Feeds:
Posts
Comments

Archive for the ‘Class warfare’ Category

Why would the economy grow faster if we got fundamental reform such as the flat tax?

In part, because there would be one low tax rate instead of the discriminatory and punitive “progressive” system that exists today. As such, the penalty on productive behavior would be reduced.

In part, because there would be no distorting tax breaks that lure people into making decisions based on tax considerations rather than economic merit.

But we’d also enjoy more growth because there would be no more double taxation. Under a flat tax, the death tax is abolished, the capital gains tax is abolished, there’s no double taxation on savings, the second layer of tax on dividends is eliminated, and depreciation is replaced by expensing.

In the wonky jargon of public finance economists, this means we would have a “consumption-based” system, which is just another way of saying that income  would be taxed only one time. No longer would the internal revenue code discourage capital formation by imposing a higher effective tax rate on income that is saved and invested (compared to the tax rate on income that is consumed).

Indeed, this is the feature of tax reform that probably generates the most growth. As I explain in this video on capital gains taxation, all economic theories – even Marxism and socialism – agree that capital formation is a key to long-run prosperity.

The good news is that reducing double taxation is a goal of most major tax plans in Washington. Trump’s campaign plan reduced double taxation, and the House Better Way Plan reduces double taxation.

But that doesn’t mean there’s an easy path for reform. The Hill reports on some of the conflicts that may sabotage legislation this year.

The fight over a border-adjustment tax isn’t the only challenge for Republicans in their push for tax reform. …Notably, some business groups have criticized the proposal to do away with the deduction for businesses’ net interest expenses. …the blueprint does not specifically discuss how the carried interest that fund managers receive would be taxed. Under current law, carried interest is taxed as capital gains, rather than at the higher rates for ordinary income. During the presidential race, Trump repeatedly said he wanted to eliminate the carried interest tax break, and Office of Management and Budget Director Mick Mulvaney told CNN on Sunday that Trump still plans to do this. Many Democrats also want carried interest to be taxed as ordinary income.

The border-adjustment tax is probably the biggest threat to tax reform, but the debate over “carried interest” also could be a problem since Trump endorsed a higher tax burden on this type of capital gain during the campaign.

Here are some excerpts from a recent news report.

Donald Trump vowed to stick up for Main Street over Wall Street — that line helped get him elected. But the new president has already hit a roadblock, with fellow Republicans who control Congress balking at Trump’s pledge to close a loophole that allows hedge fund and private equity managers to pay lower taxes on investment management fees. …The White House declined to comment on the status of negotiations between Trump and congressional Republicans over the carried-interest provision. …U.S. Rep. Jim Himes, D-Conn., a House Financial Services Committee member and former Goldman Sachs executive, said there is chaos on the tax reform front. “That’s on the list of dozens of things where there is disagreement between the president and the Republican majority in Congress,” Himes said.

Regarding the specific debate over carried interest, I’ve already explained why I prefer current law over Trump’s proposal.

Today I want to focus on the “story behind the story.” One of my main concerns is that the fight over the tax treatment of carried interest is merely a proxy for a larger campaign to increase the tax burden on all capital gains.

For instance, the ranking Democrat on the Senate Finance Committee openly uses the issue of carried interest as a wedge to advocate a huge increase in the overall tax rate on capital gains.

Of course, when you talk about the carried interest loophole, you’re talking about capital gains. And when you talk about capital gains, you’re talking about the biggest tax shelter of all – the one hiding in plain sight. Today the capital gains tax rate is 23.8 percent. …treat[ing] income from wages and wealth the same way. In my view, that’s a formula that ought to be repeated.

The statists at the Organization for Economic Cooperation and Development also advocate higher taxes on carried interest as part of a broader campaign for higher capital gains taxes.

Taxing as ordinary income all remuneration, including fringe benefits, carried interest arrangements, and stock options… Examining ways to tax capital income at the personal level at slightly progressive rates, and align top capital and labour income tax rates.

It would be an overstatement to say that everyone who wants higher taxes on carried interest wants higher taxes on all forms of capital gains. But it is accurate to assert that every advocate of higher taxes on capital gains wants higher taxes on carried interest.

If they succeed, that would be a very bad result for American workers and for American competitiveness.

For those wanting more information, here’s the Center for Freedom and Prosperity’s video on carried interest.

Last but not least, wonky readers may be interested in learning that carried interest partnerships can be traced all the way back to medieval Venice.

Start-up merchants needed investors, and investors needed some incentive to finance the merchants. For the investor, there was the risk of their investment literally sailing out of the harbor never to be seen again. The Venetian government solved this problem by creating one of the first examples of a joint stock company, the “colleganza.” The colleganza was a contract between the investor and the merchant willing to do the travel. The investor put up the money to buy the goods and hire the ship, and the merchant made the trip to sell the goods and then buy new foreign goods that could then be brought back and sold to Venetians. Profits were then split between the merchant and investor according to the agreements in the contract.

Fortunately for the merchants and investors of that era, neither income taxes nor capital gains taxes existed.

P.S. Italy didn’t have any sort of permanent income tax until 1864. Indeed, most modern nations didn’t impose these punitive levies until the late 1800s and early 1900s. The United States managed to hold out until that awful dreary day in 1913. It’s worth noting that the U.S. and other nations managed to become rich and prosperous prior to the adoption of those income taxes. And it’s also worth noting that the rapid growth of the 18th century occurred when the burden of government spending was very modest and there was almost no redistribution spending.

P.P.S. Now that we have income taxes (and the bigger governments enabled by those levies), the only silver lining is that governments have compensated for bad fiscal policy with better policy in other areas.

Read Full Post »

In my never-ending strategy to educate policy makers about the Laffer Curve, I generally rely on both microeconomic theory (i.e., people respond to incentives) and real-world examples.

And my favorite real-world example is what happened in the 1980s when Reagan cut the top tax rate from 70 percent to 28 percent. Critics said Reagan’s reforms would deprive the Treasury of revenue and result in rich people paying a lot less tax. So I share IRS data on annual tax revenues from those making more than $200,000 per year to show that there was actually a big increase in revenue from upper-income taxpayers.

It has slowly dawned on me, though, that this may not be the best example to share if I’m trying to convince skeptical statists. After all, they presumably don’t like Reagan and they may viscerally reject my underlying point about the Laffer Curve since I’m linking it to the success of Reaganomics.

So I have a new strategy for getting my leftist friends to accept the Laffer Curve. I’m instead going to link the Laffer Curve to “successful” examples of left-wing policy. To be more specific, statists like to use the power of government to control our behavior, often by imposing mandates and regulations. But sometimes they impose taxes on things they don’t like.

And if I can use those example to teach them the basic lesson of supply-side economics (if you tax something, you get less of it), hopefully they’ll apply that lesson when contemplating higher taxes on thing they presumably do like (such as jobs, growth, competitiveness, etc).

Here’s a list of “successful” leftist tax hikes that have come to my attention.

Now I’m going to augment this list with an example from the United Kingdom.

By way of background, there’s been a heated housing market in England, with strong demand leading to higher prices. The pro-market response is to allow more home-building, but the anti-developer crowd doesn’t like that approach, so instead a big tax on high-value homes was imposed.

And as the Daily Mail reports, this statist approach has been so “successful” that the tax hike has resulted in lower tax revenues.

George Osborne’s controversial tax raid on Britain’s most expensive homes has triggered a dramatic slump in stamp duty revenues. Sales of properties worth more than £1.5million fell by almost 40 per cent last year, according to analysis of Land Registry figures… This has caused the total amount of stamp duty collected by the Treasury to fall by around £440million, from £1.079billion to a possible £635.7million. The figures cover the period between April and November last year compared to the same period in 2015.

Our leftist friends, who sometimes openly admit that they want higher taxes on the rich even if the government doesn’t actually collect any extra revenue, should be especially happy because the tax has made life more difficult for people with more wealth and higher incomes.

Those buying a £1.5 million house faced an extra £18,750 in stamp duty. …Tory MP Jacob Rees-Mogg…described Mr Osborne’s ‘punitive’ stamp duty hikes as the ‘politics of envy’, adding that they have also failed because they have raised less money for the Treasury.

By the way, the fact that the rich paid less tax last year isn’t really the point. Instead, the lesson to be learned is that a tax increase caused there to be less economic activity.

So I won’t care if the tax on expensive homes brings in more money next year, but I will look to see if fewer homes are being sold compared to when this tax didn’t exist.

And if my leftist friends say they don’t care if fewer expensive homes are being sold, I’ll accept they have achieved some sort of victory. But I’ll ask them to be intellectually consistent and admit that they are implementing a version of supply-side economics and that they are embracing the notion that tax rates change behavior.

Once that happens, it’s hopefully just a matter of time before they recognize that it’s not a good idea to impose high tax rates on things that are unambiguously good for an economy, such as work, saving, investment, and entrepreneurship.

Yes, hope springs eternal.

P.S. In addition to theory and real-world examples, my other favorite way of convincing people about the Laffer Curve is to share the poll showing that only 15 percent of certified public accountants agree with the leftist view that taxes have no impact have taxable income. I figure that CPAs are a very credible source since they actually do tax returns and have an inside view of how behavior changes in response to tax policy.

Read Full Post »

Back in 2014, I shared some data from the Tax Foundation that measured the degree to which various developed nations punished high-income earners.

This measure of relative “progressivity” focused on personal income taxes. And that’s important because that levy often is the most onerous for highly productive residents of a nation.

But there are other taxes that also create a gap between what such taxpayers earn and produce and what they ultimately are able to consume and enjoy. What about the effects of payroll taxes? Of consumption taxes and other levies?

To answer that question, we have a very useful study from the European Policy Information Center on this topic. Authored by Alexander Fritz Englund and Jacob Lundberg, it looks at the total marginal tax rate on each nation’s most productive taxpayers.

They start with some sensible observations about why marginal tax rates matter, basically echoing what I wrote after last year’s Super Bowl.

Here’s what Englund and Lundberg wrote.

The marginal tax rate is the proportion of tax paid on the last euro earned. It is the relevant tax rate when deciding whether to work a few extra hours or accept a promotion, for example. As most income tax systems are progressive, the marginal tax rate on top incomes is usually also the highest marginal tax rate. It is an indicator of how progressive and distortionary the income tax is.

They then explain why they include payroll taxes in their calculations.

The income tax alone does not provide a complete picture of how the tax system affects incentives to work and earn income. Many countries require employers and/or employees to pay social contributions. It is not uncommon for the associated benefits to be capped while the contribution itself is uncapped, meaning it is a de facto tax for high-income earners. Even those social contributions that are legally paid by the employer will in the end be paid by the employee as the employer should be expected to shift the burden of the tax through lower gross wages.

Englund and Lunberg are correct. A payroll tax (sometimes called a “social insurance” levy) will be just as destructive as a regular income tax if workers aren’t “earning” some sort of additional benefit. And they’re also right when they point out that payroll taxes “paid” by employers actually are borne by workers.

They then explain why they include a measure of consumption taxation.

One must also take value-added taxes and other consumption taxes into account. Consumption taxes reduce the purchasing power of wage-earners and thus affect the return to working. In principle, it does not matter whether taxation takes place when income is earned or when it is consumed, as the ultimate purpose of work is consumption.

Once again, the authors are spot on. Taxes undermine incentives to be productive by driving a wedge between pre-tax income and post-tax consumption, so you have to look at levies that grab your income as it is earned as well as levies that grab your income as it is spent.

And when you begin to add everything together, you get the most accurate measure of government greed.

Taking all these taxes into account, one can compute the effective marginal tax rate. This shows how many cents the government receives for every euro of additional employee compensation paid by the firm. …If the top effective tax rate is 75 percent, as in Sweden, a person who contributes 100 additional euros to the economy will only be allowed to keep 25 euros while 75 euros are appropriated by the government. The tax system thus drives a wedge between the social and private return to work. …High marginal tax rates disconnect the private and social returns to economic activity and thereby the invisible hand ceases to function. For this reason, taxation causes distortions and is costly to society. High marginal tax rates make it less worthwhile to supply labour on the formal labour market and more worthwhile to spend time on household work, black market activities and tax avoidance.

Here’s their data for various developed nation.

Keep in mind that these are the taxes that impact each nation’s most productive taxpayers. So that includes top income tax rates, both for the central governments and sub-national governments, as well as surtaxes. It includes various social insurance levies, to the extent such taxes apply to all income. And it includes a measure of estimated consumption taxation.

And here’s the ranking of all the nations. Shed a tear for entrepreneurs in Sweden, Belgium, and Portugal.

Slovakia wins the prize for the least-punitive tax regime, though it’s worth noting that Hong Kong easily would have the best system if it was included in the ranking.

For what it’s worth, the United States does fairly well compared to other nations. This is not because our personal income tax is reasonable (see dark blue bars), but rather because Barack Obama and Hillary Clinton were unsuccessful in their efforts to bust the “wage base cap” and apply the Social Security payroll tax on all income. We also thankfully don’t have a value-added tax. These factors explain why our medium-blue and light-blue bars are the smallest.

By the way, this doesn’t mean we have a friendly system for upper-income taxpayers in America. They lose almost half of every dollar they generate for the economy. And whether one is looking at Tax Foundation numbers, Congressional Budget Office calculations, information from the New York Times, or data from the IRS, rich people in the United States are paying a hugely disproportionate share of the tax burden.

Though none of this satisfies the statists. They actually would like us to think that letting well-to-do taxpayers keep any of their money is akin to a handout.

Now would be an appropriate time to remind everyone that imposing high tax rates doesn’t necessarily mean collecting high tax revenues.

In the 1980s, for instance, upper-income taxpayers paid far more revenue to the government when Reagan lowered the top income tax rate from 70 percent to 28 percent.

Also keep in mind that these calculations don’t measure the tax bias against saving and investment, so the tax burden on some upper-income taxpayers may be higher or lower depending on the degree to which countries penalize capital formation.

P.S. If one includes the perverse incentive effects of various redistribution programs, the very highest marginal tax rates (at least when measuring implicit rates) sometimes apply to a nation’s poor people.

P.P.S. Our statist friends sometimes justify punitive taxes as a way of using coercion to produce more equality, but the net effect of such policies is weaker growth and that means it is more difficult for lower-income and middle-income people to climb the economic ladder. In other words, unfettered markets are the best way to get social mobility.

Read Full Post »

Since I can’t even keep track of schools of thought on the right (libertarians, traditional conservatives, neocons, reform conservatives, compassionate conservatives, Trump-style populists, etc), I’m not going to pretend to know what’s happening on the left.

But it does appear that something significant – and bad – is happening in the statist community.

Traditionally, folks on the left favored a conventional welfare state, which revolved around two components.

  1. Means-tested programs for the ostensible purpose of alleviating poverty (e.g.., Medicaid, food stamps, welfare, etc).
  2. Social-insurance programs for the ostensible purpose of alleviating sickness, unemployment, and aging (e.g., Social Security, Medicare, unemployment insurance, etc).

This agenda was always a bad idea for both macro and micro reasons, and has become a very bad idea because of demographic changes.

But now the left has expanded its goals to policies that are far more radical. Instead of a well-meaning (albeit misguided) desire to protect people from risk, they now want coerced equality.

And this agenda also has two components.

  1. A guaranteed and universal basic income for everyone.
  2. Taxes and/or earnings caps to limit the income of the rich.

Taking a closer look at the idea of basic income, there actually is a reasonable argument that the current welfare state is so dysfunctional that it would be better to simply give everyone a check instead.

But as I’ve argued before, this approach would also create an incentive for people to simply live off taxpayers. Especially if the basic income is super-generous, as was proposed (but fortunately rejected by an overwhelming margin) in Switzerland.

I discuss the pros and cons in this interview.

By the way, one thing that I don’t mention in the interview is my fear that politicians would create a basic income but then not fully repeal the existing welfare state (very similar to my concern that politicians would like to have a national sales tax or value-added tax without fully eliminating the IRS and all taxes on income).

Now let’s shift to the left’s class-warfare fixation about penalizing those with high incomes.

This isn’t a new phenomenon, of course. We’ve had ideologues such as Bernie Sanders, Thomas Piketty, and Matt Yglesias arguing  in recent years for confiscatory tax rates. It appears some modern leftists actually think the economy is a fixed pie and that high incomes for some people necessitate lower incomes for the rest of us.

And because of their fetish for coerced equality, some of them even want to explicitly cap incomes for very valuable people.

The nutcase leader of the U.K. Labour Party, for instance, recently floated that notion. Here are some excerpts from a report in the Guardian.

Jeremy Corbyn has called for a maximum wage for the highest earners… The Labour leader would not give specific figures, but said radical action was needed to address inequality. “I would like there to be some kind of high earnings cap, quite honestly,” he told BBC Radio 4’s Today programme on Tuesday. When asked at what level the cap should be set, he replied: “I can’t put a figure on it… It is getting worse. And corporate taxation is a part of it. If we want to live in a more egalitarian society, and fund our public services, we cannot go on creating worse levels of inequality.” Corbyn, who earns about £138,000 a year, later told Sky News he anticipated any maximum wage would be “somewhat higher than that”. “I think the salaries paid to some footballers are simply ridiculous, some salaries to very high earning top executives are utterly ridiculous. Why would someone need to earn more than £50m a year?”

This is so radical that even other members of the Labour Party have rejected the idea.

Danny Blanchflower, a former member of Corbyn’s economic advisory committee, said he would have advised the Labour leader against the scheme. In a tweet, the former member of the Bank of England’s monetary policy committee said it was a “totally idiotic, unworkable idea”. …Labour MPs expressed reservations… Reynolds also expressed some uncertainty. “I’m not sure that I would support that,” she told BBC News. “I would like to see the detail. I think there are other ways that you can go about tackling income inequality… Instinctively, I don’t think [a cap] probably the best way to go.”

The good news, relatively speaking, is that Crazy Corbyn has been forced to backtrack.

Not because he’s changed his mind, I’m sure, but simply for political reasons. Here’s some of what the U.K.-based Times wrote.

Jeremy Corbyn’s attempt to relaunch his Labour leadership descended into disarray yesterday as he backtracked on a wage cap… The climbdown came after members of the shadow cabinet refused to back the idea of a maximum income while former economic advisers to Mr Corbyn criticised it as absurd.

There don’t seem to be many leftists in the United States who have directly embraced this approach, though it is worth noting that Bill Clinton’s 1993 tax hike included a provision disallowing deductibility for corporate pay over $1 million.

And that policy was justified using the same ideology that politicians should have the right to decide whether some people are paid too much.

In closing, I can’t help but wonder whether my statist friends have thought about the implications of their policies. They want the government to give everyone a guaranteed basic income, yet they want to wipe out high-income taxpayers who finance the lion’s share of redistribution.

I’m sure that work marvelously in the United States. Just like it’s producing great outcomes in place like Greece and Venezuela.

Read Full Post »

Back in 2010, I shared a cartoon video making a very important point that there’s a big downside when class-warfare politicians abuse and mistreat highly productive taxpayers.

Simply stated, the geese with the golden eggs may fly away. And this isn’t just theory. As revealed by IRS data, taxpayer will move across borders to escape punitive taxation.

It’s harder to move across national borders, of course, but it happens. Record numbers of Americans have given up their passports, including some very high-profile rich people.

Some folks on the left like to argue that taxes don’t actually lead to behavioral changes. Whenever there’s evidence of migration from high-tax jurisdictions to low-tax jurisdictions, they argue other factors are responsible. The rich won’t move just because tax rates are high, they contend.

Oh, really?

Here are some excerpts from a new Research Brief from the Cato Institute. Authored by economists from Harvard, the University of Chicago, and Italy’s Einaudi Institute, the article summarizes some scholarly research on how top-level inventors respond to differences in tax rates. Here’s what they did.

According to World Intellectual Property Organization data, inventors are highly mobile geographically with a migration rate of around 8 percent. But what determines their patterns of migration, and, in particular, how does tax policy affect migration? …Our research studies the effects of top income tax rates on the international migration of inventors, who are key drivers of technological progress. …We use a unique international data set on all inventors from the U.S. and European patent offices to track the international location of inventors since the 1970s. …We combine these inventor data with international top effective marginal tax rates data. Particularly interesting are “superstar” inventors, those with the most abundant and most valuable innovations. …We define superstar inventors as those in the top 1 percent of the quality distribution, and similarly construct the top 1–5 percent, the top 5–10 percent, and subsequent quality brackets. The evidence presented suggests that the top 1 percent superstar inventors are well into the top tax bracket.

And here’s what they ascertained about the behavioral response of the superstar inventors.

We start by documenting a negative correlation between the top tax rate and the share of top quality foreign inventors who locate in a country, as well as the share of top quality domestic inventors who remain in their home country. …We find that the superstar top 1 percent inventors are significantly affected by top tax rates when choosing where to locate. …the elasticity of the number of foreign top 1 percent superstar inventors to the net-of-tax rate is much larger, with corresponding values of 0.63, 0.85, and 1.04. The far greater elasticity for foreign relative to domestic inventors makes sense since, when a given country adjusts its top tax rate, it potentially affects inventor migration from all other countries.

And they point out a very obvious lesson.

…if the economic contribution of these key agents is important, their migratory responses to tax policy might represent a cost to tax progressivity. … An additional relevant consideration is that inventors may have strong spillover effects on their geographically close peers, making it even more important to attract and retain them domestically

And don’t forget the research I shared last year showing that superstar entrepreneurs are more likely to be found in lower-tax jurisdictions.

P.S. Seems to me, given that upper-income taxpayers shoulder most of the nation’s fiscal burden, that our leftist friends should be applauding the rich rather than demonizing them.

P.P.S. Let’s close with some more election-related humor.

Saw this very clever item on Twitter today.

And connoisseurs of media bias will have to double check to confirm this is satire rather than reality.

Regular readers know I’m skeptical about whether Trump will seek to control big government, but one thing I can safely say is that we’ll have an opportunity to enjoy some amusing political humor for the next four years.

Read Full Post »

In just 10 days, voters will go to the polls and deal with the rather distasteful choice of Donald Trump and Hillary Clinton.

In some states, they also will have an opportunity to vote for or against various ballot initiatives and referendums.

Here are the five proposals that would do the most damage in my humble opinion.

ColoradoCare (Amendment #69) – Apparently learning nothing from what happened in Vermont, advocates of big government in Colorado have a proposal to impose a 10 percent payroll tax to finance statewide government-run healthcare. The Tax Foundation points out that, if this scheme is approved, Colorado’s score in the State Business Tax Climate index “would plummet from 16th overall to 34th,” while the Wall Street Journal opines that “California would look like the Cayman Islands by tax comparison” if Colorado voters say yes.

Oregon Gross Receipts Tax (Measure #97) – Back in 2010, presumably guided by the notion that it’s okay to steal via majoritarianism, Oregon voters approved a class-warfare tax hike on upper-income taxpayers. Now they’re about to vote on a scheme to pillage the state’s businesses with a gross receipts tax, which is sort of like a value-added tax but with no credit for taxes paid earlier in the production process, which means the burden “pyramids” as goods and services are created. The Tax Foundation warns that this levy could lead to “a 25 percent increase in the Oregon state budget” and that “Oregon’s corporate tax climate would be the worst in the nation.”

Maine Income Tax Hike (Question #2) – Voters are being asked whether to boost the state’s top income tax rate to 10.15, which would be the second-highest in the nation. According to the Tax Foundation, the Pine Tree State “would drop to 45th overall” in the State Business Tax Climate Index (down from #30) if this class-warfare scheme is enacted. The National Taxpayers Union warns that the ” tax would make the state a less competitive place in which to do business.”

Oklahoma Sales Tax Increase (Question #779) – Sales taxes don’t do as much damage, per dollar raised, as income taxes, but it’s still a foolish idea to impose a big tax hike in order to finance bigger government. And that’s what will happen if voters in the state agree to boost the state sales tax by one-percentage point. The Tax Foundation notes that “Question 779 would give the Sooner State the second highest combined state and local sales tax rate in the nation, after only Louisiana.

California Tax-Hike Extension (Proposition #55) – One of worst ballot initiatives in 2012 was California’s Proposition 30, which imposed a big, class-warfare tax hike on upper-income residents and gave the Golden State the nation’s highest income tax rate. One of the arguments in favor of Prop 30 was that the tax increase was only temporary, lasting until the end of 2018. Well, as Milton Friedman famously observed, there’s nothing so permanent as a temporary government program. And that apparently applies to “temporary” taxes as well.  Proposition #55 would extend the tax until 2030.

Unfortunately, there aren’t a lot of ballot initiatives that would move policy in the right direction. Here’s the one that probably matters most.

Massachusetts Charter Schools (Question #2) – Much to the dismay of teacher unions (and presumably the hacks at the NAACP as well), this initiative would expand charter schools. It’s remarkable that even the very left-leaning Boston Globe is embracing Question 2, opining that “the proposal would create new opportunities for the 32,000 students, predominantly black and Latino, who are now languishing on waiting lists hoping for a spot at a charter school” and that “Students in all Massachusetts charter schools gain the equivalent of 36 more days of learning per year in reading and 65 more days of learning in math.”

A related measure is Amendment #1 in Georgia.

Now let’s shift to a ballot initiative that is noteworthy, though I confess I don’t have a very strong opinion about the ideal outcome.

Washington Revenue-Neutral Carbon Tax (Initiative #732) – The bad news is that a carbon tax would be imposed. This means, according to the Tax Foundation, that the “average household would pay $225 more per year for gasoline under the proposal, and $64 more for electricity.” The good news is that the sales tax would drop by one cent and the state’s gross receipts tax would almost disappear. So is this a good deal? Part of me says no because it’s never a good idea to give politicians a new source of tax revenue. But the fact that the measure is opposed by many hard-left green groups suggests that the idea probably has some merit.

For what it’s worth, I would vote against I-732 because of concerns that it eventually will lead to a net increase in the burden of government.

Last but not least, I’ll also be following the results on initiatives dealing with marijuana and tobacco.

States Voting for Marijuana Legalization (and Taxation) – Voters in Arizona, California, Maine, Massachusetts, and Nevada will have an opportunity to fully or partly legalize marijuana. These initiatives also include buzz-kill provisions to levy hefty taxes on producers and consumers.

States Voting for Tobacco Tax Increases – Politicians in California, Colorado, Missouri, and North Dakota all hope that voters will approve tax hikes that target smokers (and, in some cases, vapers). In every case, the tax hikes will fund bigger government.

P.S. I can’t resist adding that I’m also keeping my fingers crossed that other voters in Fairfax County will join me in rejecting a scheme to add a 4 percent tax on restaurant meals. Not just because it’s a tax hike to fund bigger government, but also because the hacks in the county government are using dishonest and reprehensible arguments to push the tax.

P.P.S. I will be updating my prediction for the presidential election, and also making predictions for the House and Senate, the morning of November 8.

Read Full Post »

Based on what she’s been saying during the campaign, Hillary Clinton is a big fan of class warfare. She has put forth a series of “soak-the-rich” tax hikes designed to finance bigger government.

Her official plan includes provisions such as an increase (“surcharge”) in the top tax rate, the imposition of the so-called Buffett Rule, an increase in the tax burden on capital gains (including carried interest), and a more onerous death tax.

The Tax Foundation explains that this plan won’t be good for the economy or the budget.

Hillary Clinton’s tax plan would reduce the economy’s size by 1 percent in the long run. The plan would lead to 0.8 percent lower wages, a 2.8 percent smaller capital stock, and 311,000 fewer full-time equivalent jobs. …If we account for the economic impact of the plan, it would end up raising $191 billion over the next decade.

Here’s a table showing the static revenue impact for the various provisions, followed by the estimated economic impact, which then allows the Tax Foundation to calculate the real-world, dynamic revenue impact.

So what does all this mean?

Well, the Congressional Budget Office estimates that tax revenue over the next 10 years will be $41,658 billion based on current law. Hillary’s plan will add $191 billion to that total, an increase of 0.46 percent.

Which means that she’s willing to lower our incomes by 0.80 percent to increase the government’s take by 0.46 percent. A good deal for her and her cronies, but bad for America.

But it gets worse. Hillary’s official tax plan doesn’t include her biggest proposed tax hike. As I’ve warned before, and as Andrew Biggs of the American Enterprise explains in a new article, she has explicitly stated her support for huge tax hikes to bail out Social Security.

…she has endorsed both of the main tax increases included in Sanders’ Social Security plan: imposing the Social Security tax on earnings above the current $118,500 cap and applying Social Security taxes to investment income in addition to wages.

Andrew warns that busting the wage-base cap may boost payroll tax receipts, but such a policy will lead to lower revenues from other sources.

Eliminating the payroll tax ceiling would require workers and employers to each pay an additional 6.2% tax on all earnings above the ceiling, currently $118,500. Both the SSA actuaries and the Congressional Budget Office assume that when employers are hit with an additional payroll tax they will over time reduce employees’ wages to cover the increased cost, consistent with economists’ view that employees ultimately “pay” for employer-provided benefits through lower wages. Those lost wages would then no longer be subject to federal income taxes, Medicare payroll taxes or state government income taxes. If the average marginal tax rate on earnings above the current payroll tax ceiling is 48% – say, the top earned income tax rate of 39.6%, plus the 3.8% top Medicare payroll tax rate, plus a roughly 5% state income tax – then federal and state tax revenues would fall by 26 cents for each additional dollar of Social Security taxes collected.

And this estimate is based solely on the reduction in taxable income that occurs as businesses give their employees less take-home buy because of the higher payroll tax.

To be accurate, you also have to consider how workers will react (and rest assured that upper-income taxpayers have plenty of ability to alter the timing, level, and composition of their income). Andrew looks at the potential impact.

…revenue losses occur even if individual earners themselves make no adjustments to their earnings in response to higher tax rates. They’re purely a function of employers adjusting wages to compensate for their payroll tax bills. But if affected earners react to higher tax rates by reducing their earnings, either though less work or by tax avoidance strategies, then net revenue losses would be even higher. A 2010 literature survey by economists Emmanuel Saez, Joel Slemrod, and Seth Giertz found that high earners reduce their earnings by between 0.12% and 0.40% for each 1% increase in their taxes. These estimates imply that total revenues gained by eliminating the Social Security tax max would fall one-third to one-half below the static assumptions that Social Security reforms rely upon. Other credible academic studies find even higher sensitivities of taxable income to tax rates.

For more information, here’s a video I narrated on the issue for the Center for Freedom and Prosperity.

Let’s close on a grim note. If Hillary Clinton goes forward with her plan to bust the wage base cap and change Social Security from an actuarially bankrupt social insurance program into a conventional tax-and-spend redistribution program, she won’t collect very much tax revenue because of the way workers and employers will react.

But from Hillary’s perspective, she won’t care. Under the budget rules governing Washington, she’ll still be able to increase spending (i.e., buy votes) based on how much revenue the Joint Committee on Taxation inaccurately predicts will materialize based on primitive “static scoring” estimates.

In other words, the Laffer Curve will prevail, but – other than the ability to say “I told you so” – proponents of good policy won’t have any reason to be happy.

And when, in the real world, the long-run fiscal and economic outlook weakens because of her misguided policies, Mrs. Clinton will just propose additional tax hikes to deal with the “unexpected” shortfalls. Lather, rinse, repeat, until we become Greece.

Read Full Post »

Older Posts »

%d bloggers like this: