Feeds:
Posts
Comments

Archive for the ‘Class warfare’ Category

I wrote yesterday about the generic desire among leftists to punish investors, entrepreneurs, and other high-income taxpayers.

Today, let’s focus on one of the specific tax hikes they want. There is near-unanimity among Democratic presidential candidates for higher tax rates on capital gains.

Given the importance of savings and investment to economic growth, this is quite misguided.

The Tax Foundation summarizes many of the key issues in capital gains taxation.

…viewed in the context of the entire tax system, there is a tax bias against income like capital gains. This is because taxes on saving and investment, like the capital gains tax, represent an additional layer of tax on capital income after the corporate income tax and the individual income tax. Under a neutral tax system, each dollar of income would only be taxed once. …Capital gains face multiple layers of tax, and in addition, gains are not adjusted for inflation. This means that investors can be taxed on capital gains that accrue due to price-level increases rather than real gains. …there are repercussions across the entire economy. Capital gains taxes can be especially harmful for entrepreneurs, and because they reduce the return to saving, they encourage immediate consumption over saving.

Here’s a chart depicting how this double taxation creates a bias against business investment.

Here are some excerpts from a column in the Wall Street Journal on the topic of capital gains taxation.

The authors focus on Laffer-Curve effects and argue that higher tax rates can backfire. I’m sympathetic to that argument, but I’m far more concerned about the negative impact of higher rates on economic performance and competitiveness.

…there is a relatively simple and painless way to maintain the federal coffers: Restore long-term capital-gains tax rates to the levels in place before President Obama took office. A reduction in this tax could generate significant additional revenue. …This particular levy is unique in that most of the time the taxpayer decides when to “realize” his capital gain and, consequently, when the government gets its revenue. If the capital-gains tax is too high, investors tend to hold on to assets to avoid being taxed. As a result, no revenue flows to the Treasury. If the tax is low enough, investors have an incentive to sell assets and realize capital gains. Both the investors and the government benefit. …The chance to test that theory came in May 2003, when Congress lowered the top rate on long-term capital gains to 15% from 20%. According to the Congressional Budget Office, by 2005-06 realizations of capital gains had more than doubled—up 151%—from the levels for 2002-03. Capital-gains tax receipts in 2005-06, at an average of $98 billion a year, were up 81% from 2002-03. Tax receipts reached a new peak of $127 billion in 2007 with the maximum rate still at 15%. By comparison, federal capital-gains tax receipts were a mere $7.9 billion in 1977 (the equivalent of about $31 billion in 2017 dollars), according to the Treasury Department. The effective maximum federal capital-gains tax was then 49%. …Using our post-2003 experience as a guide, we can predict a dramatic improvement in realizations and tax receipts if the top capital-gains tax rate is lowered to 15%. …but that’s not the only benefit. Such changes also increase the mobility of capital by inducing investors to realize gains. This allows investment money to flow more freely, particularly to new and young companies that are so important for growth and job creation.

Here’s another chart from the Tax Foundation showing that revenues are very sensitive to the tax rate.

Last but not least, Chris Edwards explains that the U.S. definitely over-taxes capital gains compared to other developed nations.

Democrats are proposing to raise capital gains taxes. …Almost every major Democratic presidential candidate supports taxing capital gains as ordinary income. …These are radical and misguided ideas. …capital gains taxes should be low or even zero. …the United States already has high tax rates compared to other countries. The U.S. federal-state rate on individual long-term gains of 28 percent compared at the time to an average across 34 OECD countries of just 16 percent. …the combined federal-state capital gains tax rates on investments in corporations…includes the corporate-level income tax and the tax on individual long-term gains. …Numerous countries in the OECD study do not tax individual long-term capital gains at all, including Belgium, Chile, Costa Rica, Czech Republic, Hungary, Luxembourg, New Zealand, Singapore, Slovenia, Switzerland, Turkey. The individual capital gains tax rate on long-term investments in those countries is zero. …Raising the federal corporate and individual capital gains tax rates would be a lose-lose-lose proposition of harming businesses and start-ups, undermining worker opportunities, and likely reducing government revenues.

