad will it get for high-tax blue states? Very bad. We estimate, based on the historical relationship between tax rates and migration patterns, that both California and New York will lose on net about 800,000 residents over the next three years—roughly twice the number that left from 2014-16. Our calculations suggest that Connecticut, New Jersey and Minnesota combined will hemorrhage another roughly 500,000 people in the same period. …the exodus could puncture large and unexpected holes in blue-state budgets. Lawmakers in Hartford and Trenton have gotten a small taste of this in recent years as billionaire financiers have flown the coop and relocated to Florida. …Progressives should do the math: A 13% tax rate generates zero revenue from someone who leaves the state for friendlier climes.

I don’t know if their estimate is too high or too low, but there’s no question that they are correct about the direction of migration.

And every time a net taxpayer moves out, that further erodes the fiscal position of the high-tax states. Which is why I think one of the interesting questions is which state will be the first to suffer fiscal collapse.

In large part, taxpayers are making a rational cost-benefit analysis. Some states have dramatically increased the burden of government spending. Yet does anyone think that those states are providing better services than states with smaller public sectors? Or that those services are worth all the taxes they have to pay?

Consider, for instance, the difference between New York and Tennessee.

New York spends nearly twice as much on state and local government per person ($16,000) as does economically booming Tennessee ($9,000).

Anyhow, I’m guessing the new restriction on the state and local tax deduction is going to change the behavior of state politicians. At least I hope so.

But nobody ever said politicians were sensible. Ross Marchand of the Taxpayers Protection Alliance explains that Massachusetts and New Jersey are still thinking about more class-warfare taxation.

Massachusetts and New Jersey are currently considering “millionaires’ taxes,” which would significantly increase top rates and spark a “race to the top” for revenue… Instead of helping out the middle class, a millionaires’ tax will result in an exodus from the state, squeezing out opportunities for working Americans. …Prominent millionaires respond to these proposals by threatening to leave, and research shows that the well-to-do regularly follow through on these promises.  …nearly all of the migration that does happen in top brackets has to do with tax changes. Researchers at Stanford University and the Treasury Department estimate that a 10 percent increase in taxes causes a 1 percent bump in migration, assuming no change in any other policy. …If New Jersey and Massachusetts approve new millionaires’ taxes, it is difficult to predict how much will be raised and where these funds will ultimately wind up. But if New York and California are any guide, income surtaxes will be destructive. When it comes to higher taxation, interstate migration is just the tip of the iceberg. Higher-tax states, for instance, see less innovative activity and scientific research according to an analysis by economists at the Federal Reserve and UC Berkeley.

My suggestion is that politicians in Massachusetts and New Jersey should look at what’s happening to California.

CNBC reports on the growing exodus from the Golden State.

Californians may still love the beautiful weather and beaches, but more and more they are fed up with the high housing costs and taxes and deciding to flee to lower-cost states such as Nevada, Arizona and Texas. …said Dave Senser, who lives on a fixed income near San Luis Obispo, California, and now plans to move to Las Vegas. “Rents here are crazy, if you can find a place, and they’re going to tax us to death. That’s what it feels like. At least in Nevada they don’t have a state income tax. And every little bit helps.” …Data from United Van Lines show some of the most popular moving destinations for Californians from 2015 to 2017 were Texas, Arizona, Oregon, Washington and Colorado. Other experts also said Nevada remains a top destination. …Internal Revenue Service data would appear to show that the middle-class and middle-age residents are the ones leaving, according to Joel Kotkin, a presidential fellow in Urban Futures at Chapman University in Orange, California. …Furthermore, Kotkin believes the outmigration from California may start to rise among higher-income people, given that the GOP’s federal tax overhaul will result in certain California taxpayers losing from the state and local tax deduction cap.

The Legislative Analyst’s Office for the California legislature has warned the state’s lawmakers about this trend.

For many years, more people have been leaving California for other states than have been moving here. According to data from the American Community Survey, from 2007 to 2016, about 5 million people moved to California from other states, while about 6 million left California. On net, the state lost 1 million residents to domestic migration—about 2.5 percent of its total population. …Although California generally has been losing residents to the rest of the country, movement between California and some states deviates from this pattern. The figure below shows net migration between California and individual states between 2007 and 2016. California gained, on net, residents from about one-third of states, led by New York, Illinois, and New Jersey.

Here’s the chart showing where Californians are moving. Unsurprisingly, Texas is the main destination.

By the way, state-to-state migration isn’t solely a function of income taxes.

A Market Watch column looks at the impact of property taxes on migration patterns.

Harty’s clients range from first-time buyers with sticker shock to people who’ve lived in and around Chicago all their lives. Each has a different story, but they share a common theme: many believe that Chicago-area property taxes are too high, and relief is just an hour away over the state line. …if all real estate is local, all real estate taxes may be even more so. …Attom’s data show that the average tax burden ranges from $10,612 in the most expensive metro area, Bridgeport-Stamford-Norwalk, Connecticut, to $525 in Montgomery, Alabama. And those are just averages. …taxes are “the icing on the cake” in areas that are seeing strong population inflows… Among the counties that saw the biggest percentage of in-migration in 2017, according to Census data, all are in Texas, Florida, Georgia, or the Carolinas. (Texas doesn’t have particularly low property taxes, but it has no personal income tax, making the overall tax burden much more manageable.) Cook County, where Chicago is located, had the biggest number of people leaving… Blomquist’s analysis of Census data showed that among all counties that had at least a 1% population increase, the average tax bill was $2,706, while in all counties with a least a 1% decline in population, the average was $3,900.

The key sentence in that excerpt is the part about Texas having relatively high property taxes, but making up for that by having no state income tax.

The same thing is true about New Hampshire.

But just imagine what it must be like to live in a state with high income taxes and high property taxes. If this map is any indication, places such as New York and Illinois are particularly awful for taxpayers.

Let’s close with a big-picture look at factors that drive state competitiveness.

Mark Perry takes an up-close look at the characteristics of the five states with the most in-migration and out-migration.

…four of the top five outbound states (Illinois ranked No. 46, Connecticut at No. 49, New Jersey at No. 48, and California at No. 47) were among the five US states with the highest tax burden — New York was No. 50 (highest tax burden). The average tax burden of the top five outbound states was 11.2%, with an average rank of 43.2 out of 50. In contrast, the top five inbound states have an average tax burden of 8.7% and an average rank of 16.6 out of 50. As would be expected, Americans are leaving states with some of the country’s highest overall tax burdens (IL, CT, CA and NJ) and moving to states with lower tax burdens (TN, SC and AZ). …that there are significant differences between the top five inbound and top five outbound US states when they are compared on a variety of measures of economic performance, business climate, tax burdens for businesses and individuals, fiscal health, and labor market dynamism. There is empirical evidence that Americans do “vote with their feet” when they relocate from one state to another, and the evidence suggests that Americans are moving from states that are relatively more economically stagnant, Democratic-controlled fiscally unhealthy states with higher tax burdens, more regulations and with fewer economic and job opportunities to Republican-controlled, fiscally sound states that are relatively more economically vibrant, dynamic and business-friendly, with lower tax and regulatory burdens and more economic and job opportunities.

Here’s Mark’s table, based on 2017 migration data.

As Mark said, people do “vote with their feet” for smaller government.

Which is one of the reasons I’m a big fan of federalism. When there’s decentralization, people can escape bad policy. And that helps to discipline profligate governments.

P.S. I’m writing today’s column from Switzerland, which is a very successful example of genuine federalism.

P.P.S. Americans are free to move from one state to another, and the uncompetitive states can’t stop the process. Unfortunately, the IRS has laws that penalize people who want to move to other nations. In this regard, the U.S. is worse than France.

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The evil ideology known as communism left a track record of unimaginable horror. Experts estimate that 100 million people were killed by Marxist regimes.

Some were murdered. Other starved to death because of the pervasive economic failure of communism.

Yet there are dupes and apologists who overlook all this death and misery.

One of them is Jean-Claude Juncker, the President of the European Commission. A few days from now, this über-bureaucrat will help celebrate the 200th birthday of Karl Marx.

The European Commission President will travel to Trier, Germany, where he will give a speech to celebrate the 200th anniversary of Marx’s birth. …The Commission President will give a speech at the opening ceremony of the Karl Marx exhibition in the city. …The chief eurocrat’s trip has received critics, who have suggested the 63-year-old forgetting how Marx’s “warped ideology” led to millions of deaths across the world. Ukip MEP and the party’s former leader Paul Nuttall said: “It is appalling that Jean-Claude Juncker feels it necessary to commemorate a man whose ideology – Marxism/Communism – led to more than 100 million deaths. …Conservative MP Daniel Kawczynski…, who as a seven-year-old boy fled to Britain with his family from the Communist regime in Poland, said Mr Juncker should reject any invitations to commemorate the event. He said: “I think it’s in very poor taste we have to remember that Marxism was all about ripping power and individual means away from people and giving to State. “Marxism led to the killing of millions around the world as it allowed a small band of fanatics to suppress the people we must learn the lessons from this and share with our children.”

How disgusting.

And let’s not forget that communism is still claiming victims in places such as Cuba and North Korea.

Here’s the part of the story that caused my jaw to drop.

A commission spokeswoman defending Mr Juncker’s visit… She said: …“I think that nobody can deny that Karl Marx is a figure who shaped history in one way or the other.

In that case, why not celebrate Hitler’s birthday as well?

Writing for the Atlas Society, Alan Charles Kors expresses dismay that communism does not receive the same treatment as its sister ideology of National Socialism.

No cause, ever, in the history of all mankind, has produced more cold-blooded tyrants, more slaughtered innocents, and more orphans than socialism with power. It surpassed, exponentially, all other systems of production in turning out the dead. The bodies are all around us. And here is the problem: No one talks about them. No one honors them. No one does penance for them. No one has committed suicide for having been an apologist for those who did this to them. …The West accepts an epochal, monstrous, unforgivable double standard. We rehearse the crimes of Nazism almost daily, we teach them to our children as ultimate historical and moral lessons, and we bear witness to every victim. We are, with so few exceptions, almost silent on the crimes of Communism. So the bodies lie among us, unnoticed, everywhere. We insisted upon “de-Nazification,” and we excoriate those who tempered it in the name of new or emerging political realities. There never has been and never will be a similar “de-Communization,” although the slaughter of innocents was exponentially greater, and although those who signed the orders and ran the camps remain. In the case of Nazism, we hunt down ninety-year-old men because “the bones cry out” for justice. In the case of Communism, we insisted on “no witch hunts”… The Communist holocaust should have brought forth a flowering of Western art, and witness, and sympathy. It should have called forth an overflowing ocean of tears. Instead, it has called forth a glacier of indifference. Kids who in the 1960s had portraits of Mao and Che on their college walls —the moral equivalent of having hung portraits of Hitler, Goebbels, or Horst Wessel in one’s dorm—now teach our children about the moral superiority of their political generation. Every historical textbook lingers on the crimes of Nazism, seeks their root causes, and announces a lesson that should be learned. Everyone knows the number “six million.” By contrast, it is always “the mistakes” of Communism or of Stalinism (repeated, by mistake, again, and again, and again). Ask college freshmen how many died under Stalin’s regime, and they will answer, even now, “Thousands? Tens of thousands?”

Of course, some of these kids are probably wearing t-shirts celebrating Che Guevara, so it goes without saying that they are ignorant.

Or, if they actually know Che’s track record, the kids are immoral punks.

In any event, Jean-Claude Juncker should know better. Sounds like he wants his name to be added to the biggest-clown-in-Brussels contest.

P.S. I’m embarrassed to admit that some economists were apologists for communism.

P.P.S. There’s a very small silver lining to the dark cloud of communism. You can click here, here, here, and here to enjoy some clever anti-communism humor.

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Because of their aggressive support for bigger government, my least-favorite international bureaucracies are the International Monetary Fund and the Organization for Economic Cooperation and Development.

But I’m increasingly displeased by the European Bank for Reconstruction and Development, which is another international bureaucracy (like the OECD and IMF) that is backed by American taxpayers.

And what does it do with our money? As I explained earlier this month in this short speech to the European Resource Bank in Prague, the EBRD undermines growth with cronyist policies that distort the allocation of capital.

In some sense, the argument against the EBRD is no different than the standard argument against foreign aid. Simply stated, you don’t generate growth by having the government of a rich nation give money to the government of a poor nation.

Poor nations instead need to adopt good policy – something that’s less likely when profligate and corrupt governments in the developing world are propped up by handouts.

That being said, the downsides of the EBRD go well beyond the normal problems of foreign aid.

I recently authored a study on this bureaucracy for the Center for Freedom and Prosperity.

Here are some of the main findings.

The EBRD was created with the best of intentions. The collapse of communism was an unprecedented and largely unexpected event, and policymakers wanted to encourage and facilitate a shift to markets and democracy. …But good intentions don’t necessarily mean good results. Especially when the core premise was that growth somehow would be stimulated and enabled by the creation of another multilateral government bureaucracy. …Unfortunately, even though its founding documents pay homage to markets…, there’s nothing in the track record of the EBRD that indicates it has learned from pro-intervention and pro-statism mistakes made by older international aid organizations. Indeed, there’s no positive track record whatsoever.

• There is no evidence that nations receiving subsidies and other forms of assistance grow faster than similar nations that don’t get aid from the EBRD.
• There is no evidence that nations receiving subsidies and other forms of assistance enjoy more job creation than similar nations that don’t get aid from the EBRD,
• There is no evidence that nations receiving subsidies and other forms of assistance have better social outcomes than similar nations that don’t get aid from the EBRD.

I also delved into three specific downsides of the EBRD, starting with its role in misallocating capital.

In a normal economy, savers, investors, intermediaries, entrepreneurs, and others make decisions on what projects get funded and what businesses attract investment. These private-sector participants have “skin in the game” and relentlessly seek to balance risk and reward. Wise decisions are rewarded by profit, which often is a signal for additional investment to help satisfy consumer desires. There’s also an incentive to quickly disengage from failing projects and investments that don’t produce goods and services valued by consumers. Profit and loss are an effective feedback mechanism to ensure that resources are constantly being reshuffled in ways that produce the most prosperity for people. The EBRD interferes with that process. Every euro it allocates necessarily diverts capital from more optimal uses.

I explain why taxpayers shouldn’t be subsidizing cronyism.

…the EBRD is in the business of “picking winners and losers.” This means that intervention by the bureaucracy necessarily distorts competitive markets. Any firm that gets money from the EBRD is going to have a significant advantage over rival companies. Preferential financing for hand-picked firms from the EBRD also is a way of deterring new companies from getting started since there is not a level playing field or honest competition. … cronyism is a threat to prosperity. It means the playing field is unlevel and that those with political connections have an unfair advantage over those who compete fairly. To make matters worse, nations that receive funds from the ERBD already get dismal scores from Economic Freedom of the World for the two subcategories (“government enterprises and investment” and “business regulations”) that presumably are the best proxies for cronyism.

Here’s a chart from the study showing that recipient nations already get low scores from Economic Freedom of the World for variables that reflect the degree of cronyism in an economy.

Last but not least, I warn that the EBRD enables and facilitates corruption.

When governments have power to arbitrarily disburse large sums of money, that is a recipe for unsavory behavior. For all intents and purposes, the practice of cronyism is a prerequisite for corruption. The EBRD openly brags about the money it steers to private hands, so is it any surprise that people will engage in dodgy behavior in order to turn those public funds into private loot? …Recipient nations get comparatively poor scores for “legal system and property rights” from Economic Freedom of the World. They also do relatively poorly when looking at the World Bank’s “governance indicators.” And they also have disappointing numbers from Transparency International’s “corruption perceptions index.” So, it’s no surprise that monies ostensibly disbursed for the purpose of development assistance wind up lining the pockets of corrupt insiders. For all intents and purposes, the EBRD and other dispensers of aid enable and sustain patterns of corruption.

And here’s the chart showing that recipient nations have poor quality of governance, which means that EBRD funds are especially likely to get misused.

I also cite several EBRD documents that illustrates the bureaucracy’s hostility for free markets and limited government.

Just in case you didn’t want to watch the entire video, here’s the relevant slide from my presentation.

And remember that your tax dollars back this European bureaucracy. Indeed, American taxpayers have a larger exposure than any of the European countries.

P.S. I’m also not a fan of the United Nations, though I take comfort in the fact that the UN is not very effective in pushing statist policy.

P.P.S. I’m most tolerant of the World Bank, though that bureaucracy periodically does foolish things as well.

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Congratulations to Belgium. According to the new edition of Taxing Wages, average Belgian workers have the dubious honor of surrendering the biggest chunk of their income to government. No wonder part of the country is interested in secession.

We can also give (sincere, this time, rather than sarcastic) congratulations to New Zealand and Switzerland, which impose the lowest overall tax burden on the labor income of average workers (with honorable mention to Chile and Mexico for low tax burdens in developing countries).

Here’s the key data, which shows how much of an average worker’s wages are lost because of income and payroll taxes.

The United States, I’m happy to report, is in the bottom half, which means the government confiscates a below-average amount of money from workers.

Other nations with onerous burdens include Germany, Italy, and France

Regarding the Belgian tax burden, the government understands this is bad news for Belgium’s economy, so there are periodic discussions about reducing the tax burden on labor income. Unfortunately, the potential “reforms” tend to be senseless tax swaps which would involve higher taxes on consumption or higher taxes on capital.

In the former case, the government would take more money as income is spent, so workers wouldn’t benefit. And in the latter case, there would be less investment, so workers wouldn’t benefit since their pre-tax wages would suffer.

The bottom line is that it’s impossible to have a good tax system with a bloated government.

By the way, the previous chart looked at the tax burden on the average worker with no children. Some countries have preferential tax policies for households with kids.

Here’s that data. Belgium still wins the Booby Prize for highest tax burden. But there are some noteworthy difference. Households with kids enjoy significantly lower tax burdens in Germany, France, Luxembourg, Ireland, Portugal, Slovenia, and the United States.

But you probably don’t want to have kids in Canada, Australia, and New Zealand.

Let’s close with a couple of caveats.

First, we’re only looking at one slice of tax policy.

More specifically, this OECD data measures the tax burden on labor income, and it looks at that data only for middle-income workers.

It’s also important to consider tax rates upper-income taxpayers since they tend to be the entrepreneurs and job creators. From this perspective, Belgium had the second-worst tax system for these households, slightly behind Sweden.

Nothing to brag about.

It’s also important to consider the overall tax burden on saving and investment. And there are several ways of looking at that data.

As you can see, Belgium doesn’t get high marks in these indices, but the United States invariably scores poorly.

Last but not least, there are many other policies – such as trade, regulation, and the rule of law – that also help determine a country’s competitiveness.

And while Belgium and other European nations have bad fiscal systems, they tend to score highly in other areas. Same for the United States.

The real key, of course, is to get good scores in all areas, like Switzerland, Hong Kong, and Singapore. Those are the best jurisdictions for workers, with good wages and low tax burdens.

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I’m conflicted.

I’ve repeatedly expressed skepticism about the idea of governments providing a “basic income” because I fear the work ethic will (further) erode if people automatically receive a substantial chunk of money.

Moreover, I also fear that a basic income will lead to an ever-expanding burden of government spending, particularly once net beneficiaries figure out they can vote themselves more money.

Given these concerns, I should be happy about this report from the New York Times.

For more than a year, Finland has been testing the proposition that the best way to lift economic fortunes may be the simplest: Hand out money without rules or restrictions on how people use it. The experiment with so-called universal basic income has captured global attention… Now, the experiment is ending. The Finnish government has opted not to continue financing it past this year, a reflection of public discomfort with the idea of dispensing government largess free of requirements that its recipients seek work. …the Finnish government’s decision to halt the experiment at the end of 2018 highlights a challenge to basic income’s very conception. Many people in Finland — and in other lands — chafe at the idea of handing out cash without requiring that people work. …Finland’s goals have been modest and pragmatic. The government hoped that basic income would send more people into the job market to revive a weak economy. …The basic income trial, which started at the beginning of 2017 and will continue until the end of this year, has given monthly stipends of 560 euros ($685) to a random sample of 2,000 unemployed people aged 25 to 58. Recipients have been free to do as they wished… The Finnish government was keen to see what people would do under such circumstances. The data is expected to be released next year, giving academics a chance to analyze what has come of the experiment.

The reason I’m conflicted is that the current welfare state – both in the United States and other developed nations – is bad for both taxpayers and poor people.

So I like the idea of experimentation. There has to be a better way of alleviating genuine suffering without trapping poor people in dependency or punishing taxpayers.

Indeed, one of my arguments for radical decentralization in America is that states will try different approaches and we’ll have a much better chance of learning what works and what doesn’t.

And maybe we’ll learn that there are some benefits of providing a basic income. But, as reported by the U.K.-based Guardian, it’s unclear whether the Finnish experiment lasted long enough or was comprehensive enough to teach us anything.

The scheme – aimed primarily at seeing whether a guaranteed income might incentivise people to take up paid work by smoothing out gaps in the welfare system…it was hoped it would shed light on policy issues such as whether an unconditional payment might reduce anxiety among recipients and allow the government to simplify a complex social security system… Olli Kangas, an expert involved in the trial, told the Finnish public broadcaster YLE: “Two years is too short a period to be able to draw extensive conclusions from such a big experiment. We should have had extra time and more money to achieve reliable results.”

I will be interested to see whether researchers generate any conclusions when they look at the two years of data from the Finnish experiment.

That being said, there already has been some research that underscores my concerns.

The OECD is not my favorite international bureaucracy, but its recent survey on Finland included some sobering estimates on the cost of a nationwide basic income.

In a basic income scenario, a lump-sum benefit replaces a number of existing benefits, financed by increasing income taxation by nearly 30% or around 4% of GDP. …the basic income requires significant increases to income taxation. …Financing a basic income at a meaningful level thus would require considerable additional tax revenue, and heavier taxation of income would at least partially undo any improvement in work incentives.

And in a report on basic income last year, the OECD poured more cold water on the idea.

…large tax-revenue changes are needed to finance a BI at meaningful levels, and tax reforms would therefore need to be an integral part of budget-neutral BI proposals. …abolishing tax-free allowances and making BI taxable means that everybody would pay income tax on the BI, and on all their other income. Tax burdens would go up for most people as a result, further increasing tax-to-GDP ratios that are currently already at a record-high in the OECD area. …There are also major concerns about unintended consequences of a BI. An especially prominent one is that unconditional income support would reduce the necessity for paid work.

Indeed, it’s difficult to see how work incentives aren’t adversely affected. Why go through the hassle of being employed when you can sit at home and play computer games all day?

P.S. Given the option of voting on a basic income in 2016, Swiss voters overwhelmingly rejected the notion.

P.P.S. Former Vice President Joe Biden actually agrees with me about one of the downsides of basic income.

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A few years ago, John Stossel did an undercover investigation of a government job-training program and he found that the operation was basically a scam.

Not that we should be surprised. Back in 2014, I explained to a C-Span audience that a healthy private sector was the only sure-fire way of producing a good job market. Which is why politicians (assuming they actually want job creation) should simply “get out of the way.”

Let’s now take a fresh look at the issue. The Wall Street Journal editorialized on this topic a few days ago.

…a new report from the Labor Department’s inspector general shows that the $1.7 billion federal Job Corps training program is a flop. …Nearly 50,000 people enrolled in 2017…the Job Corps provides meals, medical care, books, clothing and supplies, as well as an allowance for child care and living expenses. Such comprehensive support doesn’t come cheap—the taxpayer cost per student last year was $33,990—and the IG suggests that the investment often doesn’t pay off. …in 27 of 50 cases where full employment data existed, graduates were working the same sort of low-wage, low-skill jobs they held before training.

But there are beneficiaries of the program. The bureaucrats and contractors involved in the program make out like bandits.

The new report suggests that Job Corps’ biggest beneficiaries may be government contractors, not rookie job seekers. Job Corps spent more than $100 million between 2010 and 2011 on transition-service specialists to place students in a job after training. But among 324 sampled Job Corps alumni, the IG found evidence that contractors had helped a mere 18 find work. The contractors often claimed credit for success even though they provided no referrals or résumé and interview help.

Once again, this should not be surprising. It’s what we find over and over and over again.

Here are some excerpts from a report prepared a few years ago by then-Senator Tom Coburn.

…the government has taken on a role for which it was never intended, pouring billions of taxpayer dollars into a broken web of job training and employment programs that are rife with waste, fraud and abuse and lacking demonstrable effectiveness. …In FY 2009, nine federal agencies spent approximately $18 billion to administer 47 separate employment and job training programs, according to the U.S. Government Accountability Office (GAO). GAO identified another 51 federal programs that could be categorized as federal job training programs… The GAO found all but three of the 47 programs overlap with at least one other program in that they provide similar services to similar populations – yet maintain separate administrative structures.

All that bureaucracy and duplication might be an acceptable price to pay to get good results.

Except the programs are a miserable flop.

GAO finds ―little is known about the effectiveness of most programs. …impact studies that were conducted ―generally found the effects of participation were not consistent across programs, with only some demonstrating positive impacts that tended to be small, inconclusive or restricted to short-term impacts.

The report then lists 25 separate examples of wasteful and fraudulent spending.

It’s difficult to pick the most egregious example, but #14 caught my attention.

…a Department of Labor official was found to be taking bribes from a Job Corps contractor, even approving contracts that billed for ghost employees. …the government provided Job Corps with $1.68 billion in fiscal year 2009 and $1.7 billion in FY 2010. Job Corps also received $250 million in stimulus funding in addition to regular annual appropriations. …As part of the Inspector General‘s investigation, a search warrant was executed at the contractor‘s home. The contractor said that Brevard assisted in getting him contracts in exchange for payments. The contractor paid Brevard because if he did not do so, she would not process his invoices. When asked by law enforcement, Brevard admitted to receiving payments from the contractor paid her, and that she approved contracts – of which she knew were false.

Let’s look at a recent real-world example of failure.

The Daily Signal has done some solid reporting on this topic, including this look at the high cost and low benefits of job-training programs.

A government-funded job training program that promised to turn hundreds of residents of Kentucky’s coal country into computer coders so far has spent $2 million to place 17 people in tech jobs and may have left others worse off… The job training program, budgeted for a total of $4.5 million, was supposed to last through 2019 and train up to 200 people from an economically depressed region of Kentucky for middle- to high-skill careers in information technology. …But less than a year later, workers have torn down signs at Big Sandy Community and Technical College, where the program was based, and are closing shop on what appears to be a government-funded program run amok. A total of 32 of the 49 Kentuckians who originally enrolled in the TechHire program in Eastern Kentucky, known as TEKY, have not obtained jobs in the tech industry, according to government figures.

Predictably, the contractors were beneficiaries.

EKCEP spent $1.98 million on the partnership with Interapt. That total includes payments of $861,612 to Interapt for staff salaries and management fees, $706,146 for program service fees, and $115,287 for travel. In one case, Interapt billed EKCEP $5,200 a month for rental of a five-bedroom, five-bathroom house in Paintsville, complete with swimming pool, for Interapt staffers working on the training program. But Gopal, Interapt’s CEO, submitted as an expense and was reimbursed $1,022.40 in December alone for staying at a Ramada Inn in Paintsville, which is about 200 miles east of Louisville. …“Companies like Interapt can rely on the federal government as a crutch because the government has traditionally funded these job training programs, and it creates this vicious circle where industry supports it, politicians support it, but the results don’t bear out the intentions of the programs,” said Nick Loris, an economist who researches and writes about energy policy at The Heritage Foundation.

Let’s close with a meaty excerpt from an overview of job-training programs by Chris Edwards and Daniel Murphy.

The most thorough assessment of federal job training programs was a $25 million National JTPA study in 1994, which was commissioned by the Department of Labor. It tracked 20,000 people over a four-year period who used various training services, and compared them to control groups who did not. The study found that for most participants, federal programs had no significant benefits. …(Labor experts James Heckman and Jeffrey Smith note: “For youth, the record of government training programs for the disadvantaged is almost uniformly negative.”) All in all, the National JTPA study found that the modest benefits of the program were outweighed by the program’s costs. A 2002 book, The Job Training Charade, examines the failures of federal job training programs over the decades. The author, Gordon Lafer of the University of Oregon, is very liberal in his politics… But based on his detailed review, he finds that federal job training programs have provided very small or insignificant benefits. He argues that these programs exist for political reasons alone. Politicians have championed these programs in order to be seen as “doing something” to help workers, and whether they actually work or not is less important. Lafer argues that “as successive generations of job training programs fail to produce the hoped for results, policymakers have cycled through a stock repertoire of procedural fixes that promise to solve the problem.” CETA was supposed to fix problems of the 1960’s training programs. JTPA was supposed to fix CETA, and the WIA was supposed to fix JTPA. Lafer notes that “repeated reports of [JTPA’s] failure seem to have little impact on its political popularity… JTPA was succeeded by the Workforce Investment Act which . . . largely repeats the same strategies found to have failed under JTPA.” Job training legislation is little more than “political symbolism,” he says.

Unfortunately, empty “political symbolism” is the specialty of Washington.

Politicians don’t see the “unseen” and they don’t understand “creative destruction.”

So their efforts at job creation hinder rather than help.

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