Here’s his chart, showing the effective tax rate caused by double taxation.

As you can see, the 2017 tax reform was helpful, but we still need a much lower rate.

I’ll close by recycling my video on capital gains taxation.

You can also click here to learn about the unfairness of being taxed on gains that are solely due to inflation.

For what it’s worth, Senator Wyden wants to force investors to pay taxes on unrealized gains.

Read Full Post »

I’ve written many times about the perverse and destructive economic impact of class-warfare taxation.

Today, we’re doing to look at the sloppy math associated with the fiscal plans of Bernie Sanders, Kamala Harris, Elizabeth Warren, and the rest of the soak-the-rich crowd.

First, here are some excerpts from a story in the Hill.

The progressive push to raise taxes on the rich is gaining new momentum. Sen. Elizabeth Warren (D-Mass.), who has already proposed a wealth tax to raise funds for a variety of new government programs, on Thursday unveiled a plan to expand Social Security by creating two taxes on wage and investment income for wealthy Americans. …Since the start of the year, much of the debate around taxes among Democrats has been over how much and how best to raise taxes on the rich. …Democratic presidential candidates across the board have proposed ways to increase taxes on the rich. The developments have encouraged liberal groups pressing for higher taxes on the wealthy. …Sanders, the Democratic presidential candidate and Vermont senator, has legislation to expand and extend the solvency of the retirement program that would subject all income above $250,000 to the Social Security payroll tax. Sanders’s bill is co-sponsored in the Senate by two fellow presidential candidates, Sens. Kamala Harris (D-Calif.) and Cory Booker (D-N.J.).

These ideas would do considerable harm to the economy and reduce American competitiveness.

But let’s focus on whether the left’s tax agenda is capable of financing their spending wish lists.

Brian Riedl of the Manhattan Institute just released his Book of Charts. There are dozens of sobering visuals, but here’s the one that’s relevant for today.

The bottom line is that our friends on the left have an enormous list of goodies they want to dispense, yet their proposed tax hikes (even assuming no Laffer Curve) would only pay for a fraction of their agenda.

Which is why lower-income and middle-class taxpayers need to realize that they’re the ones with bulls-eyes on their back.

Just like we’ve seen on the other side of the Atlantic, there’s no way to finance a European-sized welfare state with pillaging ordinary people. Especially since upper-income taxpayers can change their behavior to avoid most tax hikes.

So brace yourselves for a value-added tax, a carbon tax, a financial transactions tax, and higher payroll taxes.

Read Full Post »

When I wrote about the wealth tax early this year, I made three simple points.

I obviously have not been very persuasive.

At least in certain quarters.

A story in the Wall Street Journal explores the growing interest on the left in this new form of taxation.

The income tax..system could change fundamentally if Democrats win the White House and Congress. …Democrats want to shift toward taxing their wealth, instead of just their salaries and the income their assets generate. …At the end of 2017, U.S. households had $3.8 trillion in unrealized gains in stocks and investment funds, plus more in real estate, private businesses and artwork… Democrats are eager to tap that mountain of wealth to finance priorities such as expanding health-insurance coverage, combating climate change and aiding low-income households. …The most ambitious plan comes from Sen. Warren of Massachusetts, whose annual wealth tax would fund spending proposals such as universal child care and student-loan forgiveness. …rich would pay whether they make money or not, whether they sell assets or not and whether their assets are growing or shrinking.

The report includes this comparison of current law with various soak-the-rich proposals (click here for my thoughts on the Wyden plan).

The article does acknowledge that there are some critiques of this class-warfare tax proposal.

European countries tried—and largely abandoned—wealth taxes. …For an investment yielding a steady 1.5% return, a 2% wealth levy would be equivalent to an income-tax rate above 100% and cause the asset to shrink. …The wealth tax also has an extra asterisk: it would be challenged as unconstitutional.

The two economists advising Elizabeth Warren, Emmanuel Saez and Gabriel Zucman, have a new study extolling the ostensible benefits of a wealth tax.

I want to focus on their economic arguments, but I can’t resist starting with an observation that I was right when I warned that the attack on financial privacy and the assault on so-called tax havens was a precursor to big tax increases.

Indeed, Saez and Zucman explicitly argue this is a big reason to push their punitive new wealth tax.

European countries were exposed to tax competition and tax evasion through offshore accounts, in a context where until recently there was no cross-border information sharing. …offshore tax evasion can be fought more effectively today than in the past, thanks to recent breakthrough in cross-border information exchange, and wealth taxes could be applied to expatriates (for at least some years), mitigating concerns about tax competition. …Cracking down on offshore tax evasion, as the US has started doing with FATCA, is crucial.

Now that I’m done patting myself on the back for my foresight (not that it took any special insight to realize that politicians were attacking tax competition in order to grab more money), let’s look at what they wrote about the potential economic impact.

A potential concern with wealth taxation is that by reducing large wealth holdings, it may reduce the capital stock in the economy–thus lowering the productivity of U.S. workers and their wages. However, these effects are likely to be dampened in the case of a progressive wealth tax for two reasons. First, the United States is an open economy and a significant fraction of U.S. saving is invested abroad while a large fraction of U.S. domestic investment is financed by foreign saving. Therefore, a reduction in U.S. savings does not necessarily translate into a large reduction in the capital stock used in the United States. …Second, a progressive wealth tax applies to only the wealthiest families. For example, we estimated that a wealth tax above $50 million would apply only to about 10% of the household wealth stock. Therefore increased savings from the rest of the population or the government sector could possibly offset any reduction in the capital stock. …A wealth tax would reduce the financial payoff to extreme cases of business success, but would it reduce the socially valuable innovation that can be associated with such success? And would any such reduction exceed the social gains of discouraging extractive wealth accumulation? In our assessment the effect on innovation and productivity is likely to be modest, and if anything slightly positive.

I’m not overly impressed by these two arguments.

  1. Yes, foreign savings could offset some of the damage caused by the new wealth tax. But it’s highly likely that other nations would copy Washington’s revenue grab. Especially now that it’s easier for governments to track money around the world.
  2. Yes, it’s theoretically possible that other people may save more to offset the damage caused by the new wealth tax. But why would that happen when Warren and other proponents want to give people more goodies, thus reducing the necessity for saving and personal responsibility?

By the way, they openly admit that there are Laffer Curve effects because their proposed levy will reduce taxable activity.

With successful enforcement, a wealth tax has to deliver either revenue or de-concentrate wealth. Set the rates low (1%) and you get revenue in perpetuity but little (or very slow) de-concentration. Set the rates medium (2-3%) and you get revenue for quite a while and de-concentration eventually. Set the rates high (significantly above 3%) and you get de-concentration fast but revenue does not last long.

Now let’s look at experts from the other side.

In a column for Bloomberg, Michael Strain of the American Enterprise Institute takes aim at Elizabeth Warren’s bad math.

Warren’s plan would augment the existing income tax by adding a tax on wealth. …The tax would apply to fortunes above $50 million, hitting them with a 2% annual rate; there would be a surcharge of 1% per year on wealth in excess of $1 billion. …Not only would such a tax be very hard to administer, as many have pointed out. It likely won’t collect nearly as much revenue as Warren claims. …Under Warren’s proposal, the fair market value of all assets for the wealthiest 0.06% of households would have to be assessed every year. It would be difficult to determine the market value of partially held private businesses, works of art and the like… This helps to explain why the number of countries in the high-income OECD that administer a wealth tax fell from 14 in 1996 to only four in 2017. …It is highly unlikely that the tax would yield the $2.75 trillion estimated by Emmanuel Saez and Gabriel Zucman, the University of California, Berkeley, professors who are Warren’s economic advisers. Lawrence Summers, the economist and top adviser to the last two Democratic presidents, and University of Pennsylvania professor Natasha Sarin…convincingly argued Warren’s plan would bring in a fraction of what Saez and Zucman expect once real-world factors like tax avoidance…are factored in. …economists Matthew Smith, Owen Zidar and Eric Zwick present preliminary estimates suggesting that the Warren proposal would raise half as much as projected.

But a much bigger problem is her bad economics.

…a household worth $50 million would lose 2% of its wealth every year to the tax, or 20% over the first decade. For an asset yielding a steady 1.5% return, a 2% wealth tax is equivalent to an income tax of 133%. …And remember that the wealth tax would operate along with the existing income tax system. The combined (equivalent income) tax rate would often be well over 100%. Underlying assets would routinely shrink. …The tax would likely reduce national savings, resulting in less business investment in the U.S… Less investment spending would reduce productivity and wages to some extent over the longer term.

Strain’s point is key. A wealth tax is equivalent to a very high marginal tax rate on saving and investment.

Of course that’s going to have a negative effect.

Chris Edwards, in a report on wealth taxes, shared some of the scholarly research on the economic effects of the levy.

Because wealth taxes suppress savings and investment, they undermine economic growth. A 2010 study by Asa Hansson examined the relationship between wealth taxes and economic growth across 20 OECD countries from 1980 to 1999. She found “fairly robust support for the popular contention that wealth taxes dampen economic growth,” although the magnitude of the measured effect was modest. The Tax Foundation simulated an annual net wealth tax of 1 percent above $1.3 million and 2 percent above $6.5 million. They estimated that such a tax would reduce the U.S. capital stock in the long run by 13 percent, which in turn would reduce GDP by 4.9 percent and reduce wages by 4.2 percent. The government would raise about $20 billion a year from such a wealth tax, but in the long run GDP would be reduced by hundreds of billions of dollars a year.Germany’s Ifo Institute recently simulated a wealth tax for that nation. The study assumed a tax rate of 0.8 percent on individual net wealth above 1 million euros. Such a wealth tax would reduce employment by 2 percent and GDP by 5 percent in the long run. The government would raise about 15 billion euros a year from the tax, but because growth was undermined the government would lose 46 billion euros in other revenues, resulting in a net revenue loss of 31 billion euros. The study concluded, “the burden of the wealth tax is practically borne by every citizen, even if the wealth tax is designed to target only the wealthiest individuals in society.”

The last part of the excerpt is key.

Yes, the tax is a hassle for rich people, but it’s the rest of us who suffer most because we’re much dependent on a vibrant economy to improve our living standards.

My contribution to this discussion it to put this argument in visual form. Here’s a simply depiction of how income is generated in our economy.

Now here’s the same process, but with a wealth tax.

For the sake of argument, as you can see from the letters that have been fully or partially erased, I assumed the wealth tax would depress the capital stock by 10 percent and that this would reduce national income by 5 percent.

I’m not wedded to these specific numbers. Both might be higher (especially in the long run), both might be lower (at least in the short run), or one of them might be higher or lower.

What’s important to understand is that rich people won’t be the only ones hurt by this tax. Indeed, this is a very accurate criticism of almost all class-warfare taxes.

The bottom line is that you can’t punish capital without simultaneously punishing labor.

But some of our friends on the left – as Margaret Thatcher noted many years ago – seem to think such taxes are okay if rich people are hurt by a greater amount than poor people.

P.S. Since I mentioned foresight above, I was warning about wealth taxation more than five years ago.

Read Full Post »

Regarding fundamental tax reform, there have been some interesting developments at the state level in recent years.

Utah, North Carolina, and Kentucky have all junked their so-called progressive systems and joined the flat tax club.

That’s the good news.

The bad news is that Illinois politicians are desperately trying to gut that state’s flat tax.

And the same thing is true in Massachusetts.

The Tax Foundation has a good explanation of what’s been happening in the Bay State and why it matters for the competitiveness, job creation, and entrepreneurship.

A joint constitutional convention of Massachusetts lawmakers has voted 147-48 to approve H.86, dubbed the Fair Share Amendment, to impose a 4 percent income tax surcharge on annual income beyond $1 million. The new tax would be levied in addition to the existing 5.05 percent flat rate, bringing Massachusetts’ total top rate to 9.05 percent. …Massachusetts requires legislatively-referred constitutional amendments be passed in consecutive sessions, meaning that the same measure would need to be approved in the 2021-2022 legislative session before it would be sent to voters in November of 2022. The millionaires’ tax, though targeted at a wealthy minority of tax filers in the Bay State, would cause broader harm to Massachusetts’ tax structure and economic climate. It would eliminate Massachusetts’ primary tax advantage over regional competitors… The Bay State’s low, flat income tax on individuals and pass-through businesses is the most competitive element of its tax code, giving the Commonwealth a clear strength compared to surrounding states and regional competitors. Income tax rate reductions in recent years have helped shed the moniker of “Taxachusetts” while setting up the Bay State to be a beneficiary of harmful tax rate increases in surrounding states. However, a 9.05 percent top rate would be uncompetitive even in a high-tax region. The amendment would hit Massachusetts pass-through businesses with the sixth-highest tax rate of any state.

Here’s a map showing top tax rates in the region (New Hampshire has an important asterisk since the 5-percent rate only applies to interest and dividends), including where Massachusetts would rank if the new plan ever becomes law.

The Boston Globe reports that lawmakers are very supportive of this scheme to extract more money, while the business community is understandably opposed.

A measure to revive a statewide tax on high earners received a glowing reception on Beacon Hill Thursday, suggesting an easy path ahead despite staunch opposition from business groups. “We are in desperate need for revenue for our districts,” said Senator Michael D. Brady of Brockton, one of the proposal’s more than 100 sponsors and a member of the Joint Committee on Revenue…. “We have tremendous unmet needs in our Commonwealth that are hurting families, hurting our communities, and putting our state’s economic future at risk,” said Senator Jason M. Lewis of Winchester, the lead sponsor of the Senate version of the proposal. …business groups…came armed with arguments that hiking taxes on the state’s highest earners would drive entrepreneurs — and the jobs and tax revenue they create — out of the state, as well as unfairly harm small- and mid-sized business owners whose business income passes through their individual tax returns. “Look, we’re trying to prevent Massachusetts from becoming Connecticut,” said Christopher Anderson, president of the Massachusetts High Technology Council.

Meanwhile, the Boston Herald reports that the Republican governor is opposed to this class-warfare tax.

Gov. Charlie Baker cautioned the Legislature against asking for more money from taxpayers with the so-called millionaire tax… “I’ve said that we didn’t think we should be raising taxes on people and I certainly don’t think we should be pursuing a graduated income tax,” Baker told reporters yesterday. …Members of Raise Up Massachusetts, a coalition of community organizations, religious groups and labor unions, are staunchly supporting the tax that is estimated to raise approximately $2 billion a year. …The Massachusetts Republican Party is sounding the alarm on what they’re calling, “the Democrats’ newest scheme,” to “dump” the state’s flat tax system.

The governor’s viewpoint is largely irrelevant, however, since he can’t block the legislature from moving forward with their class-warfare scheme.

But that doesn’t mean the big spenders in Massachusetts have a guaranteed victory.

Yes, the next session’s legislature is almost certain to give approval, but there’s a final step needed before the flat tax is gutted.

The voters need to say yes.

And in the five previous occasions when they’ve been asked, the answer has been no.

Overwhelmingly no.

Even in 1968 and 1972, proposals for a so-called progressive tax were defeated by a two-to-one margin.

Needless to say, that doesn’t mean voters will make the right choice in 2022.

The bottom line is that if the people of Massachusetts want investors, entrepreneurs, and other job creators to remain in the state, they should again vote no.

But if they want to destroy jobs and undermine the Bay State’s competitiveness, they should vote yes.

Read Full Post »

I wrote five years ago about the growing threat of a wealth tax.

Some friends at the time told me I was being paranoid. The crowd in Washington, they assured me, would never be foolish enough to impose such a levy, especially when other nations such as Sweden have repealed wealth taxes because of their harmful impact.

But, to paraphrase H.L. Mencken, nobody ever went broke underestimating the foolishness of politicians.

I already wrote this year about how folks on the left are demonizing wealth in hopes of creating a receptive environment for this extra layer of tax.

And some masochistic rich people are peddling the same message. Here’s some of what the Washington Post reported.

A group of ultrarich Americans wants to pay more in taxes, saying the nation has a “moral, ethical and economic responsibility” to ensure that they do. In an open letter addressed to the 2020 presidential candidates and published Monday on Medium, the 18 signatories urged political leaders to support a wealth tax on the richest one-tenth of the richest 1 percent of Americans. “On us,” they wrote. …The letter, which emphasized that it was nonpartisan and not to be interpreted as an endorsement of anyone in 2020, noted that several presidential candidates, including Sen. Elizabeth Warren (D-Mass.), Pete Buttigieg and Beto O’Rourke, have already signaled interest in addressing the nation’s staggering wealth inequality through taxation.

I’m not sure a please-tax-us letter from a small handful of rich leftists merits so much news coverage.

Though, to be fair, they’re not the only masochistic rich people.

Another guilt-ridden rich guy wrote for the New York Times that he wants the government to have more of his money.

My parents watched me build two Fortune 500 companies and become one of the wealthiest people in the country. …It’s time to start talking seriously about a wealth tax. …Don’t get me wrong: I am not advocating an end to the capitalist system that’s yielded some of the greatest gains in prosperity and innovation in human history. I simply believe it’s time for those of us with great wealth to commit to reducing income inequality, starting with the demand to be taxed at a higher rate than everyone else. …let’s end this tired argument that we must delay fixing structural inequities until our government is running as efficiently as the most profitable companies. …we can’t waste any more time tinkering around the edges. …A wealth tax can start to address the economic inequality eroding the soul of our country’s strength. I can afford to pay more, and I know others can too.

When reading this kind of nonsense, my initial instinct is to tell this kind of person to go ahead and write a big check to the IRS (or, better yet, send the money to me as a personal form of redistribution to the less fortunate). After all, if he really thinks he shouldn’t have so much wealth, he should put his money where his mouth is.

But rich leftists like Elizabeth Warren don’t do this, and I’m guessing the author of the NYT column won’t, either. At least if the actions of other rich leftists are any guide.

But I don’t want to focus on hypocrisy.

Today’s column is about the destructive economics of wealth taxation.

A report from the Mercatus Center makes a very important point about how a wealth tax is really a tax on the creation of new wealth.

Wealth taxes have been historically plagued by “ultra-millionaire” mobility. …The Ultra-Millionaire Tax, therefore, contains “strong anti-evasion measures” like a 40 percent exit tax on any targeted household that attempts to emigrate, minimum audit rates, and increased funding for IRS enforcement. …Sen. Warren’s wealth tax would target the…households that met the threshold—around 75,000—would be required to value all of their assets, which would then be subject to a two or three percent tax every year. Sen. Warren’s team estimates that all of this would bring $2.75 trillion to the federal treasury over ten years… a wealth tax would almost certainly be anti-growth. …A wealth tax might not cause economic indicators to tumble immediately, but the American economy would eventually become less dynamic and competitive… If a household’s wealth grows at a normal rate—say, five percent—then the three percent annual tax on wealth would amount to a 60 percent tax on net wealth added.

Alan Viard of the American Enterprise Institute makes the same point in a column for the Hill.

Wealth taxes operate differently from income taxes because the same stock of money is taxed repeatedly year after year. …Under a 2 percent wealth tax, an investor pays taxes each year equal to 2 percent of his or her net worth, but in the end pays taxes each decade equal to a full 20 percent of his or her net worth. …Consider a taxpayer who holds a long term bond with a fixed interest rate of 3 percent each year. Because a 2 percent wealth tax captures 67 percent of the interest income of the bondholder makes each year, it is essentially identical to a 67 percent income tax. The proposed tax raises the same revenue and has the same economic effects, whether it is called a 2 percent wealth tax or a 67 percent income tax. …The 3 percent wealth tax that Warren has proposed for billionaires is still higher, equivalent to a 100 percent income tax rate in this example. The total tax burden is even greater because the wealth tax would be imposed on top of the 37 percent income tax rate. …Although the wealth tax would be less burdensome in years with high returns, it would be more burdensome in years with low or negative returns. …high rates make the tax a drain on the pool of American savings. That effect is troubling because savings finance the business investment that in turn drives future growth of the economy and living standards of workers.

Alan is absolutely correct (I made the same point back in 2012).

Taxing wealth is the same as taxing saving and investment (actually, it’s the same as triple- or quadruple-taxing saving and investment). And that’s bad for competitiveness, growth, and wages.

And the implicit marginal tax rate on saving and investment can be extremely punitive. Between 67 percent and 100 percent in Alan’s examples. And that’s in addition to regular income tax rates.

You don’t have to be a wild-eyed supply-side economist to recognize that this is crazy.

Which is one of the reasons why other nations have been repealing this class-warfare levy.

Here’s a chart from the Tax Foundation showing the number of developed nations with wealth taxes from1965-present.

And here’s a tweet with a chart making the same point.

 

P.S. I’ve tried to figure out why so many rich leftists support higher taxes. For non-rich leftists, I cite IRS data in hopes of convincing them they should be happy there are rich people.

P.P.S. I’ve had two TV debates with rich, pro-tax leftists (see here and here). Very strange experiences.

P.P.P.S. There are also pro-tax rich leftists in Germany.

Read Full Post »

Looking at issues such as mobility, fairness, and inequality, I’ve recently shared excellent videos from Russ Roberts and John Stossel.

I also had an opportunity to discuss these issues yesterday on CNBC.

As you can see, I started with a political observation about the American people being naturally inclined to support growth and upward mobility, which suggests limited appeal for the spiteful agenda of Bernie Sanders, AOC, and the rest of the class-warfare crowd.

I hope I’m right about that, and a quick online search found this bit of somewhat-encouraging polling data from 2014.

Since I’m a bit of a bleeding-heart libertarian, I then took the opportunity to condemn various forms of cronyism (such as the corrupt TARP bailout) that transfer unearned money into the pockets of undeserving rich people.

I suggested that honest people from across the ideological spectrum could – and should – come together to curtail such nauseating policies. That’s the kind of fairness government should promote.

Though I’ll confess I’m not very hopeful. I concluded the discussion by observing that Senator Sanders recently chose to sacrifice the interests of poor children in order to curry favor with the union bosses at the National Education Association.

P.S. As indicated by his question about the desirability of millionaires, the host (Robert Frank) seemed sympathetic to good policy. He also was sufficiently well informed to know about how China’s partial liberalization has lifted hundreds of millions of people out of abject poverty.

Read Full Post »

In the debate over “fairness,” my statist friends mistakenly see the economy as a fixed pie. This leads them to claim that rich people are rich because poor people are poor.

But there’s no data to support this position (other than in kleptocracies such as Venezuela where a ruling socialist elite steals wealth).

So some folks on the left will back down from that extreme claim and instead assert that the rich are the only ones enjoying more prosperity as time goes by.

For evidence, they cite data showing that incomes have been mostly flat over the past 30-40 years for poor people and middle-class people, particularly when compared to the rich.

But there’s a big problem with their data. They look at income levels in some past year and then they compare that data with income levels in a recent year.

But, as I wrote back in 2015, this means they are comparing apples and oranges.

There is considerable income mobility in the United States, which means today’s rich and today’s poor won’t necessarily be tomorrow’s rich and tomorrow’s poor.

I don’t necessarily expect people to automatically believe me. So if you’re one of the skeptics, watch this video from Russ Roberts. It is almost eight minutes and it is filled with rigor and data, but it’s worth watching since it masterfully demonstrates that lower-income and middle-class households actually enjoy larger gains than rich households.

As Russ says, you have to follow the same people over time if you want legitimate analysis.

And he shares lots of data showing that the rich actually have smaller-than-average gains in income over time.

It’s also worthwhile to investigate what happens with families over time. What we find is that children from poor households are more likely to exceed their parents’ income than children from rich households.

In other words, Russ’ conclusion was right. The American dream still exists. And if we can convince politicians to focus on growth, we can achieve better outcomes for people of all income levels.

P.S. The above video is a great addition to John Stossel’s recent video.

Read Full Post »

Older Posts »

%d bloggers like this: