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Archive for the ‘Federalism’ Category

Largely because of my support for jurisdictional competition, I’m a big fan of federalism.

Simply stated, our liberties are better protected when there’s decentralization since politicians are less like to over-tax and over-spend when they know potential victims of plunder have the option of moving across a border.

Indeed, I cited some academic research back in 2012 which showed that there as less economy-weakening redistribution in nations with genuine federalism (see, for instance, how Vermont politicians were forced to backtrack when they try to impose government-run healthcare).

Now let’s look at some additional scholarly evidence. A study published by the OECD, authored by Hansjörg Blöchliger, Balázs Égert and Kaja Fredriksen, investigates the impact of federalism on outcomes in developed nations.

Here are the key findings from the abstract.

This paper presents empirical research on the potential effects of fiscal decentralisation on a set of outcomes such as GDP, productivity, public investment and school performance. The results can be summarised as follows: decentralisation, as measured by revenue or spending shares, is positively associated with GDP per capita levels. The impact seems to be stronger for revenue decentralisation than for spending decentralisation. Decentralisation is strongly and positively associated with educational outcomes as measured by international student assessments (PISA). While educational functions can be delegated either to sub-central governments (SCG) or to schools, the results suggest that both strategies appear to be equally beneficial for educational performance. Finally, investment in physical and – especially – human capital as a share of general government spending is significantly higher in more decentralised countries.

Here’s some detail from the body of the paper about the pro-growth impact of decentralization (especially when sub-national governments are responsible for raising their own funds).

Across countries, sub-central fiscal power, as measured by revenue or spending shares, is positively associated with economic activity. Doubling sub-central tax or spending shares (e.g. increasing the ratio of sub-central to general government tax revenue from 6 to 12%) is associated with a GDP per capita increase of around 3%. …Revenue decentralisation appears to be more strongly related with income gains than spending decentralisation. This empirical finding may reflect that “true” fiscal autonomy is better captured by the sub-central revenue share, as a large part of sub-central spending may be mandated or regulated by central government. … the estimated relationship never becomes negative and is not hump-shaped, i.e. “more decentralisation always tends to be better”.

The part of “more decentralisation always tends to be better” is a good result.

But it’s also a sad result since the United States has moved in the wrong direction in recent decades.

Though we’re still less centralized than most nations, as you can see from this chart from the OECD study.

Kudos to Canada and Switzerland for leading the world in federalism.

Here are some additional details from the study. I’m especially interested to see that the authors acknowledge how jurisdictional competition helps to explain why nations with federalism perform better.

Decentralised fiscal frameworks can raise TFP through an increase in the efficiency and productivity of the public sector… Public sector productivity is influenced by competition between SCGs and inter-jurisdictional mobility. Most SCGs aim at attracting and retaining mobile production factors, in order to promote investment and economic activity. They can do so by using fiscal policy, among other instruments. Since firms are choosing their location based on where they expect the highest returns on investment, and since returns depend (partly) on public inputs, SCGs have an incentive to raise the productivity of their public sector. SCGs may also try to improve the relationship between taxation and public service levels, by lowering taxes… The more decentralised a country, the stronger these competitive forces could be. Competition and inter-jurisdictional mobility could be weakened by large intergovernmental transfer systems, in particular fiscal equalisation.

As a aside, it’s rather ironic that that the professional economists at the OECD produce rigorous studies (here’s another one) showing the benefits of jurisdictional competition while the political appointees push for anti-growth policies such as tax harmonization.

Let’s close by looking at the study’s estimates of how nations would enjoy more prosperity by shifting in the direction of decentralization.

…an assessment of what a country might gain in terms of higher GDP if it moved to the benchmark of the most decentralised country. To be more specific, the gains were calculated for each federal country if it moved tax decentralisation to the level of Canada, and for each unitary country if it moved tax decentralisation to the level of Sweden (Figure 6). Further decentralisation could potentially be associated with an average increase of GDP of around 1% to 2% for federal countries and 3% to 4% for unitary countries, with values for more centralised countries being larger.

Here’s the accompanying chart.

Since the U.S. still has some federalism, our gain isn’t very large, but nations such as Austria, Belgium, Slovakia, Ireland, Luxembourg, and the United Kingdom could get big boosts.

P.S. I didn’t focus on the findings about better educational outcomes in decentralized nations. But I can’t resist pointing out that this is an additional reason to abolish the Department of Education.

P.P.S. Here’s a video discussing how Switzerland benefits from federalism.

P.P.P.S. And here’s what scholars from the Austrian school of economics wrote about federalism.

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As indicated by one of my columns last week, I’m a big believer in federalism.

Indeed, I’ve even proposed that Washington shouldn’t operate any social programs. No food stamps. No Medicaid. No redistribution programs of any kind.

Such programs, to the extent they should exist, should be handled by state and local governments.

The welfare reform legislation under Bill Clinton is an example of how to move in the right direction. A top-down program from Washington was turned into a block grant, and then state and local governments got the freedom to choose policies that might actually help the poor become self-sufficient instead of being trapped in dependency.

Not pure libertarianism, of course, but still an example of progress. And we got good results.

Given this track record, I was very interested to see a column in today’s New York Times by Ezekial Emanuel and Rahm Emanuel on the topic of federal-state fiscal relations.

Medicaid and unemployment insurance…need permanent institutional reform and modernization. …the next stimulus package…should then be…a…federal-state Grand Bargain would solve festering problems in health care and unemployment assistance Years of political experience show that no matter how imperative and sensible, a policy’s chances of success are diminished unless it delivers political benefits. This bargain would create a victory for both parties.

This sounds intriguing. And potentially even desirable.

There’s no question, after all, that the current Medicaid system desperately needs reform. And the unemployment program also is a mess, luring people into joblessness.

So what exactly are the Emanuel brothers proposing? What is the “Grand Bargain” that offers benefits for both sides?

Sadly, it turns out that their bipartisan rhetoric is just an excuse for bigger government.

The bargain, which we call American Modernization Initiative…the federal government to assume the costs and administration of Medicaid and unemployment insurance, the states would have to agree to use freed up resources — a quarter of a trillion dollars per year — to invest in education and infrastructure. …The Grand Bargain is not only good policy, but good politics. …Governors would no longer be responsible for large programs… With the American Modernization Initiative, the constant, bitter battles over cutting state programs to fund growing Medicaid costs will disappear.

Yes, you read correctly. Their idea of a “bargain” is that the federal government agrees to spend more money so that that state governments will then have the ability to spend more money.

Even Republicans aren’t stupid enough to go along with that kind of deal.

So I’ll propose an alternative.

According to Chris Edwards, there are now nearly 1,400 programs involving some sort of link or overlap between the federal government and state governments.

The biggest of these programs is Medicaid, accounting for 56 percent of the overall spending.

So why not give the states a choice: They either take full responsibility for Medicaid – including the financing after some transition period. Or they take responsibility for the other 1,385 programs (probably more by now) programs – assuming, again, they are responsible for the financing after a transition period.

Regardless of their choice, the end result would be a system where there’s a reasonably significant shift toward federalism. And perhaps we would add a bit of clarity to the blurry line that currently sets the boundary between what’s Washington’s job and what’s the role of state governments.

And maybe, just maybe, there wouldn’t be as much wasteful leakage as we have now.

P.S. For what it’s worth, there’s strong academic evidence that decentralized governments produce better outcomes.

P.P.S. Federalism doesn’t only apply to income-redistribution programs. We also should eliminate any role for Washington in areas like education and transportation.

P.P.P.S. Here’s the data on the history of redistribution spending in developed nations.

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Last week, I participated in a webinar with IES Europe. The program covered a wide range of issues, including tax competition, Social Security reform, and the recipe for national prosperity.

Here’s what I said on the topic of federalism.

To add some hard data to the discussion, let’s compare the degree of fiscal decentralization in the United States in both 1902 and 2019, based on numbers from the Census Bureau (click on Govt_Finances) and the Office of Management and Budget (click on Table 14.3).

As you can see from the chart, Washington now accounts for a much bigger share of overall government spending.

By the way, these numbers should not be misinterpreted.

There’s been no reduction in the burden of state and local government outlays. Indeed, there’s been a steady increase in such spending, even after adjusting for inflation.

But the federal government has grown far more rapidly.

Indeed, the fiscal history of the United States is a sad story about the loss of almost all constraints and limits that America’s Founders put in the Constitution in hopes of controlling the size and scope of Washington.

The bottom line is we now have much bigger government and it’s more remote because of centralization.

I mentioned Switzerland in the latter part of my answer.

Here’s the data comparing Switzerland and the United States. As you can see, Switzerland has been more successful in retaining genuine federalism.

Indeed, the two countries are mirror images, with nearly 2/3rds of government spending in the U.S. coming from Washington and nearly 2/3rds of government in Switzerland taking place a the level of cantons and municipalities.

P.S. Here’s what scholars from the Austrian School have said about federalism.

P.P.S. Here’s my two cents on federalism in the context of issues such as welfare, natural disasters, transportation, coronavirus, infrastructure, and Medicaid,

P.P.P.S. Because there’s strong evidence that decentralization produces better outcomes, I’m even willing to accept bad examples of federalism.

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I wrote earlier this month about coronavirus becoming an excuse for more bad public policy.

American politicians certainly have been pushing all sorts of proposals for bigger government, showing that they have embraced the notion that you don’t want to let a “crisis go to waste.”

But nothing that’s happening in the United States is as monumentally misguided as the effort to create a new method of centralized redistribution in the European Union.

Kai Weiss of the Vienna-based Austrian Economic Center explains what is happening in a column for CapX.

…‘never let a good crisis go to waste’ seems to have become the mantra of both the European Commission a number of national leaders. The coronavirus has become a justification for…‘more Europe’ (which tends to actually mean more EU, to the detriment of Europe). The clearest sign of this renewed Euro-fervour is the plan cooked up by Angela Merkel and Emmanuel Macron earlier this week… Seasoned Brussels observers will be shocked to learn that their proposals have very little to do with the pandemic, and everything to do with deepening the centralisation of EU power and top-down policymaking. While Germany has traditionally…opposed the idea of eurobonds or similar debt collectivisation instruments, it is now advocating for precisely those policies. A €500 billion Recovery Fund… the initial plan is for the European Commission to raise the money on the financial markets. It would subsequently be paid back by the member states and through increased “own resources” – i.e., new taxes levied directly by Brussels… The good news is that none of these policy proposals are yet set in stone. There are some big legal questions, particularly on the Recovery Fund, and national parliaments would need to agree to this expansion of Brussels’ writ. Already countries like the Netherlands, Austria, Denmark, and Sweden have voiced criticism… But for all these obstacles, the direction of travel looks alarmingly clear. The consensus among the EU’s power brokers, as with pretty much any major world event, is that the answer is ‘more Europe’. ..For Macron  Merkel and their allies, this is far too good a crisis to pass up.

A story in the New York Times has additional details, including a discussion of potential obstacles.

Ms. Merkel this week agreed to break with two longstanding taboos in German policy. Along with the French president, Emmanuel Macron, Ms. Merkel proposed a 500 billion euro fund… It would allow the transfer of funds from richer countries… And it would do so with money borrowed collectively by the European Union as a whole. …Whatever emerges from the European Commission will be followed by tough negotiations… Chancellor Sebastian Kurz of Austria has raised objections to the idea of grants rather than loans, saying that he has been in contact with the leaders of Sweden, the Netherlands and Denmark. “Our position remains unchanged,’’ he said. …opposition may also come from member states in Central and Eastern Europe. …Those countries are going to be reluctant…to see so much European aid — for which they will in the end have to help pay — skewed to southern countries that are richer than they are. …in northern countries, moves for collective debt to bail out poorer southern countries may feed far-right, anti-European populists like the Alternative for Germany or the Sweden Democrats. They are angry at the idea of subsidizing southerners who, they believe, work less hard and retire much earlier.

What’s depressing about this report is that it appears the battle will revolve around whether the €500 billion will be distributed as grants or loans.

The real fight should be whether there should be any expansion of intra-E.U. redistribution.

For what it’s worth, Germany used to oppose such ideas, especially if funded by borrowing. But Angela Merkel has decided to throw German taxpayers under the bus.

Let’s close with some analysis from Matthew Lynn of the Spectator.

Die-hard European Union federalists have plotted for it for years. …The Greeks and Italians have pleaded for it. And French presidents have made no end of grand speeches, full of references to solidarity and common visions, proposing it. The Germans have finally relented and agreed, at least in part, to share debt within the EU and the euro-zone, and bail-out the weaker members of the club. …The money will be borrowed, based on income from the EU’s future budgets, but it will in effect be guaranteed by the member states, based on the EU’s ‘capital key’. …the rescue plan is completely unfair on all the EU countries outside the euro-zone. …why should they pay for it? Poland…will still be expected to pay in five per cent (or 25bn euros (£22bn)) to bail-out of far richer Italy (Polish GDP per capital is $15,000 (£12,000) compared with $34,000 (£27,000) for Italy).

Pro-centralization politicians are claiming this fund is needed to deal with the consequences of the coronavirus, but that’s largely a smokescreen. It will take many months for this proposal to get up and running – assuming, of course, that Merkel and Macron succeed in bullying nations such as Austria and the Netherlands into submission.

By that time, even the worst-hit countries already will have absorbed temporary health-related costs.

The bottom line is that this initiative is really about the long-held desire by the left to turn the E.U. into a transfer union.

The immediate losers will be taxpayers in Germany, as well as those in Austria, Sweden, the Netherlands, Finland, and a few other nations.

But all of Europe will suffer in the long run because of an increase in the continent’s overall fiscal burden.

And keep in mind that this is just the camel’s nose under the tent. It’s just a matter of time before this supposedly limited step becomes a template for further expansions in the size and scope of government.

Yet another reason why E.U. membership is increasingly an anchor for nations that want more prosperity.

P.S. As suggested by Mr. Lynn’s column, countries in Eastern Europe should fight this scheme. After all, these countries are relatively poor (a legacy of communist enslavement) and presumably don’t want to subsidize their better-off cousins in places like Spain and Italy. But that argument also implies that they should have resisted the Greek bailout about ten years ago, yet they didn’t. Sadly, Eastern European governments acquiesce to bad ideas because their politicians are bribed with “structural adjustment funds” from the European Union.

P.P.S. The luckiest Europeans are the British. They wisely opted for Brexit so they presumably won’t be on the hook for this costly new type of E.U.-wide redistribution (indeed, my main argument for Brexit, which now appears very prescient, was that the E.U. would morph into a transfer union).

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I’ve written that policy makers need to consider both the human toll of the coronavirus and the human toll of a depressed economy.

I also discussed this tradeoff with Brian Nichols, beginning about seven minutes into this podcast.

And, as you can see from this tweet, even the United Nations has acknowledged that a weak economy leads to needless death.

Since I don’t have any expertise on epidemiology, I’m not arguing that the economy should be opened immediately. I’m simply stating that the people who do make such decisions should be guided by the unavoidable tradeoff that exists between lives lost from disease and lives lost from foregone prosperity.

Which then raises the question of who should make such decisions.

As reported by the New York Post, President Trump claims he has all the authority.

President Trump on Monday said the decision to reopen the country’s ailing economy ultimately rests with him, not state leaders, as he feuds with governors over when to allow Americans to return to work. …Trump is now looking at reopening the economy by May 1, putting him on a collision course with state leaders who are pushing back, saying it would be dangerous to “take our foot off of the accelerator” in the war against the virus. …Rebuffing the president’s claims Monday, constitutional experts say it is state leaders who have the power to police their citizens under the 10th Amendment.

Trump is wrong.

He’s wrong in part because the Constitution limits the powers of the central government.

But he’s also wrong because – as explained by scholars from the Austrian School of Economics – we’re far more likely to get better choices when they’re decentralized.

In some cases, that means allowing individuals to make informed choices about how much risk to take.

But, to the extent government must be involved, it makes more sense to have state and local officials make choices rather than the crowd in Washington.

Opining for the Wall Street Journal, Walter Olson explains why federalism is the right approach.

Public-health merits aside, the president can’t legally order the nation back to work. The lockdown and closure orders were issued by state governments, and the president doesn’t have the power to order them to reverse their policies. In America’s constitutional design, …the national government is confined to enumerated powers. It has no general authority to dictate to state governments. Many of the powers government holds, in particular the “police power” invoked to counter epidemics, are exercised by state governments and the cities to which states delegate power. …Modernizers have long scoffed at America’s federalist structure as inefficient and outdated, especially in handling emergencies. …Today you won’t find these critics scoffing at the states or overglamorizing Washington. One federal institution after another, including the Food and Drug Administration and Centers for Disease Control and Prevention, has been caught flat-footed by Covid-19. …State governments, by contrast, with some exceptions here and there, have responded to the emergency more skillfully and in a way that has won more public confidence. …The record of federal systems—some of the best known are in Canada, Germany and Switzerland—suggests there’s a lot of resilience packed into the model.

Michael Brendan Dougherty elaborates in an article for National Review.

Writer Molly Jong-Fast complains, “So the states are basically governing themselves because our president doesn’t know how to president at all?” Well, no. It’s simple: Our president doesn’t have dictatorial powers, even in a national emergency. The president doesn’t have authority to shut down your local gin joint. Your state governor does have this power, in extraordinary circumstances. That so many governors have done so, often responding to popular demand for shutdowns, demonstrates America’s genuine practice of federalism — a system that is allowing us to respond to this crisis even faster than the states of Europe… One of the reasons federalism can act faster is that it allows decentralization. It is less politically risky to impose measures in one state than on an entire nation. You can respond where the hotspots are, rather than imposing costs evenly across an undifferentiated mass of the nation where the overall average risk may be low.

Professor Ilya Somin wrote on this same topic for Reason. He noted limitations on federalism in a pandemic, but also pointed out the benefits of decentralization.

The US is a large and diverse nation, and it is unlikely that a single “one-size-fits-all” set of social distancing rules can work equally well everywhere. In addition, state-by-state experimentation with different approaches can increase our still dangerously limited knowledge of which policies are the most effective. Moreover, if one policymaker screws up, his or her errors are less likely to have a catastrophic effect on the whole nation. …There is, in fact, a long history of state and local governments taking the lead in battling the spread of contagious disease. During the 1918-19 flu pandemic, state and local restrictions were the primary means of inhibiting the spread of the virus, while the federal government did very little.

John Daniel Davidson of the Federalist echoes the benefits of having choices made at the state and local level.

The founders wisely chose a federal republic for our form of government, which means sovereignty is divided between states and the federal government. The powers of the federal government are limited and enumerated, while all powers not granted to the feds are reserved for the states, including emergency police powers of the kind we’re seeing states and localities use now. …Much of the media seems wholly unaware of this basic feature of our system of government. …Trump explained that many governors might have a more direct line on this equipment and if so they should go ahead and acquire it themselves, no need to wait on Washington, D.C. This is of course exactly the way federalism is supposed to work. …We should expect the government power that’s closest to affected communities to be the most active, while Washington, D.C., concern itself with larger problems.

And those “larger problems” are the ones enumerated in Article 1, Section 8.

The bottom line is that we should always remember the Third Theorem of Government, which helps to explain one of the reasons why it’s generally a bad idea to give the folks in Washington more power and authority.

Instead, we should try to be more like Switzerland, which is one of the world’s best-governed nations in large part because of a very decentralized approach.

Which may be why economists at the (normally statist) International Monetary Fund found a clear link between federalism and quality governance.

Let’s hope Donald Trump realizes that federalism is the right approach.

P.S. My favorite example of federalism came from Vermont.

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I’m a big fan of federalism. After all, compared to what happens when Washington screws up, there’s a lot less damage if a state or city imposes a bad law.

Moreover, it’s relatively easy to move across a border if a state or city is doing something foolish. Leaving the country, by contrast, is a much bigger step (and a lot harder if you have some money).

That being said, politicians outside of Washington deserve plenty of scorn (to show that Washington has no monopoly on venality and incompetence, I periodically share columns that highlight “Great Moments in State Government” and “Great Moments in Local Government“).

And the coronavirus crisis is giving us plenty of new evidence.

Writing for the Federalist, John Daniel Davidson takes aim at control-freak politicians.

…some mayors and governors…think they have unlimited and arbitrary power over their fellow citizens, that they can order them to do or not do just about anything under the guise of protecting public health. We’ve now witnessed local and state governments issue decrees about what people can and cannot buy in stores, arrest parents playing with their children in public parks, yank people off public buses at random, remove basketball rims along with private property, ticket churchgoers… The most egregious example of this outpouring of authoritarianism was an attempt by Louisville, Kentucky, Mayor Greg Fischer to ban drive-in church services on Easter. …he also threatened arrest and criminal penalties for anyone who dared violate his order, and in an Orwellian twist, invited people to snitch on their fellow citizens. …this didn’t just happen in Louisville. Two churches in Greenville, Mississippi, that were holding drive-in services for Holy Week said police showed up and ordered churchgoers to leave or face a $500 fine. …the targeting of churches, while undoubtedly the most offensive overreach by state and local governments, is hardly the only instance of government gone wild. In Michigan, Gov. Gretchen Whitmer has taken it upon herself to declare what items are and are not “essential,” dictating to grocery stores what they can and cannot sell… Among the nonessential, and therefore banned, items are fruit and vegetable plants and seeds. …(Lottery tickets, on the other hand, are still permitted.)

There’s so much outrageous material in this article that it’s almost impossible to focus on one item.

I’ll simply note that it is entirely predictable – but totally disgusting – that Governor Whitmer in Michigan has exempted sales of lottery tickets from her lockdown order. I guess risk is okay if it’s for the purpose of getting more revenue by screwing poor people.

Since we’re on the topic of Governor Whitmer and Michigan, this tweet indicates that it’s okay to put infants in danger. After all, they don’t line the pockets of government by purchasing lottery tickets.

Let’s look at more examples of nanny-state authoritarianism.

David Harsanyi’s column in National Review is appropriately scathing.

Free people act out of self-preservation, but they shouldn’t be coerced to act through the authoritarian whims of the state. Yet this is exactly what’s happening. …politicians act as if a health crisis gives them license to lord over the most private activities of America people in ways that are wholly inconsistent with the spirit and letter of the Constitution. …What business is it of Vermont or Howard County, Ind., to dictate that Walmart, Costco, or Target stop selling “non-essential” items, such as electronics or clothing? …it is an astonishing abuse of power to issue stay-at-home orders, enforced by criminal law, empowering police to harass and fine individuals for nothing more than taking a walk. …The criminalization of movement ends with…three Massachusetts men being arrested, and facing the possibility of 90 days in jail, for crossing state lines and golfing — a sport built for social distancing — in Rhode Island. …In California, surfers, who stay far away from each other, are banned from going in the water. Elsewhere, hikers are banned from roaming the millions of acres in national parks. …Would-be petty tyrants, such as Dallas judge Clay Jenkins, who implores residences to rat out neighbors who sell cigarettes.

So many awful examples, but I’m especially nauseated by Judge Jenkins and his call for snitching. Makes me wonder if he’s related to Andrew Cuomo, Richard Daley, or David Cameron.

I’ll close with two amusing items.

First, every red-blooded American should cheer for this jogger (and you should cheer for him if you’re a red-blooded person from abroad as well).

Second, here’s some satire that is both seasonal and accurate (though, to be fair, the disciples weren’t practicing social distancing).

P.S. Maybe this is the kind of harassment that led to “Libertarian Jesus“?

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I explained last year that there is an inverse relationship between government efficiency and the size of government.

And Mark Steyn made the same point, using humor, back in 2012.

Interestingly, we have some unexpected allies.

In a recently released study, two economists for the World Bank decided to investigate the effectiveness of government spending.

Governments of developing countries typically spend resources equivalent to between 15 and 30 percent of GDP. Hence, small changes in the efficiency of public spending could have a significant impact on GDP and on the attainment of the government’s objectives. The first challenge faced by stakeholders is measuring efficiency. This paper attempts such quantification and verifies empirical regularities in the cross country-variation in the efficiency scores.

So they calculated how much different governments were spending and the results that were being achieved.

Using two different methodologies, here’s what they found for health spending and life expectancy.

The goal, of course, is to get good results (to be higher on the vertical axis) without having to spend a lot of money (in other words, try to be farther left on the horizontal axis).

And here are the numbers for education quality and education spending.

The economist then crunched all the numbers to determine the relationship between spending and outcomes.

The results may surprise some people.

Government expenditure (GOVEXP) is negatively associated with efficiency scores in education (Tables 14 a and b). This result is robust to changes in the output indicator selected. In the output efficiency case, the impact is ambiguous specially when the PISA Math and Science scores are the output indicators (Table 14 b). In health (Tables 15 a and b), the negative association is present in both input and output efficiency. In infrastructure, the expenditure variables (GOVEXP and PUBGFC10PC) are negative in the six output indicators that are used (Table 16a).23 There is a robust trade-off between size of expenditure and efficiency. …The share of public financing within the total (sum of public and private) is robustly associated with lower efficiency scores.

But here’s another surprise.

These World Bank results are not an outlier.

The European Central Bank has two separate studies (here and here) that conclude smaller government is more effective.

And the International Monetary Fund found that decentralized government is more efficient.

P.S. Don’t forget that this competency argument for small government is augmented by the economic argument for small government.

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Why are there so few liberty-oriented societies compared to the number of places with statist governments?

And why does it seem like the size and scope of government keeps expanding around the world?

If I’m feeling optimistic, I’ll disagree with the tone of those questions. There are reasons to be cheerful, after all. the Soviet Empire collapsed and there’s solid data that global economic liberty has increased over the past few decades. And for those who care about evidence, there’s a slam-dunk argument that smaller government means more prosperity.

But if I’m feeling pessimistic, I’ll look at grim numbers suggesting that the burden of government automatically will expand because of demographic change. And I also worry about eroding societal capital, with more and more people thinking it’s okay to live off the government. And let’s not forget “public choice,” the theory that explains why politicians have an incentive to make government bigger.

I go back and forth on whether the glass is half full or half empty, and I’m not sure which side is winning. All I can say for sure is that Americans are getting increasingly polarized as we have big fights about the proper role of government.

Which is why I’ve always thought decentralization would be a good idea. No just for policy reasons, but also for domestic tranquility. All the leftists could move to places such as California, Illinois, and New Jersey and vote themselves Greek-style government. And all the advocates of limited government could move to more laissez-faire states such as New Hampshire, Texas, and South Dakota.

We don’t need a national divorce, not even the humorous version. We just need Swiss-style federalism.

But statists will never agree to that approach. And these two sentences from Reddit‘s Libertarian page succinctly explain the left’s opposition.

This guy nails it.

Libertarians have no objection to a bunch of statists creating some sort of socialist or communist mini-society, so long as it’s voluntary. Indeed, we’ve periodically had experimental societies in America based on Marxist principles. Starting with the Pilgrims (who learned from their mistake). And I still laugh every time I think about Bernie Sanders getting ejected from a hippie commune because he was too lazy to do his share of the common work.

But this tolerance isn’t a two-way street. Libertarians will let socialists create statist systems inside a free society, but the left won’t allow libertarian outposts in statist societies.

Heck, our statist friends don’t even like it when other nations have pro-market policy. That’s one of the reasons international bureaucracies always persecute so-called tax havens. Folks on the left may be misguided, but they’re usually not stupid. They know that statist systems will quickly fail if productive people have the ability to move themselves (or at least their money) across national borders.

The bottom line is that federalism is good because it means people can easily move when a government imposes bad policy. This is also a recipe for tolerance and tranquility, though only one side sees it that way.

P.S. The left is so hostile to tax havens that a bureaucrat from the U.S. Treasury accused me of “being disloyal” to America. A former Senator said my actions to defend low-tax jurisdictions were akin to “trading with the enemy.” And the bureaucrats at the OECD actually threatened to throw me in a Mexican jail for defending tax competition.

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If you’re reading this, you are a very lucky person because you were born at the right time. If you were born 500 years ago, 1000 years ago, or 1500 years ago, the odds are overwhelming that you would have endured a very short and difficult life, one that was characterized by unimaginable poverty.

But then, as explained in short videos by Professors Deirdre McCloskey and Don Boudreaux, the world suddenly became much richer starting a few hundred years ago.

And Western Europe led the way. But why?

In 2012, I shared lots of academic research showing how jurisdictional competition enabled rising levels of prosperity in Europe. And I then augmented that research a few years later by highlighting two very important developments in 1356 that helped set the stage for that competition.

Today, let’s expand on that evidence by looking at some recent analysis.

Here are some excerpts from a fascinating Aeon article by Professor Joel Mokyr.

How and why did the modern world and its unprecedented prosperity begin? …One of the oldest and most persuasive explanations is the long political fragmentation of Europe. …The modern European economic miracle was…neither designed nor planned. …How did this work? In brief, Europe’s political fragmentation spurred productive competition. It meant that European rulers found themselves competing for the best and most productive intellectuals and artisans. …the existence of multiple competing states encouraged scientific and technological innovation. …the rivalries between the states, and their examples to one another, also meliorated some of the worst possibilities of political authoritarianism. …interstate competition was a powerful economic mover. More important, perhaps, the ‘states system’ constrained the ability of political and religious authorities to control intellectual innovation.

Mokyr then explains that the benefits of jurisdictional competition were augmented and enabled by a form of labor mobility.

…political fragmentation was not enough. …more was needed. The size of the ‘market’ that intellectual and technological innovators faced was one element of scientific and technological development that has not perhaps received as much attention it should. …political and religious fragmentation did not mean small audiences for intellectual innovators. Political fragmentation existed alongside a remarkable intellectual and cultural unity. Europe offered a more or less integrated market for ideas, a continent-wide network of learned men and women, in which new ideas were distributed and circulated. …In early modern Europe, national boundaries mattered little in the thin but lively and mobile community of intellectuals in Europe. Despite slow and uncomfortable travel, many of Europe’s leading intellectuals moved back and forth between states. …If Europe’s intellectuals moved with unprecedented frequency and ease, their ideas travelled even faster. …Europe’s unique combination of political fragmentation and its pan-European institutions of learning brought dramatic intellectual changes in the way new ideas circulated. …Europe’s intellectual community enjoyed the best of two worlds, both the advantages of an integrated transnational academic community and a com­petitive states system.

By the way, I don’t consider this the “best of two worlds.” Labor mobility is a feature of jurisdictional competition, so I would say it’s simply one of the benefits. But six of one, half dozen of the other.

Let’s now look at another benefit of capitalism. Here are some passages from a CapX column on how the development of a merchant class constrained militarism. Here’s the thesis.

Although a number of things contributed to the huge decline in violence of the late medieval period, …the development of capitalism, and the rise of a merchant class whose wealth was not won with a sword, played a huge part.

And here’s an example.

This order was first shaken in 1302 when France’s cavalry confidently marched north to suppress a revolt by the Flemish. Flanders is not naturally rich in resources –Vlaanderen means flooded – but its people had turned swamps into sheep pastures and towns, building a cloth industry that made it the wealthiest part of Europe, its GDP per capita 20 per cent greater than France and 25 per cent better than England. …The Flemish were traders, not knights, which is why the French were sure of victory. And yet, with enough money to pay for a large, well-drilled infantry they were able for the first time to destroy the cavalry at the Battle of the Golden Spurs. It was the beginning of the end – no longer could the aristocracy simply push around the bourgeoisie, and as the latter grew in strength so it undermined the violence-obsessed culture of the nobility.

And another example.

European capitalism had begun in northern Italy, chiefly Venice, one of nine Italian cities that had surpassed 50,000 people by this point. …Venice was high in trust, a vital component for the growth of sophisticated markets, and so was the first to develop joint-stock companies and banks. …The Venetians, along with their arch-rivals the Genoese and Pisans, had been involved in the crusades, but despite papal prohibition had continued to trade with the infidel. Indeed, nothing would stop their desire to engage in commerce, and Arab geographer and traveller Ibn Jubayr noted that “It is amazing to see that the fires of discord burn” between Christians and Muslims when it comes to politics but, when trading, travellers “come and go without interference”.

And another case study.

London was behind Italy or Flanders but it was catching up. The city had started to grow as a trading hub in the 12th century, and its mayor, William Hardel, was the only commoner to witness Magna Carta in 1215 and helped secure Clause 41, which stated that all foreign “merchants are to be safe and secure in departing from and coming to England” without “evil exactions”. London expanded rapidly in the later middle ages, increasing its share of England’s wealth from two to nine per cent, and Henry IV (1399-1413) was the first king to invite its merchants on to the royal council, among them Sir Richard Whittington…the merchants purposefully avoided conflict, so that when in the 1380s Richard II tried to raise an army in the city to fight his various internal enemies he was met with apathy

What makes this analysis especially important is that military conflict is one of the putative downsides of political fragmentation. Indeed, Mokyr mentions that in his article.

I confess I don’t know enough to judge that issue. For instance, I’d like to know if there were there more wars in Europe, or were European wars between countries as opposed to an equal amount of civil wars elsewhere in the world?

In any event, at least there is some evidence that the prosperity generated by capitalism produced resistance to militarism.  Sort of brings to mind Bastiat’s famous statement about trade and war.

(Something to keep in mind given Trump’s self-destructive protectionist impulses.)

Let’s close by looking at Europe today and exploring whether jurisdictional competition on the continent. The good news is that the principle of “mutual recognition” has produced a form of competitive federalism, as explained in an article by Professor Michael Greve.

…the principle of reciprocity and “mutual recognition”…allows decentralized political institutions to coexist with a common, open, and efficient economic market. …cross-border trade…must be governed either by the rules of the country where a particular good or service ends up or by the rules of its origin country. The former “destination” principle would compel each company to comply with different and often conflicting regulations in all the member states where its products might end up. The result is not a common market but a collection of regulatory fiefdoms. The solution to this dilemma is the opposite, origin-based rule: so long as a company in a member state complies with the laws of its home state, it may freely sell its goods and services in other member states. …the origin principle…is commonly called the principle of “mutual recognition.” …it is the only principle that is consistent with both a common economic market and political decentralization. Mutual recognition integrates member states without central intervention. …Mutual recognition, then, liberates commerce by eliminating the cost of complying with different, conflicting, and often incomprehensible rules. Beyond that, mutual recognition institutionalizes jurisdictional competition. …The ability of individuals and firms to vote with their feet, modems, and pocketbooks will liberate markets and discipline politicians. …Trade unions, environmental interests, and any other interest group whose agenda rests on redistribution consistently oppose mutual recognition: they cannot rob Peter to pay Paul if Peter is allowed to escape to more hospitable climes.

Incidentally, the “origin principle” is at the core of the battle over the so-called Streamlined Sales Tax Proposal, a scheme by certain state governments to impose destination-based tax laws on out-of-state merchants.

And that principle also was a big reason for my fight against the border-adjustment tax, which was a destination-based levy.

For what it’s worth, Europe generally has been better than the United States about using the origin-based approach.

Europeans [are] ahead of the United States in viewing mutual recognition as an efficient means of harmonizing, as it were, the demands of economic integration and political diversity. Here at home, mutual recognition governs corporate chartering—but almost nothing else. Tort law, insurance and financial regulation, state taxation, product labeling, and most other areas of regulation are either subject to a destination rule or else preempted under federal law. No American legislator or corporate executive has ever heard of mutual recognition, let alone pressed it as a serious policy option.

Insurance regulation is a key example. Many states impose costly mandates that drive up the cost of health insurance. But if consumers had the freedom to buy health insurance from companies based in more market-oriented states, they would be able to save money.

Unfortunately, statists in Europe are moving in the wrong direction, seeking to replace mutual recognition with one-size-fits-all harmonization.

The European political class is bent on establishing pan-European, sovereign political institutions. …As political aspirations begin to dominate the process of European integration, mutual recognition will be jettisoned. …Habermas denounces the premises on which mutual recognition rests as the “building blocks of a neoliberal world view,” and he declares them at odds with “the Europeans’ normative self-understanding.” The European Union must therefore construct a European society of citizens, a pan-European “public sphere,” and a shared European political culture…precisely to confine economic competition and choice to a subordinate sphere. …the Europeans will harmonize their way toward a common constitution and citizenship, with dental care for all.

If the centralizers in Europe succeed (and they’ve already moved policy in the wrong direction), that will not bode well.

Europe already faces severe challenges because of excessive government and bad demographics.

Harmonization will exacerbate the problem of too much government because the “stationary bandit” no longer will face competitive pressure.

So “goldfish government” will become one step closer to reality.

P.S. This helps to explain my support for Brexit.

P.P.S. Speaking of Brexit, here’s a UKIP member of the European Parliament expounding on the benefits of mutual recognition over harmonization.

P.P.P.S. Mutual recognition also allows for regulatory diversity, which reduces systemic risk.

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Federalism is the gold standard for reforming redistribution programs. This was the approach used in the very successful Clinton-era welfare reform, and it should be replicated for other means-tested programs.

The core argument is that the federal government does a very poor job of managing such programs, resulting in a maze of handouts that produce lots of fraud and dependency.

If states were in charge of such programs, by contrast, there would be lots of innovation and experimentation. This would help policy makers understand the best way of taking care of the truly destitute while helping others transition to productive and self-sufficient lives.

Today, let’s look specifically at food stamps. I’ve already explained why federalism is the right way of fixing the program.

And here are some additional reasons to support reform.

Writing for USA Today, Jim Bovard opined on the program’s glaring shortcomings – many of which were exacerbated by the Obama Administration’s efforts to expand dependency.

Why did the food stamp program spiral out of control? The Obama administration believed that maximizing handouts would maximize prosperity… So the feds bankrolled massive recruiting campaigns to sway people to abandon self-reliance. A North Carolina social services agency won a USDA “Hunger Champions Award” for attacking “mountain pride” as a reason not to accept government handouts. In Alabama, people received fliers proclaiming: “Be a patriot. Bring your food stamp money home.” The state of Florida paid individual recruiters to sign up at least 150 new food stamp recipients per month. …enrollment also skyrocketed after Obama effectively suspended the three-month limit for able-bodied adults without dependents to collect food stamps. From 2008 to 2010, the number of able-bodied recipients doubled.

Jim points out several reasons why the program is bad for the economy and bad for poor people.

A 2012 Journal of Public Economics study concluded that receiving food stamps sharply reduces work hours by single mothers. …state governments have little or no incentive to police the program because losses from fraud or waste don’t come out of state budgets. …the program is a dietary disaster. Walter Willett, chair of Harvard University’s Department of Nutrition, observed in 2015, “We’ve analyzed what (food stamp) participants are eating and it’s horrible food. It’s a diet designed to produce obesity and diabetes.” A 2017 study published in BMC Public Health found that food stamp recipients were twice as likely to be obese as eligible non-recipients. …A 2016 USDA report revealed that soft drinks and other sweetened beverages are the most common purchase in food stamp households, accounting for almost 10% of monthly expenditures. “Desserts, salty snacks, candy and sugar” account for another 10% of food stamp expenditures.

And it’s definitely bad for taxpayers. In a column for the Wall Street Journal, Kristina Rasmussen explained how rich people are able to bilk the system.

Consider the food stamp program’s longstanding policy of “broad-based categorical eligibility.” You probably assume that food stamps go to poor people only. But this policy, which the U.S. Department of Agriculture instituted during the Clinton administration, allows state food-stamp programs to grant benefits to anyone who has moderately low wage income, regardless of net worth. A family with a seven-figure bank account can be eligible for food stamps. That’s how lottery winners—including actual millionaires—wind up getting food stamps. In 2012 Amanda Clayton of Detroit was revealed to be receiving $200 in monthly food aid despite having won $1 million the year before. “I feel that it’s OK because I have no income,” she said, “and I have bills to pay. I have two houses.” In 2011 Leroy Fick of Bay County, Mich., was found to be receiving food assistance despite having taken home $850,000 in lottery winnings the previous year. …more than 30 states continue to have no asset limits. All you need to collect food aid is two things: an income below a multiple of the poverty line, ranging from 130% to 200%; and eligibility for some sort of benefit funded by Temporary Assistance for Needy Families (TANF), the main welfare program for single parents. And there’s the “one weird trick.” The state spends TANF dollars to print a welfare brochure. The brochure itself is defined as a “benefit,” which everybody is “eligible” to receive, thereby meeting the USDA requirement. Of the 47 million Americans who received food stamps in 2014, some four million got them under “broad-based categorical eligibility”—most because their wealth would have made them ineligible otherwise.

The good news is that the White House wants to reform the scandal-plagued program.

The bad news is that Trump and his people have chosen paternalism rather than federalism.

Here’s what is in the Administration’s budget (scroll to page 128).

The Budget would also create a new approach to nutrition assistance that combines traditional SNAP benefits with U.S. Department of Agriculture Foods provided directly to households. This cost-effective approach supports American agriculture, prevents certain types of program abuse, provides state flexibility in delivering food benefits, and ensures the nutritional value of the benefits provided. …Under the proposal, households receiving $90 or more per month in SNAP benefits will receive a portion of their benefits in the form of a USDA Foods package, which would include items such as shelf-stable milk, ready to eat cereals, pasta, peanut butter, beans and canned fruit, vegetables, and meat, poultry or fish. …This cost-effective approach will generate significant savings to taxpayers with no loss in food benefits to participants.

I can understand that people don’t like it when food stamp recipients are buying junk food. Or luxury items.

And I can also understand the desire to make dependency somewhat discomforting.

But I have zero faith in the federal government’s ability to send food boxes to people every month and somehow save money and avoid extra bureaucracy.

What’s frustrating about the plan in Trump’s budget is that they actually proposed a semi-decent policy of partial federalism last year. So I view this as a step in the wrong direction.

By the way, the fact that I don’t like the plan doesn’t mean I agree with some of the leftist critics. As this “perplexed meme” illustrates, the folks who correctly mock the White House’s proposal are also the same ones who want the government to have massive powers over matters that are far more complex than delivering food.

While the budget plan takes the wrong approach, the White House has done something good via the regulatory process by giving states more flexibility for work requirements.

Kansas, Maine, Wisconsin, and Alabama have achieved good results already, and now the same thing is happening in Georgia, as noted by PJ Media.

Thousands of Georgia residents who depend on food stamps are losing their benefits because they have failed to meet the state’s new requirements that force the able-bodied without children to find jobs. …“The greater good is people being employed, being productive and contributing to the state,” Bobby Cagle, director of the state Department of Family and Children Services, said. …State Rep. Greg Morris (R) said the fact that thousands of people have lost their benefits only showed the magnitude of the problem of welfare fraud in Georgia. He said the new mandate is working. “This is about protecting taxpayer dollars from abuse, and taking people off the cycle of dependency,” Morris said. However, Benita Dodd, vice president of the conservative Georgia Public Policy Foundation, wrote that saving taxpayer dollars was not the program’s ultimate goal. “The goal must be to focus aid on those who truly need help and restore the dignity of work to able-bodied adults,” Dodd wrote. “Reducing dependency and promoting economic opportunity help end the cycle of poverty, reinforce the temporary nature of assistance and encourage personal responsibility.”

The bottom line is that I don’t know how much work should be required, or what kind. I also don’t know whether the idea of direct food delivery in Trump’s budget is necessarily a bad idea.

Which is why I want decentralization of the program. Let states try different approaches and then learn from each other. That’s good for taxpayers and good for poor people.

Which is basically what I said in this interview more than six years ago.

P.S. Here’s a map showing which states (as of a few years ago) had the highest rate of food stamp dependency.

P.P.S. And here’s a table showing which states have the highest levels of food stamp dependency relative to the eligible population.

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Here are two statements that seem in conflict.

But there’s actually no conflict because we can decide that some things are distasteful without wanting to infringe on the freedom of others to partake. And you can make that decision for moral reasons or utilitarian reasons.

Now let’s consider two more statements.

  • The rule of law is a bulwark of a civilized society and government officials should not engage in arbitrary enforcement.
  • Attorney General Jeff Sessions is wrong to enforce federal drug laws in states that have decriminalized marijuana.

I’m tempted to agree with both sentences. The rule of law is vital, after all, and I definitely don’t like (and not for the first time) when Sessions uses the Justice Department to hassle people for victimless crimes.

But here’s my quandary: Should we applaud if government officials ignore laws, even laws we don’t like? That approach has some distasteful implications. If you’re on the right, would you want a left-leaning government to have the leeway to ignore criminal behavior by, say, union bosses? If you’re a leftist, would you want a libertarian-leaning government to have the ability to decide that tax laws can be ignored?

Charles C. W. Cooke of National Review hits the nail on the head.

There’s no question that the right approach is for the federal government to eliminate drug laws. Heck, even people who support the War on Drugs should favor this approach since criminal justice (other than a few select areas such as treason) should be a matter for state and local governments.

And a broader point is that we simply have too many laws. Harvey Silverglate estimates that the average person unknowingly commits three felonies per day.

This means that government officials could probably indict, convict, and imprison almost all of us. Needless to say, that’s not how a free and just society should work.

Our Byzantine tax code is an example. Many of us probably unintentionally violate the law because of needless complexity. Or even if we haven’t violated the law, I’m guessing a prosecutor could convince a grand jury that we should be indicted. And who knows what would happen after that.

So while I mostly argue for tax reform because I want more growth, I also think there’s a moral argument for a simple and fair system.

And there are other laws that shouldn’t exist at all. I obviously put drug laws on that list, but I’d also add anti-money laundering laws and civil asset forfeiture laws.

All that being said, I obviously don’t want the Justice Department in Washington to waste law enforcement resources in a campaign to undermine states that have decriminalized pot. But there’s a right way and a wrong way to solve this problem.

P.S. You can click here for other libertarian quandaries.

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Time for a confession. My left-wing friends are correct. I’m an idiot.

Why?

Because I’m an anti-tax libertarian, yet I keep writing favorably about a provision that will raise my taxes. I’m talking specifically about the provision, currently in both the House and Senate tax plans, to eliminate the deduction for state and local income taxes (and maybe also property taxes, though the House proposal will retain deductibility for the first $10,000).

I think this distortion in the tax code is very bad policy and I hope the loophole is entirely eliminated (including the property tax deduction).

But as I look at all the provisions in both bills and speculate about the contours of a final agreement, it’s highly likely that the net result will be a tax hike on one of my favorite people – me!

Sigh. I’ve joked in the past that “it ain’t easy being libertarian,” but it will definitely hurt to put my money where my mouth is (and it reminded me why GOPers should have made tax reform a tax cut by including some spending restraint).

That being said, let’s remind ourselves why the deduction is a bad idea.

Citing the self-destructive example of a recent tax hike in Illinois, Andrew Wilford of the National Taxpayers Union points out that the deduction enables and encourages state and local politicians to impose higher taxes.

…eliminating SALT would…remove this incentive for local governments to overtax its citizens. … this incentive to hike taxes can prove significant enough to drive state policy. In Illinois, residents were forced to bear the burden of a 32 percent hike on their taxes because of the state’s unwillingness to tackle its growing pension funding problem. Tax increases did not solve this underlying spending problem, but it was politically expedient— in part because state lawmakers knew that the federal government would pick up part of the tab.

It also violates my ethical-bleeding-heart rule, as Brian Riedl explains in the New York Post.

Wealthy families are four times more likely to utilize SALT than other families. Only 24 million of 125 million tax filers earning under $100,000 take the deduction, typically lowering their taxes by $1,000. By contrast, 20 million of the 25 million filers earning over $100,000 take the deduction… In fact, half the savings accrue to the richest 5 percent of taxpayers — and in New York, half of the SALT savings go to families making over $500,000.

But I don’t want today’s column to fixate on the policy argument.

Instead, let’s look at whether voting to get rid of the deduction is electoral suicide for Republicans from high-tax states such as New York and California.

Looking at the situation in the Golden State, that’s certainly the argument from the folks at Vox.

Just three of the 14 California House Republicans went against leadership… Republicans in California clearly ran on cutting taxes — but this tax bill could raise taxes on their constituents. …it also sets up their constituents for more risk. Cutting the state and local tax deduction puts undue burden on the state’s budget… “At this point it looks like California Republicans are eager to lose their seats in 2018,” Tyler Law, a spokesperson for the Democratic Congressional Campaign Committee, said.

Though Kimberly Strassel of the Wall Street Journal has a more upbeat (if you’re a Republican) assessment. She starts by explaining how California GOPers were targeted.

The House GOP passed its tax-reform bill on Thursday, and special medals of valor go to the 11 of 14 California Republicans who voted in support. The lobbyist brigade had joined with Democrats to target the Golden State delegation, seeing it as their best shot at peeling off enough Republicans to kill the bill. The assault was brutal, dishonest and all-out. …Gov. Jerry Brown unleashed on state Republicans, calling them “sheep” for supporting an end to most state and local tax, or SALT, deductions, and sending them letters deploring the tax hit on residents of high-tax California. Minority Leader Nancy Pelosi accused them of “looting” the state. Her Senate counterpart, New York’s Chuck Schumer, warned of “political fallout” that would be “catastrophic.”

They fought back by arguing that the Democrats are the high-tax party.

What proved most effective, however, was the state Republicans’ willingness to go on offense and throw SALT in Gov. Brown’s face. California has the heaviest tax burden in the country and only just implemented a punishing new 12-cent-a-gallon-increase in its gasoline tax. Mr. McCarthy used the occasion to release a video pouncing on that hike and noting that “if Gov. Brown is worried about the tax burden, let’s make cutting [taxes] a federal and state project.” Other state Republicans ran with that message, even more bluntly. “Why punish the rest of the nation because California is stupid?” asked Rep. Duncan Hunter in a local TV interview. Even Rep. Darrell Issa, who voted “no” on Thursday (along with Dana Rohrabacher and Tom McClintock ), zapped a letter back to Gov. Brown, noting that if SALT had become a big issue, it was “a direct result of the tremendous weight that your misguided policies have put on California taxpayers.”

At the risk of sounding like a mealy-mouthed Washington apparatchik, I’m going to agree with both Vox and the Wall Street Journal.

The bottom line is that voting for tax reform probably does endanger GOP lawmakers from high-tax states, which is the message that the leftists at Vox are peddling in hopes of preserving the awful status quo.

But I want to close with the observation that enacting tax reform will improve the electoral outlook for blue-state Republicans even if it’s not necessarily good for current GOP incumbents.

That’s because voters in high-tax states will be much more likely to resist bad state tax policy if there’s no federal deduction to mitigate the burden.

And that means politicians in blue states will be under even greater pressure to lower tax rates rather than increase tax rates. If they don’t do the right thing, more and more taxpayers will escape, as the Wall Street Journal opines.

The liberal tax model is to fleece the rich to finance spending on entitlements and government programs that invariably grow faster than the economy and revenues. IRS data on tax migration show this model is now breaking down in progressive states as the affluent run for cover and the middle class is left paying the bills. Between 2012 and 2015 (the most recent data), a net $8.5 billion in adjusted gross income left New Jersey while $6.2 billion poured out of Connecticut—4% of the latter state’s total income. Illinois lost $13.6 billion. During that period, Florida with no income tax gained $39.3 billion in AGI. …As these state laboratories of Democratic governance show, dunning the rich ultimately hurts people of all incomes by repressing the growth needed to create jobs, boost wages and raise government revenues that fund public services. If the Republican House and Senate tax-reform bills follow through with eliminating all or part of the state and local tax deduction, progressive states will have an even harder time hiding the damage. They should be the next candidates for reform.

Indeed, the mere prospect of tax reform already is causing statists to rethink their approach.

Even in New Jersey.

The Republican tax reform…already it’s having a political impact in at least one high-tax, ill-governed state. Democrat Steve Sweeney, president of the New Jersey Senate, said last week that the GOP decision to eliminate the state and local tax deduction could throw a new tax increase on millionaires into doubt. …Excellent news. Making politicians in Trenton, Albany, Sacramento and Springfield nervous about raising taxes is one desirable outcome of tax reform. These politicians have been passing the burden of their tax-and-spend policies onto taxpayers in other states via the state and local deduction. If that goes away, Democrats will have to rethink their policies lest they drive from their states the affluent taxpayers who finance most of state government. …Here’s a radical idea: Cut taxes and make New Jersey more desirable for people to work and invest. Tax reform in Washington could also spur reform in the states.

If tax reform happens and the deduction for state and local taxes is eliminated, the left’s class-warfare agenda will become much less appealing – and much harder to implement.

And in that kind of environment, it should be much easier for Republican politicians to win votes.

For all intents and purposes, tax reform for Republicans could be like Obamacare for Democrats.

Allow me to explain. When Obamacare was enacted, I worried that it might be a long-term political victory for the left even though it was very painful for Democrats in the short run. Simply stated, voters in the future (and we’re now entering that future) would become more reluctant to vote for Republicans once they were hooked on the heroin of government dependency.

Federal tax reform would have a similar impact, except the GOP will be the long-run winners. Voters in high-tax states will be more reluctant to vote for Democrats once a $100 tax hike (for instance) actually costs $100. Which is why genuine tax reform is a win-win situation.

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I’ve called for the abolition of the Department of Transportation. On more than one occasion.

So I was very excited to see this new video about infrastructure from Johan Norberg.

Very well put. As Johan says (channeling Bastiat), we should remember that jobs are destroyed when money is taken out of the private sector to build infrastructure.

So it behooves us to make sure that any new project isn’t a boondoggle and instead will increase the economy’s productive capacity.

Which is why we should strive for decentralization and shrink Washington’s footprint. If a state or local government is paying for its own projects, presumably it’ll have a greater incentive to avoid wasteful pork. When the federal government pays, by contrast, that’s a recipe for waste.

Veronique de Rugy explains the issue in a column for Reason. She starts with some economic analysis.

Economists have long recognized that roads, bridges, airports, and canals are the conduits through which goods are exchanged, and as such, infrastructure can play a productive role in economic growth. But not all infrastructure spending is equal. Ample literature shows, in fact, that it’s a particularly bad vehicle for stimulus and does not, in practice, boost short-term jobs or economic growth. …Publicly funded infrastructure projects often aren’t good investments in the long term, either. Most spending orchestrated by the federal government suffers from terrible incentives that lead to malinvestment—resources wasted in inefficient ways and on low-priority efforts. Projects get approved for political reasons and are either totally unnecessary or harmed by cost overruns and corruption.

And she concludes by arguing for market forces rather than federal involvement.

[Trump] should put an end to the whole idea that infrastructure should be centrally planned, taxpayer-funded, and the responsibility of the federal (as opposed to state or local) government. The current system obliterates the discipline that comes from knowing a project needs to pay for itself to survive. User fees should become our preferred option for funding infrastructure. That change kills two birds with one stone: It lessens the need for massive federal expenditures, and it gives the private sector an incentive to spend money on crucial but not exactly sexy maintenance tasks. …If Trump wants the United States to have “world-class” infrastructure, the surest way is through market-based reforms that increase competition while reducing subsidies and regulations. Embrace real privatization, not federally directed private investments.

Writing for U.S. News & World Report, Tracy Miller similarly argues that decentralization is the best approach.

Highways as well as public transportation are currently funded with money from the federal Highway Trust Fund, and by state and local governments. …Money from the fund has strings attached that raise costs and limit state and local governments’ ability to choose which projects have priority. These strings include prevailing wage laws, which require contractors receiving federal money to pay unionized wages even if they could attract qualified workers willing to work for less. High-profile projects chosen by politically powerful congressmen can easily take priority over projects that would generate greater benefits for their constituents. From an administrative standpoint, it would not be very difficult to reduce or eliminate the federal government’s role in highway and transit funding. Instead of gas taxes going to the federal government before being returned to the states, as is presently the case, each state could collect all taxes on fuel sold within its borders and decide how best to spend it. This would make it possible to downsize the U.S. Department of Transportation, saving taxpayers billions of dollars.

He explains why reform will lead to better – and cheaper – transportation.

Local governments – with greater awareness of the local needs of metropolitan areas, small towns or rural areas – can do a better job of funding and managing roads, highways and public transportation that serve primarily local residents. State governments or private firms, meanwhile, can best manage interstate and other major highways that cater mostly to long-distance travelers, especially if they could cover expenses with user fees. …Many drivers object to the idea of paying tolls for the use of currently “free” interstate highways, whether they are managed by private firms or state governments. But highways aren’t free – the costs are hidden within our fuel taxes. If mileage-based user fees are applied to all highways and set at the correct levels, they can become a much more efficient (and ultimately cheaper) replacement for fuel taxes.

Professor Edward Glaeser of Harvard summarizes the issue nicely in an article for CNBC.

Our current system of federal funding for transportation means that taxpayers in New York fund highways in Montana and drivers in Utah pay for New York’s airports. If President Trump wants to seriously improve American infrastructure spending, he should champion a new federalism for transportation, in which infrastructure is funded by states, localities and especially the users themselves. …The best decisions are made when decision-makers bear the costs and reap the benefits. When companies invest, they agonize about whether future customers will pay enough to cover the production costs. …Having lived through Boston’s Big Dig, I am well aware of how the promise of federal funding skews local decision-making. Local leaders stop asking themselves whether the benefits cover the costs because it’s somebody else’s nickel. …Detroit would have never built its absurd People Mover Monorail without federal encouragement and funding.

He elaborates on some of the implications for different types of infrastructure.

If new automotive infrastructure is meant to be self-financing, then the decision to build is a straightforward business investment and there is little need for large-scale federal funding. …The beneficiaries of metro systems are the businesses and commuters within a state. They could be funded with local property or sales taxes. My favorite metro funding model is in Hong Kong, where the city’s private mass transit system funds itself by building high-rises atop new train stops. …More federal funding for dysfunctional airports just perpetuates the status quo. They would be far healthier if they were split apart from the larger agency and allowed to operate, compete and charge higher landing fees, either as independent self-funding public airports, as in the U.K., or as private entities.

Amen. I’m not surprised to see Hong Kong as a role model. And I’ve already written about the U.K.’s success with privatization.

Speaking of privatization, a column in the Wall Street Journal points out that this is the way to improve airports in America.

Why do American passengers pay so much to get so little? Because their airports, by global standards, are terribly managed. Cities from London to Buenos Aires have sold or leased their airports to private companies. To make a profit, these firms must hold down costs while enticing customers with lots of flights, competitive fares and appealing terminals. The firm that manages London’s Heathrow, currently eighth in the international ranking, was so intent on attracting passengers that it built a nonstop express train to the city’s center. It’s also seeking to add another runway, as is the rival firm running Gatwick Airport. American airports are typically run by politicians in conjunction with the dominant airlines, which help finance the terminals in return for long-term leases on gates and facilities. The airlines use their control to keep out competitors; the politicians use their share of the revenue to reward unionized airport workers. No one puts the passenger first.

The author cites the San Juan airport as an example of what can happen under privatization.

If you want to see how much better American airports could be, take a plane to Puerto Rico. Until four years ago, the main airport in San Juan was run, and neglected, by an unwieldy bureaucracy, the Puerto Rico Ports Authority. The terminal was a confusing jumble of dim corridors. On rainy days, the ceilings leaked; on hot days, the air conditioning faltered. The stores were tacky and the restaurants greasy spoons, often rented at bargain rates to politicians’ friends or relatives. …Airlines switched operations to other Caribbean hubs. In 2013 the Ports Authority leased the airport for 40 years to Aerostar, a partnership operating airports in Cancún and other Mexican cities. The new managers agreed to make capital improvements, reduce landing fees and pay the Ports Authority $1.2 billion—half up-front. The result, three years later, is an airport nobody would call Third World. The redesigned concourses are sleek and airy, and revenue from new retail and restaurants has doubled. …Airlines no longer control the gates, but they’re reaping other benefits. “We’re paying lower fees for a much better airport,” says Michael Luciano, who runs Delta’s operations in San Juan. “Almost every area has been renovated. You go into any restroom, and it’s bright and clean—things like that are really important to our customers.” Passenger volume has been growing 4% annually, well above the industry average.

I can personally vouch for this. Because of all my travel in the Caribbean, I’ve used the San Juan airport extensively over the years, including just last week for the Liberty International conference.

The difference between today’s airport and the dump that used to exist is like the difference between night and day.

By the way, let’s also dismiss the notion that there’s some sort of infrastructure crisis.

I’ve already shared data from the World Economic Forum’s Global Competitiveness Report, which shows that the United States actually ranks relatively high compared to other nations.

And I’ve also shared solid numbers making the same point from Chris Edwards, one of my colleagues at the Cato Institute. Michael Sargent of the Heritage Foundation has a tweet that nicely shows that there isn’t a crisis.

Oh, and let’s also consider the example of Japan, which thought infrastructure spending was some sort of economic elixir. That didn’t work so well, as pointed out by the Wall Street Journal.

The U.S. economy isn’t growing at merely 2% because of potholes or airports… The prime illustration is Japan, which since the 1980s has tried to build its way out of stagnation. The country now boasts perhaps the world’s most spectacular suspension bridges, maglev trains, elevated highways and man-made islands, but the cost was trillions of yen of debt (now 230% of GDP) and no better growth. Nor could a monorail save Detroit. Projects make economic sense only to the extent they clear rigorous cost-benefit tests.

And if you want to know the infrastructure that is least likely to pass a cost-benefit test, just look at mass transit.

A good place to start is the Wall Street Journal‘s recent editorial on a subway line in New York City.

New York City opened a new subway line—about a century after the project was proposed and merely decades after ground-breaking in 1972…by far the most expensive train track in the history of the world. The story is an example of what not to do… This first phase of the new line—amounting to 1.6 miles in a single neighborhood, with three new stations and a renovated stop—cost some $4.451 billion. …The next leg of the Second Avenue subway, which would extend the train 29 blocks north into Harlem starting in 2020, is projected to cost an astonishing $6 billion, and that is surely an underestimate.

Gabriel Roth, writing for the Washington Examiner, has the right idea.

…abolish the subsidies. The federal government forces road users to spend some $10 billion a year on non-road assets of little or no benefit to them. Those payments are not only wasteful in themselves; they also encourage states and local governments to squander money on mass transit, whose costs users are not prepared to cover — not even the operating costs. If local communities consider such expenditures important, they should pay for them themselves.

By the way, just to show my libertarian bona fides, I think decentralization is just part of the answer. In my fantasy world, the private sector plays a bigger role.

And the good news, as I wrote back in 2014, is that my fantasy is reality in some instances.

Here’s another example from Hawaii.

Their livelihood was being threatened, and they were tired of waiting for government help, so business owners and residents on Hawaii’s Kauai island pulled together and completed a $4 million repair job to a state park — for free. …The state Department of Land and Natural Resources had estimated that the damage would cost $4 million to fix, money the agency doesn’t have, according to a news release from department Chairwoman Laura Thielen. …So Slack, other business owners and residents made the decision not to sit on their hands and wait for state money that many expected would never come. Instead, they pulled together machinery and manpower and hit the ground running March 23. And after only eight days, all of the repairs were done, Pleas said. It was a shockingly quick fix to a problem that may have taken much longer if they waited for state money to funnel in. “We can wait around for the state or federal government to make this move, or we can go out and do our part,” Slack said. “Just like everyone’s sitting around waiting for a stimulus check, we were waiting for this but decided we couldn’t wait anymore.” …”We shouldn’t have to do this, but when it gets to a state level, it just gets so bureaucratic, something that took us eight days would have taken them years,” said Troy Martin of Martin Steel, who donated machinery and steel for the repairs. “So we got together — the community — and we got it done.”

Reminds me of the guy who built some stairs at a park for $550 because the Toronto government was taking too long and planned to spend $65,000 to do the same thing.

And here’s another case study from Portland.

Portland Anarchist Road Care (PARC) is a community collaboration of skilled workers who volunteer their services to fix the damaged roads around Portland, Oregon. Citing concerns about governmental bureaucracy, the current political climate, a lack of funds and a seeming lack of care, the members of PARC decided to take things into their own very capable hands.

I have no idea whether these people are libertarian-minded anarcho-capitalists or deeply confused left-wing nihilist anarchists, but kudos to them for steeping up and doing a job cheaply and efficiently. The very opposite of what we expect from government.

P.S. Since Nazis are in the news and since I’m writing about infrastructure, here are some blurbs from an academic study on how Germany’s National Socialists used autobahn outlays to generate political support.

The idea that political support can effectively be bought has a long lineage – from the days of the Roman emperors to modern democracies, `bread and circus’ have been used to boost the popularity of politicians. A large literature in economics argues more generally that political support can be ‘bought’. …In this paper, we analyze the political benefits of building the worldʹs first nationwide highway network in Germany after 1933 – one of the canonical cases of government infrastructure investment. We show that building the Autobahn was highly effective in reducing opposition to the Hitler regime. …What accounts for the Autobahn’s success in winning “hearts and minds”? We discuss the economic and transport benefits. In the aggregate, these have been shown to be minimal (Ritschl 1998; Vahrenkamp 2010). …we argue that the motorways…increased support because they could be exploited by propaganda as powerful symbols of competent, energetic government. …Our results suggest that infrastructure spending can indeed create electoral support for a nascent dictatorship – it can win the “hearts and minds” of the populace. In the case of Germany, direct economic benefits of pork‐barrel spending in affected districts may have played a role.

Seems that politicians, whether motivated by evil or run-of-the-mill ambition, love spending other people’s money to build political support. Is it any wonder that we hold them in such low esteem?

P.P.S. Fans of “public choice” doubtlessly will be amused by the IMF’s 2014 flip-flop on infrastructure.

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The real world is like a cold shower for our friends on the left. Everywhere they look, there is evidence that jurisdictions with free markets and small government outperform places with big welfare states and lots of intervention.

That’s true when comparing nations. And it’s also true when comparing states. That must be a source of endless frustration an disappointment for statists.

Speaking of disappointed statists, the real world has led to more bad news. The left-wing Mayor of Baltimore campaigned in favor of a $15 minimum wage, but then decided to veto legislation to impose that mandate. The Wall Street Journal opines on this development.

Mayor Catherine Pugh, a Democrat, has rejected a bill that would raise the city’s minimum wage to $15 an hour by 2022. She did so even though she had campaigned in favor of raising the minimum wage, which shows that economic reality can be a powerful educator. She explained her change of heart by noting that raising the rate above the $8.75 an hour minimum that prevails in the rest of Maryland would send jobs and tax revenue out of Baltimore to surrounding counties. The increase would also have raised the city’s payroll costs by $116 million over the next four years when she’s already coping with a deficit of $130 million in the education budget.

The key thing to notice is that the Mayor recognized that the real-world impact of bad legislation is that economic activity would shrink in the city and expand outside the city.

Writing for Reason, Eric Boehm also points out that the Mayor was constrained by the fact neighboring jurisdictions weren’t making the same mistake.

Pugh said the bill would not be in the best interest of Baltimore’s 76,000 unemployed workers and would drive businesses out of the city to the surrounding counties. …Indeed. Raising the minimum wage would not solve Baltimore’s economic troubles, and would likely only add to them. While support for a $15 minimum wage has become something of a litmus test for progressive politicians, the true test of any politician should be whether he or she is willing to set aside campaign trail rhetoric that flies in the face of economic reality. Signing the bill would have made progressive pols and activists happy—one Baltimore city councilman called Pugh’s decision “beyond disappointing” and a minimum wage activist group said it would remind voters of Pugh’s “broken promise”—but there’s no honor in following through on a promise to do more damage to an already struggling city’s economy. Pugh’s decision to veto a $15 minimum wage bill isn’t disappointing in the least. More politicians should learn from her example of valuing economic reality over populist rhetoric.

The Mayor’s veto is good news, though it remains to be seen whether city legislators will muster enough votes for an override.

Regardless of what happens, notice that the Mayor didn’t do the right thing because she believed in economic liberty and freedom of contract. She also didn’t do the right thing because she recognized that higher minimum wage mandates would lead to more joblessness.

Instead, she felt compelled to do the right thing because of jurisdictional competition. She was forced to acknowledge that bad policy in her city would explicitly backfire since economic activity is mobile. She had to admit that there are no magic boats.

And this underscores why federalism and decentralization are vital features of a good system. Governments are more likely to do bad things when the costs can be imposed on an entire nation (or, even better from their perspective, the entire world). But when bad policy is localized, it becomes very hard to disguise the costs of bad policy.

And, as today’s column illustrates, decentralization stopped the Mayor of Baltimore from a bad policy that would hurt poorly skilled workers. Just as federalism stopped Vermont politicians from imposing a destructive single-payer health system.

Let’s close by circling back to the minimum wage.

Writing in today’s Wall Street Journal, Andy Puzder makes a very timely point about automation.

Entry-level jobs matter—and you don’t have to take my word for it. In a speech last week on workforce development in low-income communities, Federal Reserve Chair Janet Yellen said that “it is crucial for younger workers to establish a solid connection to employment early in their work lives.” Unfortunately, government policies are destroying entry-level jobs by giving businesses an incentive to automate at an accelerated pace. In a survey released last month, the publication Nation’s Restaurant News asked 319 restaurant operators to name their biggest challenge for 2017. Nearly a quarter of them, 24%, said rising minimum wages. …The trend toward automation is particularly pronounced in areas where the local minimum wage is high.

Need more evidence?

By the way, even the normally left-leaning World Bank has research on the damaging impact of minimum wage mandates.

This paper uses a search-and-matching model to examine the effects of labor regulations that influence the cost of formal labor (notably minimum wages and payroll taxes) on labor market outcomes… The results indicate that these regulations, especially minimum wage policy, contribute to higher unemployment rates and constraint formalization…, especially for youth and women.

The research was about the labor market in Morocco, but the laws of supply and demand are universal.

As I’ve repeatedly stated, when you mandate that workers get paid more than what they’re worth, that’s a recipe for unemployment. And as the World Bank points out, it’s the more vulnerable members of society who pay the highest price.

In an ideal world, there should be no minimum wage mandates. But since that’s not an immediately practical goal, the best way of protecting low-skilled workers is to make sure Washington does not impose a nationwide increase. That won’t stop every state and local government from imposing destructive policies that cause unemployment, but the pressure of jurisdictional competition will

And when those bad policies do occur, that will simply give us more evidence against intervention. Which brings us back to where we started. The real world is a laboratory that shows statism is a bad idea.

P.S. In honor of Equal Pay Day, I can’t resist sharing this tidbit from the Washington Free Beacon.

Oh, you also won’t be surprised to learn that there was also a big pay gap in Hillary Clinton’s Senate office, as well as Obama’s White House. In reality, of course, the market punishes genuine discrimination and the pay gap is basically nonexistent when comparing workers with similar education, experience, and work patterns.

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The annual budget for our bloated and sclerotic federal government consumes about $4 trillion of America’s economic output, yet President Trump so far has not proposed to reduce that overall spending burden by even one penny.

A few programs are targeted for cuts, to be sure, but I explained last week, that “taxpayers won’t reap the benefits since those savings will be spent elsewhere, mostly for a bigger Pentagon budget.” More worrisome, I also pointed out that his budget proposal is “silent on the very important issues of tax reform and entitlement reform.”

All things considered, you would think that statists, special interest groups, and other denizens of the D.C. swamp would be happy with Trump’s timid budget.

Not exactly. There’s so much wailing and screaming about “savage” and “draconian” budget cuts, you would think the ghost of Ronald Reagan is haunting Washington.

Much of this whining is kabuki theater and political posturing as various beneficiaries (including the bureaucrats, lobbyists, contractors, and other insiders) make lots of noise as part of their never-ending campaigns to get ever-larger slices of the budget pie.

And nothing demonstrates the vapidity of this process more than the imbroglio over the Meals on Wheels program. Based on news reports, the immediate assumption is that Trump’s budget is going to starve needy seniors by ending delivery of meals.

Here’s how CNN characterized the proposal.

The preliminary outline for President Donald Trump’s 2018 budget could slash some funding for a program that provides meals for older, impoverished Americans.

“Slash”? That sounds ominous. Sounds like a cut of 40 percent, 50 percent, or 60 percent!

And a flack for Meals on Wheels added her two cents, painting a picture of doom and despair for hungry seniors.

…spokeswoman Jenny Bertolette said, “It is difficult to imagine a scenario in which they will not be significantly and negatively impacted if the President’s budget were enacted.”

Oh no, “significantly and negatively impacted” sounds brutal. How many tens of thousands of seniors will starve?

Only near the bottom of the story do we learn that this is all nonsense. All that Trump proposed, as part of his plan to shift some spending from the domestic budget to the defense budget, is to shut down a pork-riddled and scandal-plagued program at the Department of Housing Development. However, because a tiny fraction of community development block grants get used for Meals on Wheels, interest groups and leftist journalists decided to concoct a story about hungry old people.

In reality, the national office (appropriately) gets almost all its money from private donations and almost all the subsidies to the local branches are from a separate program.

About 3% of the budget for Meals on Wheels’ national office comes from government grants (84% comes from individual contributions and grants from corporations and foundations)… The Older Americans Act, as a function of the US Department of Health and Human Services, …covers 35% of the costs for the visits, safety checks and meals that the local agencies dole out to 2.4 million senior citizens, Bertolette said.

In other words, CNN engaged in what is now known as fake news, publishing a story designed to advance an agenda rather than to inform readers.

My colleague Walter Olson wrote a very apt summary for National Review.

The story that Trump’s budget would kill the Meals on Wheels program was too good to check. But it was false. …it wouldn’t have taken long for reporters to find and provide some needed context to the relationship between federal block grant programs, specifically Community Development Block Grants (CDBG), and the popular Meals on Wheels program. …From Thursday’s conversation in the press, it was easy to assume that block grant programs — CDBG and similar block grants for community services and social services — are the main source of federal funding for Meals on Wheels. Not so.

And if you want some accurate journalism, the editorial page of Investor’s Business Daily has a superb explanation.

What Trump’s budget does propose is cutting is the corruption-prone Community Development Block Grant program, run out of Housing and Urban Development. Some, but not all, state and local governments use a tiny portion of that grant money, at their own discretion, to “augment funding for Meals on Wheels,” according to the statement. …So what’s really going on? As Meals on Wheels America explained, some Community Development Block Grant money does end up going to some of the local Meals on Wheels programs. But it’s a small amount. HUD’s own website shows that just 1% of CDBG grant money goes to the broad category of “senior services.” And 0.17% goes to “food banks.” …All of this information was easily available to anyone reporting on this story, or anyone commenting on it, which would have prevented the false claims about the Meals on Wheels program from spreading in the first place. But why bother reporting facts when you can make up a story…?

The IBD editorial then shifted to what should be the real lesson from this make-believe controversy

…this fake budget-cutting story ended up revealing how programs like Meals on Wheels can survive without federal help. As soon as the story started to spread, donations began pouring into Meals on Wheels. In two days, the charity got more than $100,000 in donations — 50 times more than they’d normally receive. Clearly, individuals are ready, willing and eager to support this program once they perceive a need. Isn’t this how charity is supposed to work, with people donating their own time, money and resources to causes they feel are important, rather than sitting back and expecting the federal government to do it for them?

At the risk of being flippant, Libertarian Jesus would approve that message.

But to be more serious, IBD raises an important point that deserves some attention. Some Republicans think the appropriate response to CNN‘s demagoguery is to point out that Meals on Wheels gets the overwhelming share of its federal subsidies from the Older Americans Act rather than CDBG.

In reality, the correct lesson is that the federal government shouldn’t be subsidizing Meals on Wheels. Or any redistribution program that purports to help people on the state and local level.

There’s a constitutional argument against federal involvement. There’s a fiscal argument against federal involvement. There’s a diversity argument against federal involvement. And there’s a demographic argument against federal involvement.

But there’s also a common-sense argument against federal involvement. And that gives me an excuse to introduce my Third Theorem of Government. Simply stated, it’s a recipe for waste to launder money through Washington.

P.S. For those interested, here is the First Theorem of Government and here is the Second Theorem of Government.

P.P.S. I started today’s column by noting that Trump hasn’t proposed “even one penny” of lower spending. That’s disappointing, of course, but the news is not all bad. The President has  endorsed the Obamacare reform legislation in the House of Representatives, and while that legislation does not solve the real problem in our nation’s health sector, at least it does lower the burden of taxes and spending.

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The famous French diplomat Charles Maurice de Talleyrand supposedly said that a weakness of the Bourbon monarchs was that they learned nothing and forgot nothing.

If so, the genetic descendants of the Bourbons are now in charge of Europe.

But before explaining why, let’s first establish that Europe is in trouble. I’ve made that point (many times) that the continent is in trouble because of statism and demographic change.

What’s far more noteworthy, though, is that even the Europeans are waking up to the fact that the continent faces a very grim future.

For instance, the bureaucrats in Brussels are pessimistic, as reported by the EU Observer.

…the report warns of a longer term risk for the EU economy. “As expectations of low growth ahead affect investment today, there is potential for a vicious circle,” the commission’s director general for economic and financial affairs writes in the report’s foreword. “In short, the projected pace of GDP growth may not be sufficient to prevent the cyclical impact of the crisis from becoming permanent (hysteresis), ” Marco Buti writes.

The people of Europe share that grim assessment.

Pew has some very sobering data on angst across the continent.

Support for European economic integration – the 1957 raison d’etre for creating the European Economic Community, the European Union’s predecessor – is down over last year in five of the eight European Union countries surveyed by the Pew Research Center in 2013. Positive views of the European Union are at or near their low point in most EU nations, even among the young, the hope for the EU’s future. The favorability of the EU has fallen from a median of 60% in 2012 to 45% in 2013.

Here’s the relevant chart.

Establishment-oriented voices in the United States also agree that the outlook is rather dismal.

Writing in the Washington Post, Sebastian Mallaby offers a grim assessment of Europe’s future.

…since 2008…, the 28 countries in the European Union managed combined growth of just 4 percent. And in the subset consisting of the eurozone minus Germany, output actually fell. …most of the Mediterranean periphery has suffered a lost decade. …The unemployment rate in the euro area stands at 9.8 percent, more than double the U.S. rate. Unemployment among Europe’s youth is even more appalling: In Greece, Spain, France, Croatia, Italy, Cyprus and Portugal, more than 1 in 4 workers under 25 are jobless.

The bottom line is that there’s widespread consensus that Europe is a mess and that things will probably get worse unless there are big changes.

But the key question, as always, is whether the changes are positive or negative. And this is why I started with a reference to the Bourbon kings. European leaders today also are infamous for learning nothing and forgetting nothing.

Indeed, the proponents of bad policy want to double down on the mistakes of bigger government and more centralization.

The International Monetary Fund (aka, the “Dr. Kevorkian” or “dumpster fire” of the global economy), led by France’s Christine Lagarde, actually is urging a new form of redistribution in Europe.

The International Monetary Fund called on Thursday for the creation of a fund…in the euro zone… Managing Director Christine Lagarde said… “countries would be pooling budgetary resources in a common pot which could be used for projects and certain operations”

Lagarde says the new fund should have strings attached, so that nations could access the loot if they complied with the EU’s budget rules, and also if they use the money for structural reform.

That sounds prudent, but only until you look at the fine print.

The current budget rules are misguided and are more likely to encourage tax hikes rather than spending restraint. And while many European nations need good structural reform, that’s not what the IMF has in mind.

Lagarde told a news conference the new fund could pay for projects related to migration, refugees, security, energy and climate change.

Instead, it appears that this is just a scheme to transfer money from countries such as Germany and Estonia that have restrained spending in recent years.

Germany, Estonia and Luxembourg are the only EU countries that have posted budget surpluses since 2014. Lagarde said the pooling of budgetary resources could put these surpluses to good use.

Sigh.

But the problem goes way beyond an international bureaucracy led by someone from Europe. This is the mentality that is deeply embedded in most European policymakers.

Simply stated, the people who helped create the European mess by pushing for bigger government and more centralization agree that the time if right for…you guessed it…bigger government and more centralization. Here’s an excerpt from a report by the Delors Institute.

…a true economic and monetary union still needs to be built. It will have to be based on significant risk sharing and sovereignty sharing within a coherent and legitimate framework of supranational economic governance. This third building block includes turning the ESM into a fully-fledged European Monetary Fund.

The bureaucrats in Brussels predictably agree that they should get more power, as noted in a story from the EU Observer.

The EU should raise its own taxes and use Brexit as an opportunity to push for the idea, a report by a group of top officials says. …”The Union must mobilise common resources to find common solutions to common problems,” says the document, seen by EUobserver. …The paper also proposes a EU-level corporate income tax that would be combined with a common consolidated corporate tax base… Other proposals include a bank levy, a financial transaction tax, or a European VAT that would top national VATs. …The new budget EU commissioner Guenther Oettinger said that the report was “of great quality”.

And the senior politicians in Brussels are also beating the drum for added centralization.

…divergence creates fragility… Progress must happen…towards a genuine Economic Union…towards a Fiscal Union…need to shift from a system of rules and guidelines for national economic policy-making to a system of further sovereignty sharing within common institutions…some degree of public risk sharing…including a ‘social protection floor’…a shared sense of purpose among all Member States

Wow. I don’t know if I’ve ever read something so wildly wrong. As Nassim Nicholas Taleb has sagely observed, it is centralization and harmonization that creates systemic risk.

And all this talk about “common resources” and “public risk sharing” is simply the governmental version of co-signing a loan for the deadbeat family alcoholic.

Yet Europe’s ideologues can’t resist their lemming-like march in the wrong direction.

What makes this especially odd is that there is so much evidence that Europe originally became rich for the opposite reason.

It was decentralization and jurisdictional competition that enabled prosperity.

Matt Ridley, writing for the UK-based Times, drives this point home.

…the leading theory among economic historians for why Europe after 1400 became the wealthiest and most innovative continent is political fragmentation. Precisely because it was not unified, Europe became a laboratory for different ways of governing, enabling the discovery of regimes that allowed free markets and invention to flourish, first in northern Italy and some parts of Germany, then the low countries, then Britain. By contrast, China’s unity under one ruler prevented such experimentation. …Baron Montesquieu…remarked, Europe’s “many medium-sized states” had incubated “a genius for liberty, which makes it very difficult to subjugate each part and to put it under a foreign force other than by laws and by what is useful to its commerce”. …David Hume…mused…Europe is the continent “most broken by seas, rivers, and mountains” and so “the divisions into small states are favourable to learning, by stopping the progress of authority as well as that of power”. …the idea has gained almost universal agreement among historians that a disunited Europe, while frequently wracked by war, was also prone to innovation and liberty — thanks to the ability of innovators and skilled craftsmen to cross borders in search of more congenial regimes.

But now Europe has swung completely in the other direction.

The European Commission’s obsession with harmonisation prevents the very pattern of experimentation that encourages innovation. Whereas the states system positively encouraged governments to be moderate in political, religious and fiscal terms or lose their talent, the commission detests jurisdictional competition, in taxes and regulations. The larger the empire, the less brake there is on governmental excess.

Ralph Raico echoes these insights in an article for the Foundation for Economic Education.

In seeking to answer the question why the industrial breakthrough occurred first in western Europe, …what was it that permitted private enterprise to flourish? …Europe’s radical decentralization… In contrast to other cultures — especially China, India, and the Islamic world — Europe comprised a system of divided and, hence, competing powers and jurisdictions. …Instead of experiencing the hegemony of a universal empire, Europe developed into a mosaic of kingdoms, principalities, city-states, ecclesiastical domains, and other political entities. Within this system, it was highly imprudent for any prince to attempt to infringe property rights in the manner customary elsewhere in the world. In constant rivalry with one another, princes found that outright expropriations, confiscatory taxation, and the blocking of trade did not go unpunished. The punishment was to be compelled to witness the relative economic progress of one’s rivals, often through the movement of capital, and capitalists, to neighboring realms. The possibility of “exit,” facilitated by geographical compactness and, especially, by cultural affinity, acted to transform the state into a “constrained predator”.

In other words, the “stationary bandit” couldn’t steal as much and that gave the private sector the breathing room that’s necessary for growth.

But today’s politicians in Europe want to strengthen the ability of governments to seize more money and power.

That strategy may work in the short run, but bailouts, redistribution, easy money, and statism are not a good long-run strategy.

So perhaps it’s appropriate that we conclude with a warning. As reported in a column for the UK-based Telegraph, one of the architects of the euro fears that bailouts are crippling the continent-wide currency.

The European Central Bank is becoming dangerously over-extended and the whole euro project is unworkable in its current form, the founding architect of the monetary union has warned. “One day, the house of cards will collapse,” said Professor Otmar Issing, the ECB’s first chief economist… Prof Issing lambasted the European Commission as a creature of political forces that has given up trying to enforce the rules in any meaningful way. “The moral hazard is overwhelming,” he said. The European Central Bank is on a “slippery slope” and has in his view fatally compromised the system by bailing out bankrupt states in palpable violation of the treaties. “…Market discipline is done away with by ECB interventions. …The no bailout clause is violated every day,” he said… Prof Issing slammed the first Greek rescue in 2010 as little more than a bailout for German and French banks, insisting that it would have been far better to eject Greece from the euro as a salutary lesson for all.

For what it’s worth, I fully agree that Greece should have been cut loose.

But European politicians and bureaucrats, driven by an ideological belief in centralization (and a desire to bail out their big banks), instead decided to undermine the euro by creating a bigger mess in Greece and sending a very bad signal about bailouts to other welfare states.

And keep in mind that the fuse is still burning on the European fiscal crisis.

As the old saying goes, this won’t end well.

P.S. While my prognosis for Europe is relatively bleak, there were some hopeful signs in the aforementioned Pew data.

First, Europeans at some level understand that government is simply too big. Indeed, they recognize that economic growth is far more likely to occur if fiscal burdens are reduced rather than increased.

Second, they also realize that the euro, while weakened and flawed, is a better option than restoring national currencies, which would give their governments the power to finance bigger government by printing money.

P.P.S. I can’t resist sharing one final bit of polling data from Pew. I’m amused that every nation sees itself as the most compassionate (though if you look at real data, all European nations lag the USA in real compassion). Meanwhile, the prize for self-doubt (or perhaps self-awareness?) goes to the Italians, who labeled themselves as least trustworthy. The schizophrenia prize goes to the Poles, who simultaneously view the Germans as the most trustworthy and least trustworthy.

Oh, and there’s probably some lesson to be learned from Germany dominating the data for being most trustworthy and least compassionate.

Maybe this poll should be added to my European humor collection.

P.P.P.S. Given the sorry state of Europe, now perhaps skeptics will understand why Brexit was the only good option for Brits.

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Which state gets the biggest share of its budget from the federal government?

Nope, not even close. As a matter of fact, those two jurisdictions are among the 10-least dependent states.

And if you’re guessing that the answer is New York, New Jersey, Maryland, Connecticut, or some other “blue state,” that would be wrong as well.

Instead, if you check out this map from the Tax Foundation, the answer is Mississippi, followed by Louisiana, Tennessee, Montana, and Kentucky. All of which are red states!

So does this mean that politicians in red states are hypocrites who like big government so long as someone else is paying?

That’s one way of interpreting the data, and I’m sure it’s partially true. But for a more complete answer, let’s look at the Tax Foundation’s explanation of its methodology. Here’s part of what Morgan Scarboro wrote.

State governments…receive a significant amount of assistance from the federal government in the form of federal grants-in-aid. Aid is given to states for Medicaid, transportation, education, and other means-tested entitlement programs administered by the states. …states…that rely heavily on federal assistance…tend to have modest tax collections and a relatively large low-income population.

In other words, red states may have plenty of bad politicians, but what the data is really saying – at least in part – is that places with a lot of poor people automatically get big handouts from the federal government because of programs such as Medicaid and food stamps.  So if you compared this map with a map of poverty rates, there would be a noticeable overlap.

Moreover, it’s also important to remember that the map is showing the relationship between state revenue and federal transfers. So if a state has a very high tax burden (take a wild guess), then federal aid will represent a smaller share of the total amount of money. By contrast, a very libertarian-oriented state with a very low tax burden might look like a moocher state simply because its tax collections are small relative to formulaic transfers from Uncle Sam.

Indeed, this is a reason why the state with best tax policy, South Dakota, looks like one of the top-10 moocher states in the map.

This is why it would be nice if the Tax Foundation expanded its methodology to see what states receive a disproportionate level of handouts when other factors are equalized. For instance, what happens is you look at federal aid adjusted for population (which USA Today did in 2011). Or maybe even adjusted for the poverty rate as well (an approached used for the Moocher Index).

P.S. For what it’s worth, California has the nation’s most self-reliant people, as measured by voluntary food stamp usage.

P.P.S. And it’s definitely worth noting that the federal government deserves the overwhelming share of the blame for rising levels of dependency in the United States.

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While I have great fondness for some of the visuals I’ve created over the years (especially “two wagons” and “apple harvesting“), I confess that none of my creations have ever been as clear and convincing as the iconic graph on education spending and education outcomes created by the late Andrew Coulson.

I can’t imagine anyone looking at his chart and not immediately realizing that you don’t get better results by pouring more money into the government’s education monopoly.

But the edu-crat lobby acts as if evidence doesn’t matter. At the national level, the state level, and the local level, the drumbeat is the same: Give us more money if you care about kids.

So let’s build on Coulson’s chart to show why teachers’ unions and other special interests are wrong.

Gerard Robinson of the American Enterprise Institute and Professor Benjamin Scafidi from Kennesaw State University take a close look at this issue.

…education is important to the economic and social well-being of our nation, which is why it is the No. 1 line item in 41 state budgets. …Schools need extra money to help struggling students, or so goes the long-standing thinking of traditional education reformers who believe a lack of resources – teachers, counselors, social workers, technology, books, school supplies – is the problem. …a look back at the progress we’ve made under reformers’ traditional response to fixing low-performing schools – simply showering them with more money – makes it clear that this approach has been a costly failure.

And when the authors say it’s been a “costly failure,” they’re not exaggerating.

Since World War II, inflation-adjusted spending per student in American public schools has increased by 663 percent. Where did all of that money go? One place it went was to hire more personnel. Between 1950 and 2009, American public schools experienced a 96 percent increase in student population. During that time, public schools increased their staff by 386 percent – four times the increase in students. The number of teachers increased by 252 percent, over 2.5 times the increase in students. The number of administrators and other staff increased by over seven times the increase in students. …This staffing surge still exists today. From 1992 to 2014 – the most recent year of available data – American public schools saw a 19 percent increase in their student population and a staffing increase of 36 percent. This decades-long staffing surge in American public schools has been tremendously expensive for taxpayers, yet it has not led to significant changes in student achievement. For example, public school national math scores have been flat (and national reading scores declined slightly) for 17-year-olds since 1992.

By the way, the failure of government schools doesn’t affect everyone equally.

Parents with economic resources (such as high-profile politicians) can either send their kids to private schools or move to communities where government schools still maintain some standards.

But for lower-income households, their options are very limited.

Minorities disproportionately suffer, as explained by Juan Williams in the Wall Street Journal.

While 40% of white Americans age 25-29 held bachelor’s degrees in 2013, that distinction belonged to only 15% of Hispanics, and 20% of blacks. …The root of this problem: Millions of black and Hispanic students in U.S. schools simply aren’t taught to read well enough to flourish academically.  …according to a March report by Child Trends, based on 2015 data from the National Assessment of Educational Progress (NAEP), only 21% of Hispanic fourth-grade students were deemed “proficient” in reading. This is bad news. A fourth-grader’s reading level is a key indicator of whether he or she will graduate from high school. The situation is worse for African-Americans: A mere 18% were considered “proficient” in reading by fourth grade.

But Juan points out that the problems aren’t confined to minority communities. The United States has a national education problem.

The problem isn’t limited to minority students. Only 46% of white fourth-graders—and 35% of fourth-graders of all races—were judged “proficient” in reading in 2015. In general, American students are outperformed by students abroad. According to the most recent Program for International Student Assessment, a series of math, science and reading tests given to 15-year-olds around the world, the U.S. placed 17th among the 34 Organization for Economic Cooperation and Development countries in reading.

This is very grim news, especially when you consider that the United States spends more on education – on a per-pupil basis – than any other country.

Here’s a table confirming Juan’s argument. It lacks the simple clarity of Andrew Coulson’s graph, but if you look at these numbers, it’s difficult to reach any conclusion other than we spend a lot in America and get very mediocre results.

Juan concludes his column with a plea for diversity, innovation, and competition.

For black and Hispanic students falling behind at an early age, their best hope is for every state, no matter its minority-student poverty rate, to take full responsibility for all students who aren’t making the grade—and get those students help now. That means adopting an attitude of urgency when it comes to saving a child’s education. Specifically, it requires cities and states to push past any union rules that protect underperforming schools and bad teachers. Urgency also means increasing options for parents, from magnet to charter schools. Embracing competition among schools is essential to heading off complacency based on a few positive signs. American K-12 education is in trouble, especially for minority children, and its continuing neglect is a scandal.

He’s right, but he should focus his ire on his leftist friends and colleagues. They’re the ones (including the NAACP!) standing in the proverbial schoolhouse door and blocking the right kind of education reform.

P.S. This is a depressing post, so let’s close with a bit of humor showing the evolution of math lessons in government schools.

P.P.S. If you want some unintentional humor, the New York Times thinks that education spending has been reduced.

P.P.P.S. Shifting to a different topic, another great visual (which also happens to be the most popular item I’ve ever shared on International Liberty) is the simple image properly defining the enemies of liberty and progress.

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Learning from the tremendous success of welfare reform during the Clinton Administration, the entire Washington-based welfare state should be junked.

It’s a complicated and costly mess that traps poor people in dependency while ripping off taxpayers and creating very comfortable lives for “poverty pimps.”

It would be much simpler (and more effective) to simply take all the money that’s now being spent on these programs and send it to the states as part of a “block grant” and let them figure out how best to help poor people without some of the negative consequences caused by the current plethora of programs.

I’ve previously written about how this would be a very desirable reform of Medicaid. Today, let’s build upon some previous analysis and explain why it would be good to get Washington out of the business of Food Stamps.

Let’s start with the fact that the program subsidizes purchases that have nothing to do with avoiding genuine hunger and deprivation. Indeed, as documented in a story in The Federalist, Food Stamps subsidize a considerable amount of unhealthy food.

New data from the U.S. Department of Agriculture reveals food stamp recipients spent more money on sweetened beverages than they did on fruits, vegetables, bread, cereal, or milk. The USDA analyzed transactional data from a leading grocery store in 2011 and found that Supplemental Nutritional Assistance Program (SNAP) households spent a greater percentage of money on unhealthier foods than those who didn’t use taxpayer funds to pay for their groceries. …The recent USDA study only looked at data from one grocery store retailer. It did not examine how SNAP funds were spent at convenience stores, which presumably would have significantly increased the amount of unhealthy foods purchased with taxpayer dollars.

Here are some of the details.

…The second largest expenditure for SNAP households was sweetened beverages, whereas the second largest expenditure for non-SNAP households was vegetables. …SNAP households spent 7.2 percent of their money on vegetables, while non-SNAP households spent 9.1 percent of their grocery money on this category of food. When comparing fruit purchases, the gap widens slightly: SNAP households spent 4.7 percent on fruits, and non-SNAP households spent an averages of 7.2 percent in the same category.

Here’s the comparison of purchases from those with food stamps and those using their own money.

As one might suspect, the problem has gotten worse during the profligate Bush-Obama era.

During President Obama’s tenure, the numbers and percentages of Americans using taxpayer’s money to buy their groceries has drastically increased. SNAP participation has increased 78 percent in the past ten years and remains near its all-time high… Food stamp usage also dramatically increased during President George W. Bush’s tenure… That’s because Bush signed a dramatic expansion of food welfare inside a farm bill. This expansion, among other things, made it easier to sign up and made non-citizens eligible to use U.S. taxpayers’ funds to fund grocery excursions.

By the way, I think poor people (indeed, all people) should be able to eat anything they want. That being said, there’s something perverse about subsidizing and encouraging unhealthy patterns.

Particularly when obesity is one of the biggest health problems in low-income communities.

The program also has always had major problems with fraud, as illustrated by a recent scandal in Florida.

The U.S. Attorney for the Southern District of Florida announced the largest food stamp fraud bust in U.S. history Wednesday afternoon. …500 people had their identities stolen in Palm Beach County to be used to get fake Electronic Benefit Transfer cards which were then exchanged for cash… Federal charges were filed against 22 retail store owners or operators in connection with schemes to illegally redeem food stamp benefits for cash, the Justice Department said. Indictments allege the retailers received more than $13 million in federal payments.

Even millionaires bilk the system.

A Geauga County millionaire—who comes from royalty—has been indicted on charges he illegally received food stamps and medicaid assistance. Ali Pascal Mahvi is facing four felony counts which could put him behind bars for more than four years if convicted. …Meyer informed Mahvi of the indictment at Mahvi’s 8,000 square foot home. …Prosecutors say Mahvi defrauded Medicaid out of $45,000 and about $8,400 in food stamps. Mahvi, who is the son of an Iranian prince, estimates his worth at about $120 million. His $800,000 home features five bedrooms and five bathrooms, an in-ground swimming pool, and stable with horses. Mahvi, who says he owns 70 percent of a resort in St. Lucia, says he’s played by the rules.

And some scammers become millionaires from the other end of the system.

Convenience store owner Vida Ofori Causey out of Worcester, Mass. was charged in federal court Monday after pleading guilty to $3.6 million worth of food stamp fraud. …“Causey purchased the benefits at a discounted value of approximately fifty cents for every SNAP dollar,” a press release from Department of Justice stated. “By so doing, Causey caused the USDA to electronically deposit into a bank account controlled by her the full face value of the SNAP benefits fraudulently obtained.” As a result, recipients had cash on hand to buy restricted items. The restricted items could include alcohol, cigarettes and even drugs.

Stories like this reinforce the argument that states should be in charge of the program, if for no other reason than there will be fiscal pressure not to waste so much money.

Moreover, there’s considerable evidence that states are more sensible in their approach. I’ve already written about good reforms in Maine and Wisconsin. Well, the Daily Caller has encouraging news that the good news in those states is part of a national trend.

The number of people receiving food stamps has declined sharply due in part to the reinstatement of work requirements earlier this year, according to a report Wednesday. …“Caseloads fell sharply in April, especially in states reinstating a three-month time limit for unemployed childless adults without disabilities, new Agriculture Department data show,” CBPP detailed in its report. “The data, covering the first month in which most of the roughly 20 states that imposed the time limit in January began cutting people off.” The USDA has required food stamp work requirements since an overhaul of the program in 1996. Able-bodied adults without children are required to work at least 20 hours a week or else lose their benefits after three months. …Work requirements have now been restored in a total of 40 states compared to 44 states this past June that had either a waiver or a partial waiver.

And let’s look specifically at some positive developments in Kansas.

…before Kansas instituted a work requirement, 93 percent of food stamp recipients were in poverty, with 84 percent in severe poverty. Few of the food stamp recipients claimed any income. Only 21 percent were working at all, and two-fifths of those working were working fewer than 20 hours per week. Once work requirements were established, thousands of food stamp recipients moved into the workforce, promoting income gains and a decrease in poverty. Forty percent of the individuals who left the food stamp ranks found employment within three months, and about 60 percent found employment within a year. They saw an average income increase of 127 percent. Half of those who left the rolls and are working have earnings above the poverty level. Even many of those who stayed on food stamps saw their income increase significantly. …Furthermore, with the implementation of the work requirement in Kansas, the caseload dropped by 75 percent. Previously, Kansas was spending $5.5 million per month on food stamp benefits for able-bodied adults; it now spends $1.2 million.

P.S. In the long run, the block grant should be phased out so the federal government isn’t involved at all in the business of income redistribution. If we care about the limits on federal power in Article 1, Section 8, then states should be responsible for choosing how much to raise in addition to choosing how to spend.

P.P.S. Just in case you think fraud and waste is a rare problem in the program, here are some other examples.

With stories like this, I’m surprised my head didn’t explode during this debate I did on Larry Kudlow’s show.

P.P.P.S. While I periodically mock California, folks in the Golden State deserve praise for being the least likely to use Food Stamps. Their neighbors in Oregon, by contrast, are very proficient at mooching.

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The concept of secession (part of a jurisdiction breaking away to become independent) has a bad reputation in the United States because it is linked to the reprehensible institution of slavery.

But, as Walter Williams has explained, secession today may be an effective way of protecting liberty from ever-expanding centralized government.

And I’ve favorably written about secessionist movements in Sardinia, Scotland, and Belgium, largely because the historical data shows that better policy is more likely when there are many jurisdictions competing with each other.

So it was with considerable interest that I saw an article in Fortune about a secessionist movement in California.

“Calexit” didn’t start with Donald Trump, but his victory on Election Day certainly sparked more interest in the idea. A play on “Brexit,” it’s the new name for the prospect of California seceding from the U.S. The movement…seems to have gained steam in the past six months, thanks in part to the U.K.’s recent Brexit vote and Donald Trump being elected president. …The group’s goal is to hold a referendum in 2018 that, if passed, would transition California into its own independent country. …the movement has even grabbed the attention of some potential Silicon Valley bankrollers.

I like this idea, though I’m not sure it’s good for California since the state faces very serious long-run challenges.

Though this is one of the reasons I like secession. As an independent nation, California no longer would have any hope of getting a bailout from Washington, so the politicians in Sacramento might start behaving more responsibly.

And there are examples of secession in the modern world, such as Slovakia and the Czech Republic emerging from Czechoslovakia. That was a very tranquil divorce, unlike what happened in the former Yugoslavia.

As is so often the case, we can learn a lot from Switzerland. There is a right of secession, albeit dependent on a nationwide vote of approval. Municipalities also can vote to switch cantons, as happened in 1996 when Vellerat left Bern and became part of Jura. By the way, villages in Liechtenstein have the unilateral right to secede from the rest of the nation (though that seems highly unlikely since it is the second-richest nation in the world).

Notwithstanding these good role models, the secessionist movement in California presumably won’t get very far.

But maybe full-blown secession isn’t necessary. If Californians don’t like what’s happening in Washington (or, for that matter, if Texans aren’t happy with the antics in DC), that should be an argument for genuine and comprehensive federalism.

In other words, get rid of the one-size-fits-all policies emanating from the central government and allow states to decide the size and scope of government.

California can decide to do crazy things (such as regulate babysitters and give bureaucrats too much pay) and Texas can choose to do sane things (such as no income tax), but neither state could dictate policy for the entire nation.

This also happens to be the system envisioned by America’s Founding Fathers.

Think of federalism as a live-and-let-live system. New York doesn’t have to become North Dakota and Illinois doesn’t have to become Alabama. Red states can be red and blue states can be blue. And we can add all the other colors in the rainbow as well. Let a thousand flowers bloom, and all that.

And consider how well federalism works in Switzerland, a nation that doesn’t have a single language, culture, or religion.

Now, perhaps, you’ll understand why I even suggested federalism as a solution to the mess in Ukraine.

P.S. If California actually chooses to move forward with secession, the good news is that we already have a template (albeit satirical) for a national divorce in the United States.

P.P.S. Here’s an interesting historical footnote. There’s a small part of Germany that is entirely surrounded by Switzerland. This enclave wanted to become part of Switzerland many decades ago, but there was no right of secession notwithstanding overwhelming sentiment for a shift of nationality.

A whopping 96 percent of the inhabitants voted for annexation by Switzerland. The people had spoken loud and clear, but their voices were ignored. As the Swiss were unable to offer Germany any suitable territory in exchange, the deal was off. Büsingen would remain, somewhat reluctantly, German.

Since Germany is a reasonably well-run nation, I guess we shouldn’t feel too sorry for the people of Büsingen (unlike, say, the residents of Menton and Roquebrune in France, who used to be part of a tax haven but now are part of a tax hell).

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

Here’s some satire from the twitter account of the fake North Korean News Service.

And here’s another Hitler parody to add to our collection.

And here’s Michelle Obama feeling sad about what’s about to happen.

P.P.P.P.S. We also have some unintentional humor. When Trump prevailed, Paul Krugman couldn’t resist making a prediction of economic doom.

Since markets have since climbed to record highs, Krugman’s forecasting ability may be even worse than all the hacks who predicted Brexit would result in economic calamity for the United Kingdom.

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The burden of government spending is already excessive. But the numbers will get worse with the passage of time if policy is left on autopilot.

The main culprits are the so-called mandatory programs. Entitlements such as Social Security, Medicare, Food Stamps, and Obamacare that automatically dispense money to various constituencies are consuming an ever-larger chunk of the economy’s output.

And if you want to be even more specific, the fastest-growing entitlement program is Medicaid, which was originally supposed to be a very small program to subsidize health care for poor people but has now metastasized into a budget-gobbling fiscal disaster. Arguably, it’s the entitlement program most in need of reform.

So how big is the problem? Enormous if you look at the numbers from the National Association of State Budget Officers.

States increased their spending in fiscal year 2015 by the biggest margin in more than 20 years, but most of the increase was thanks to huge leaps in Medicaid spending under the first full year of the Affordable Care Act (ACA). Spending increased last fiscal year, which ended on June 30 for most states, by 7.8 percent, according to new estimates from the National Association of State Budget Officers (NASBO). It’s the biggest boost since 1992 and was thanks to a 15.1 percent increase in Medicaid spending, much of that paid for via federal Medicaid funds. Illinois, Michigan, Kentucky, Nevada and Oregon saw more than 30 percent increases in federal funding because they expanded Medicaid under the ACA. But 2015 was also a year where states were putting up more of their own money again.

Here’s the chart showing which outlay categories grew the fastest.

The article points out that spending is outpacing revenue.

On average, state revenues aren’t keeping pace with spending; NASBO estimates General Fund revenues will increase by just 3.8 percent.

Though the real problem is that spending is expanding faster than the private sector, which is the opposite of what is called for by my Golden Rule.

One of the reasons Medicaid grows so fast is that the program is split between Washington and the states, which both picking up a share of the cost. This may sound reasonable, but it creates a very perverse incentive structure since politicians at both levels can vote to expand the spending burden while only having to provide part of the cost.

The National Center for Policy Analysis explains how this system produces bad decisions.

Medicaid has a horrible financing mechanism: Federal transfers to states are not based on the number of poor people, or any other reasonable calculation. Instead, they depend on the amount of its own taxpayers’ money a state spends. Traditionally, when California spent $1 on Medi-Cal, the federal government kicked in $1. …So, state politicians hike taxes and spending on their own citizens in order to get as much funding as possible from people in other states (via the feds). Hospitals and Medicaid MCOs maximize this by agreeing to a state tax on themselves, which the state uses to ratchet up the federal funding. After multiplication, the money goes right back to these providers. …Stopping this wild spending growth requires fundamental reform to Medicaid’s financing. Congressional Republicans have proposed “block grants,” whereby states would get federal Medicaid transfers based on their population of poor residents, not how much they gouge out of their own people.

But unless that kind of reform happens, the program will continue to grow and become an ever-larger fiscal burden.

Heritage Action has more details on the perverse incentives of the current system.

…the federal government promises to reimburse states for a majority of their Medicaid spending, most of which involves reimbursements to health care providers. Therefore, states collude with health care providers in the following manner: they tell providers that they will tax them (so-called “provider taxes”), bringing in more revenue to the state. The state then promises to filter that money back to those same providers in the form of higher Medicaid reimbursements. States then bill the federal government for this added cost. Because the federal government provides more than 50% of total Medicaid funding, both state governments and Medicaid providers are made better off by the arrangement, while the federal government is stuck footing a larger bill it had no part in creating.

Though I partially disagree with the assertion that the feds are blameless. After all, it was politicians in Washington who created this wretched system, including the reimbursement rules that states manipulate.

This info-graphic illustrates how the “provider fee” scam operates.

The net result of all this is a nightmare for federal taxpayers, but states also are losing out when you consider the long-run consequences. And that’s even true with the Medicaid expansions contained in Obamacare, which supposedly were going to be financed almost entirely by Uncle Sam. The Wall Street Journal reports.

…the Affordable Care Act was designed to essentially bribe states to expand their Medicaid programs: The feds offered to pay 100% of additional costs through 2016, dropping to 90% by 2020. This “free money” prompted 30 states and the District of Columbia to take the deal. Democratic activists have joined with state hospital lobbies to pressure lawmakers in the remaining 20 state capitals to follow.

But free money can be very expensive.

Consider the experience of the states that did expand Medicaid. “At least 14 states have seen new enrollments exceed their original projections, causing at least seven to increase their cost estimates for 2017,” the Associated Press reported in July. The AP says that California expected 800,000 new enrollees after the state’s 2013 Medicaid expansion, but wound up with 2.3 million. Enrollment outstripped estimates in New Mexico by 44%, Oregon by 73%, and Washington state by more than 100%. This has blown holes in state budgets. Illinois once projected that its Medicaid expansion would cost the state $573 million for 2017 through 2020. Yet 200,000 more people have enrolled than were expected, and the state has increased its estimated cost for covering each. The new price tag? About $2 billion… Enrollment overruns in Kentucky forced officials to more than double the anticipated cost of the state’s Medicaid expansion for 2017, the AP reports, to $74 million from $33 million. That figure could rise to $363 million a year by 2021. In Rhode Island, where one-quarter of the state’s population is now on Medicaid, the program consumes roughly 30% of all state spending, the Providence Journal reports. To plug this growing hole, Rhode Island has levied a 3.5% tax on insurance policies sold through the state’s ObamaCare exchange.

Interestingly, Obamacare is causing pro-big government states to dig even deeper fiscal holes.

The National Center for Policy Analysis has some remarkable data on this development.

States that expanded Medicaid tend to have per capita state spending that’s about 17 percent higher than non-expansion states. …In 2004, expansion states had median per capita tax collections (both state and local) of 19 percent more than non-expansion states. By 2012, this gap had widened with expansion states collecting 28 percent more taxes per capita than non-expansion states. Moreover, since 2008 expansion states have moved to increase taxes, while non-expansion states have reduced taxes slightly.

Unsurprisingly, the states that are making government bigger are experiencing slower growth.

In 2001 expansion states had real median income that was nearly 13 percent higher than non-expansion states. However, by 2013 this gap had narrowed to just over 9 percent. Expansion states have historically had slightly lower poverty rates, but the difference was only 1 percentage point by 2012 (12.9 percent vs. 13.9 percent). Non-expansion states, although slightly poorer, have lower unemployment than expansion states (6.7 percent versus 7.2 percent).

By the way, the decision by some states to reject Medicaid expansion is a huge – and underappreciated – victory over Obamacare.

Another point worth mentioning is that the program isn’t even a good deal for the poor according to Scott Atlas at the Hoover Institution. Here’s some of what he wrote for the Wall Street Journal.

Americans should be more worried than ever about Medicaid… The cost of the $500 billion program is expected to rise to $890 billion by 2024… Yet more spending doesn’t necessarily mean better care for beneficiaries… The expansion of Medicaid is one of the most misguided parts of ObamaCare… Some 55% of doctors in major metropolitan areas refuse to take new Medicaid patients… Medicaid enrollees who manage to see a doctor typically experience outcomes worse than those under private insurance. That means more in-hospital deaths, more complications from surgery, worse posttreatment survival rates, and longer hospital stays than similar patients with private insurance. A randomized study by the Oregon Health Study Group showed that having Medicaid did not significantly improve patients’ physical health compared with those without insurance.

The proverbial icing on this foul-tasting cake is the way the program enables staggering amounts of fraud and theft.

I’ve written about this before (including how foreigners are bilking the system). But here are some fresh details from the Wall Street Journal.

…one of our favorite political euphemisms is “improper payments.” That’s how Washington airbrushes away the taxpayer money that flows each year to someone who is not eligible, or to the right beneficiary in the wrong amount, or that disappears to fraud or federal accounting ineptitude. Now thanks to ObamaCare, improper payments are soaring. Last week the Health and Human Services Department published an “alert” warning that the improper payment rate for Medicaid in 2016 will likely hit 11.5%. That’s nearly double the 5.8% rate as recently as 2013… The 11.5% for 2016 is likely an underestimate given that HHS’s goal last year was 6.7% and instead scored 9.8%, which amounts to $29.1 billion. The dollar amount of improper payments in Medicaid was bound to rise because ObamaCare vastly opened eligibility. In 2015 enrollment climbed by 13.8% and one of five Americans are now covered by the program. …In recent audits of Medicaid in Arizona, Florida, Michigan and New Jersey, the GAO uncovered 50 dead people who recouped at least $9.6 million in benefits after they died; 47 providers who registered foreign addresses as their location of service in places such as Saudi Arabia; and $448 million bestowed on 199,000 beneficiaries with fake Social Security numbers—12,500 of which had never been issued by the Social Security Administration.

But as bad as all this sounds, it can get worse.

If HHS tries hard enough, maybe the department can match the failure rate for school lunches (15.7%) or the Earned Income Tax Credit (23.8%).

And Kevin Williamson of National Review adds some acidic observations.

…the criminal — and I do not use the word figuratively — administration of Medicaid by the Obama administration. …improper payments under Medicaid have become so common that they will account this year for almost 12 percent of total Medicaid spending — just shy of $140 billion. …That rate has doubled in only a few years…12 percent in improper payments isn’t an error rate — it’s a malfeasance rate. …If improper and illegal federal payments were an economy of their own, that economy would be bigger than Hungary’s… The Obama administration is not lifting a pinky to do anything about this, even though analysts such as John Hood have — for years — been arguing that it is necessary and possible to reform this mess. As the Wall Street Journal has reported, we don’t even verify that doctors billing Medicaid for services rendered are actually doctors. In many cases, we do not do much to verify that their patients actually, you know, exist. We’ve paid untold billions of dollars to “clinics” that turn out to be little more — or nothing more — than post-office boxes and prepaid cell phones. And as bad as that 12 percent rate is, some policy scholars believe that it is in fact probably worse.

Kevin observes that this system is good for the Poverty Pimps.

…the real problem with the welfare state is not the poor people receiving checks — it’s everybody in the middle, the vast array of government employees, their union allies, contractors, and third parties who earn six-, seven-, eight-, or nine-figure paydays taking their cuts of money we think we’re spending on the poor. This is an enormous criminal conspiracy against the American people and the public fisc.

You might think that fixing this fraud would be an area for bipartisan cooperation.

But the sad reality is that fraud is a feature, not a bug. Politicians like the fact that scam artists in their states and district are stealing healthcare money from taxpayers. After all, recipients of the loot can be registered voters and campaign contributors.

So what’s the best way of fixing this mess?

Will big tax hikes solve the problems? If the problem is that America isn’t enough like France, then the answer is yes.

But if the problem is that government already is too much of a burden and that it would be a good idea to at least slow down the rate at which America becomes France, then the answer is genuine entitlement reform.

And this video shows how the Medicaid program should be “block-granted” (just as welfare was reformed in the 1990s).

P.S. For all intents and purposes, block granting Medicaid is a partial repeal of Obamacare. Just in case you wanted an additional reason to support reform.

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Programs about the improbable success of Chile and Estonia already have aired on nationwide TV, and those were joined last weekend by a show about the “sensible nation” of Switzerland.

Here’s the 28-minute program.

When I first watched the program, I was slightly irked that there was very little discussion of the role of fiscal policy and the importance of spending restraint and competitive tax rates.

Moreover, there was no direct mention of Switzerland’s very successful spending cap, even though the “debt brake” has generated superb results.

Indeed, Switzerland is the only nation from Europe or North America that gets high scores from Economic Freedom of the World for both fiscal policy and rule of law (a notable achievement since Wagner’s Law tells us that it is very difficult to stop government from expanding once the private sector generates a lot of wealth that can be redistributed).

But I confess I’m biased about the importance of tax and spending issues.

And as I thought about what I had seen, I realized that the program’s focus on federalism and decentralization made sense.

Yes, Switzerland has a modest-sized government. And, yes, the debt brake has been a huge success. But those good outcomes are in part the result of a system where most government still takes place at the local (commune) or state (canton) level.

In other words, Switzerland generally still has the type of system America’s Founding Fathers envisioned, with a small central government.

I’ve already pointed out that the level of redistribution in Switzerland is relatively low because of its decentralized model.

But there’s another feature of federalism that’s worth celebrating. As Nassim Nicholas Taleb (of “Black Swan” fame) has pointed out, decentralized systems are much more stable and successful since there’s far less risk of a mistaken policy being imposed on a one-size-fits-all basis.

And countless scholars, including many Nobel Prize recipients, have explained that small, competing nations were a key reason why Europe became a rich continent in the first place.

Sadly, most Europeans have forgotten this lesson and have created the EU superstate in Brussels (which helps to explain why I’m delighted that the United Kingdom voted to escape that sinking ship).

So the moral of the story, from both the video about Switzerland and from all the other evidence in the world, is that federalism is good policy.

Let’s close with an interesting example of Swiss federalism in action. The canton of Zug is known for being a low-tax haven in a country famous for having a reasonable tax regime. Well, the town of Zug is on the cutting edge of digital money.

…the town council has hopes Zug’s trend as a financial tech hub continues  — having embraced the new identity with this legislative move. …As the pilot program is first implemented it will initially allow payments up to 200 Francs, and possibly introducing the ability to pay larger amounts later in the future. …analysis will ultimately determine whether or not the town council will continue allowing Bitcoin payments for municipal services. …Bitcoiners will be taking notice of this small town, and it already has the added benefit of being located in Switzerland  —  which is known for its business friendly environment and relatively small regulatory burden. …In fact, Switzerland’s business environment and relatively free-market economy even helped to convince the Bitcoin wallet and exchange, Xapo, to relocate to Switzerland last year. …the town of Zug itself also provides its citizens with a relatively hands-off approach to the local economy. The Swiss town of  Zug showcases one of the lowest tax rates in the world. This combination of a hands-off approach by the government and large tax benefits has made the small town into a successful economic hub where global trade flourishes.

Wow, this says a lot about the quality of governance in Switzerland that a nation that doesn’t need Bitcoin (unlike, say, Greece or Argentina) nonetheless welcomes it as a competing currency.

Yet another reason why Switzerland is one of the world’s best nations.

P.S. Today’s column is about Switzerland, but I can’t resist pointing out that Hong Kong and Singapore both score highly for rule of law and small government. And Chile deserves honorable mention as well. For what it’s worth, the Princess of the Levant’s home country of Lebanon apparently has the world’s small fiscal burden, but the low score for rule of law suggests that the real story is that the government is simply too incompetent to collect and redistribute money.

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Australia is one of my favorite nations, and not just because the people are friendly.

It has a modest-sized government, at least compared to other developed nations (see table 25 of this OECD data), and it has a very attractive private Social Security system that puts Australia in relatively good shape when looking at the long-run fiscal health of countries.

Indeed, this is one of the reasons why I picked Australia when asked which nation to choose if (when?) America suffers a Greek-style fiscal and economic collapse.

But this surely doesn’t mean that Australia has ideal public policy. It ranks #11 for economic freedom, which is better than America, but the Aussies trail first-place Hong Kong by more than one full point in the 1-10 scoring system.

That being said, Australia will probably move in the right direction if Prime Minister Malcolm Turnbull succeeds in his plan to implement real federalism by shrinking the central government and returning tax and spending authority to the states.

Here’s how an Australian media report characterized the issue.

Returning income taxing power to the states would have resulted in a fierce interstate economic battle that would see Australians vote with their feet and move their lives across borders to get a better deal, economists warn.

The reporter obviously is talking to left-wing economists. If she talked to sensible economists, the above sentence would end with “hope” rather than “warn.”

Here are some of the specific details.

The Prime Minister met with state premiers and territory chief ministers yesterday to discuss his plan to lower the federal government’s income tax and have the states make up the rest by collecting their own tax, to do with which whatever they please. If his bold scheme had gone ahead, they would eventually have been able to set their own tax rates as well.

Unfortunately, state-level politicians apparently are not happy with the notion of having real responsibility.

…premiers and chief ministers weren’t keen and the idea is now off the table, for now, after Malcolm Turnbull conceded there was “nothing like a consensus”.

Actually, there was a consensus of the state politicians. If you’ll allow me to provide a negative interpretation, they want the empty-suit job of taking money from the nation’s central government and then playing Santa Claus by distributing that money to various interest groups.

But I hope Turnbull isn’t giving up because of resistance by these hacks.

Here are some more excerpts that help to explain why he has a very good idea.

What he had been attempting to do with the tax shift was to force more responsibility onto state governments, and encourage greater accountability to its voters. It’s a new way of funding school and hospitals and is also designed to encourage competition between the states and force them to operate more efficiently. It’s a model called competitive federalism, which allows states to battle it out over a range of issues to compete to provide their citizens with the best value goods and services at the best cost.

And the reporter did talk to at least one good economist, my buddy Sinclair Davidson.

RMIT economist Professor Sinclair Davidson explains…“At the moment, because the federal government has so much power over the revenue that goes into health and education, for example, there’s not much difference between the states…But once that changes, for people whose state’s bundles of goods and services don’t suit their needs, they can start looking around.” With a mobile population threatening to abandon its state government, effectively stripping it of a major revenue supply, the voting public would have a lot more control over state governments, Prof Davidson says. …With state governments made more eager to please, it sounds like this new tax plan would be a win for voters, if those downward pressures on tax rates the system’s meant to encourage do come off.

Here’s a different prespective.

Curtin University Associate Professor Helen Hodgson argues state tax competition could lead to a race to the bottom. “The biggest challenge that would emerge is if states chose to exercise the right to increase or decrease their income tax rates,” she writes… Prof Hodgson says boosting migration between the states would put pressure on state governments to reduce their own rates as they compete to retain their populations, while “a general lowering of tax rates would defeat the stated intention of allowing states to raise additional funding for health and education.”

Methinks Professor Hodgson’s “stated intention” is not the same as Prime Minister Turnbull’s “stated intention.”

Here’s some more analysis from a column in The Conversation.

Malcolm Turnbull has called for a dramatic shift in Australia’s model of federalism… Many economists regard this as sensible and much-overdue reform…the argument is for a shift from a federal income tax to a state income tax. In principle, this can be done in a completely revenue-neutral way. …that would, on the whole, benefit Australian taxpayers because a more efficient tax system is a less costly tax system.

But it wouldn’t benefit state politicians in Australia. With the exception of Western Australia’s Colin Barnett, they don’t like accountability and responsibility.

state premiers…hated the idea. It’s important to understand why. This is not because the idea is bad for the citizens of the states, with the premiers being outraged on their behalf. Rather it is because it is bad for the political classes themselves, and the premiers in particular.

Citing the groundbreaking work of economist Charles Tiebout, the article includes a description of why tax competition between sub-national governments is desirable.

The basic idea is that the states compete with each other by offering bundles of public goods at different prices (i.e. taxes). This is the significance of the state-level income tax. Victoria, for example, may offer very high levels of public services, but also at a high price through high state income taxes. NSW may offer more moderate public services, but also much lighter taxes. What happens next is that citizens sort themselves over the states according to their preferences. Those who value high levels of public services move to Victoria, where they pay that marginal valuation in high taxes. Citizens with preferences for lower levels of public services and also taxes move to NSW. This is a market, not a political, model of local public goods. Economists like it because it encourages competition between the states to provide an efficient bundle of public goods and services at a point that voters (as consumers) are willing to pay. This competition tends to produce an efficient outcome.

Here’s the bottom line. The current system creates a perverse incentive for state officials to endlessly whine for more money. Putting state governments in charge creates an appropriate balance of responsibility and accountability.

That is not the situation we have now. Premiers are incentivised to represent their citizens as all wanting the maximum amount of public goods and services, because someone else is paying for them. State income taxes (coupled with reduced federal income taxes) are a way of implementing this mechanism. The main winners from this will be the 7 million or so Australian taxpayers, because it will deliver a much more efficient supply of public goods and services. The main losers will be the state and territory premiers, because they will have to compete in the market for political goods and services.

Heaven forbid, politicians actually having to collect and spend their own money. Especially in a system where taxpayers can look across state borders to see which states are doing a bad job or good job (think Texas vs. California). How cruel that would be! They would be forced…gasp…to compete.

But let’s set aside sarcasm. It’s worth noting that the most decentralized major economy is Switzerland, and that system has worked quite well.

And the United States also compares favorably with other developed nations, even though we’ve allowed Washington to grab powers that more properly belong at the state level (or in the private sector).

Hopefully, Turnbull’s plan in Australia will move forward and create additional evidence that America should return to the more robust federalist system that our Founders envisioned.

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Does Donald Trump have a consistent and coherent set of economic policies?

He sometimes says things indicating that he understands Washington is a cesspool of waste. But on other occasions, he seems to be singing off the same song sheet as Bernie Sanders.

Which is why, when I recently tried to dissect Trumponomics, I admitted to being clueless.

The honest answer is that I don’t know. He has put forth a giant tax cut that is reasonably well designed, so that implies more prosperity, but is he serious about the plan? And does he have a plan for the concomitant spending reforms needed to make his tax proposal viable? He also has lots of protectionist rhetoric, including a proposal for a 45 percent tax on Chinese products, which implies harmful dislocation to the American economy. Is he actually serious about risking a global trade war, or is his saber rattling just a negotiating tool, as some of his defenders claim?

For what it’s worth, I’m getting more skeptical that Trump would try to restrain and limit the federal government if he got elected.

And I have three recent news reports to underscore my concern.

Here’s a very disturbing example. Trump actually criticized Governor Scott Walker of Wisconsin for not raising taxes. Here’s an excerpt from a report in the U.K.-based Guardian.

Donald Trump attacked Wisconsin governor Scott Walker for failing to raise taxes in order to properly fund schools and roads on Tuesday, in a startling new break from rightwing orthodoxy… “There’s a $2.2bn deficit and the schools were going begging and everything was going begging because he didn’t want to raise taxes ’cause he was going to run for president,” said Trump. “So instead of raising taxes, he cut back on schools, he cut back on highways, he cut back on a lot of things.”

To dig deeper into the issue, Governor Walker had just endorsed Ted Cruz, so I can understand why Trump would try to take a few shots at someone who is supporting a rival for the GOP nomination.

But attacking the Wisconsin governor for successfully balancing his state’s budget without a tax hike? Sounds more like something Hillary would say. Maybe it’s time to induct Trump into the Charlie Brown Club.

Trump also doesn’t like federalism. Assuming he even knows what it is. In his column for the Washington Post, Professor Jonathan Adler shares some Q&A from a recent CNN interview with Trump.

QUESTION:  In your opinion, what are the top three functions of the United States government?

TRUMP:  Well, the greatest function of all by far is security for our nation.  I would also say health care, I would also say education.

This doesn’t sound like a candidate who wants to reduce the federal government’s footprint.

Here’s more of the interview.

COOPER:  So in terms of federal government role, you’re saying security, but you also say health care and education should be provided by the federal government?

TRUMP:  Well, those are two of the things.  Yes, sure.  I mean, there are obviously many things, housing, providing great neighborhoods…

Huh, providing “great neighborhoods” is now a legitimate function of the federal government?!? I guess if Washington gets to be involved with underwear, neighborhood policy is just fine.

And why is he talking about education when the goal should be to eliminate the Department of Education?

To be fair, Trump also said in the interview that he wants to get rid of Common Core.  So it’s unclear what he actually envisions.

His answer on healthcare is similarly hazy.

COOPER:  And federal health care run by the federal government?

TRUMP:  Health care – we need health care for our people.  We need a good – Obamacare is a disaster.  It’s proven to be…

COOPER:  But is that something the federal government should be doing?

TRUMP:  The government can lead it.

So he wants the federal government involved, but he also thinks Obamacare is a “disaster.” I certainly agree about the Obamacare part, but once again we’re left with no idea whether a President Trump would make good reforms of bad reforms (i.e., would he move the “health care freedom meter” in the right direction or wrong direction?).

One thing that is clear, however, is that Trump doesn’t seem to have any core principles about the size and scope of the federal government.

He may not even realize that federalism is a key issue for advocates of limited and constitutional government.

Last but not least, Trump criticized Senator Cruz for the partial government shutdown fight that occurred in 2013. Here are some passages from a report by Byron York in the Washington Examiner.

When Trump did get around to Cruz, his critique focused…on the 2013 partial government shutdown. …He goes and he stands on the floor of the Senate for a day and a half and he filibusters …. To stand there and to rant and rave for two days and to show people you can filibuster — and in the meantime, nothing was accomplished.

I guess this isn’t an issue of underlying principles, but it does give us some idea of whether a President Trump would be willing to fight the Washington establishment.

Moreover, his assessment of the shutdown fight is completely wrong. By reminding voters that Republicans were opposed to Obamacare, the GOP won a landslide victory in 2014.

But you don’t have to believe me. Even an ultra-establishment, anti-Cruz figure like Trent Lott (former senator and now lobbyist) grudgingly admits that the shutdown was a success.

Cruz views the shutdown as a victory because the Affordable Care Act remains unpopular and Republicans swept to victory in 2014. Lott said…“That was their strategy, and it worked, so maybe they’re right and I’m wrong.”

The bottom line is that America is heading in the wrong direction, with Washington projected to consume ever-larger amounts of the economy’s output. This is a recipe for continued economic weakness in the short run and economic crisis in the long run.

Turning policy in the right direction requires a principled President who is fully committed to overcoming resistance from the special interests that dominate Washington’s culture.

I still don’t pretend to know where Donald Trump is on the big issues, but I’m not holding my breath for good results if he somehow gets elected.

P.S. Though I do expect more examples of clever political humor the longer he’s in the public eye.

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For a wide range of reasons, the federal government should get out of the redistribution racket.

Welfare programs are costly, but they’re also not among the enumerated powers granted to the federal government by the Constitution.

But for those who don’t care whether the nation abides by its legal rule book, there’s also a very compelling argument that better policy can be achieved by ceding responsibility for anti-poverty initiatives to state and local governments.

As shown by the 1996 welfare reform, you’re likely to get changes that are good for both taxpayers and poor people.

We even see some glimmers of progress now that states have more ability to police the fraud-riddled food stamp program.

The Heritage Foundation recently published a report on what happened in Maine when the state started to impose a modest work requirement on childless beneficiaries.

Food stamps is one of the government’s largest means-tested welfare programs, with roughly 46 million participants and costing $80 billion a year. Since 2009, the fastest growth in participation has occurred among able-bodied adults without dependents (ABAWDs). …Maine implemented a work requirement for ABAWDs. As a result, their ABAWD caseload dropped by 80 percent within a few months, declining from 13,332 recipients in December 2014 to 2,678 in March 2015.

And here’s a very powerful chart from the study.

Wow, more than 4 out of 5 recipients decided to drop off the rolls rather than get a job.

Which shows that they never needed the handouts in the first place, already had a job in the shadow economy, or got a new job.

Investor’s Business Daily summarizes the situation with characteristic clarity.

The number of childless, able-bodied adult food stamp recipients in a New England state fell by 80% over the course of a few months. This didn’t require magic, just common sense. …This is a remarkable change and needs to be repeated in government programs across the country. How Maine achieved this is no mystery. Gov. Paul LePage simply established work requirements for food stamp recipients who have no dependents and are able enough to be employed.

This type of reform should be replicated, with big savings for taxpayers and even bigger benefits for those who shake off the emotionally crippling burden of dependency and become self sufficient.

The Heritage report says that if the Maine policy were repeated nationally, and the caseload dropped “at the same rate it did in Maine (which is very likely), taxpayer savings would be over $8.4 billion per year.” “Further reforms could bring the savings to $9.7 billion per year: around $100 per year for every individual currently paying federal income tax.” On top of the savings, there would be the added benefit of increasing the number of productive members of the economy, and cutting the cycle of government dependence that is ruinous to a society. …putting the able-bodied in position to be self-sufficient is a service to them, helping them shake their soul-strangling dependency on the state.

By the way, Maine isn’t the only state that is trying to be responsible and proactive.

Wisconsin also is taking some modest steps to curtail dependency. Here are some blurbs from a story in the Wisconsin State Journal.

The 2013-15 state budget created a rule for some recipients of the state’s food stamp program known as FoodShare: If you’re an able-bodied adult without children living at home, you must work at least 80 hours a month or look for work to stay in the program. That rule went into effect in April, and between July and September, about 25 percent of the 60,000 recipients eligible to work were dropped from the program when the penalty took effect, according to DHS data.

That’s good news for taxpayers.

But there’s also even better news for some of the recipients.

…about 4,500 recipients found work.

Yup, sometimes a bit of tough love is what’s needed to save people from life-destroying dependency.

That’s the good news.

The bad news is that these reforms in Maine and Wisconsin are just drops in the bucket. The federal government mostly has been a destructive force in recent years, working to expand the welfare state (in some cases using utterly dishonest means).

And even when Washington hasn’t been trying to make things worse, many state and local governments are perfectly content to watch federal money flow into the their state, even if the net result is to trap people in poverty.

Which bring us back to the main policy lesson. We need to get Washington out of the business of redistributing income. To the extent government involvement is necessary, state and local governments should be responsible for both raising and spending the money.

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Remember the cluster-you-know-what in New Orleans following Hurricane Katrina? Corrupt and incompetent politicians in both the city and at the state level acted passively, assuming that Uncle Sam somehow should be responsible for dealing with the storm.

And we’ve seen similar behavior from other state and local politicians before, during, and after other natural disasters.

The obvious lesson to be learned is that the federal government shouldn’t have any responsibility for dealing with natural disasters. All that does it create a wasteful layer of bureaucracy, while also inculcating a sense of learned helplessness on the part of state and local officials who should be responsible for dealing with storms and other local crises.

In other words, the answer is federalism. State and local governments should be solely responsible for state and local issues.

But not just because of some abstract principle. There’s a very strong practical argument that you get more sensible decisions when the public sector is limited (as Mark Steyn humorously explained) and there is clear responsibility and accountability at various levels of government.

And this is why the biggest lesson from the scandal of tainted water in Flint, Michigan, is that local politicians and bureaucrats should not be able to shift the blame either to the state or federal government. Which was my main point in this interview.

To be sure, it is outrageous that state and federal bureaucrats knew about the problem and didn’t make it public, so I surely don’t object to officials in Lansing and Washington getting fired.

But I do object to the political finger pointing, with Democrats trying to blame the Republican Governor and Republicans trying to blame the Democratic President.

Nope, the problem is an incompetent local government that failed to fulfill a core responsibility.

The Wall Street Journal has the same perspective, opining that the mess in Flint is a failure of government.

…the real Flint story is a cascade of government failure, including the Environmental Protection Agency.

More specifically (and as I noted in the interview), we have a local government that became a fiefdom for a self-serving bureaucracy that was more concerned with its privileged status than in providing core government services.

…after decades of misrule: More than 40% of residents live in poverty; the population has fallen by half since the 1960s to about 100,000. Bloated pensions and retiree health care gobble up about 33 cents of every dollar in the general fund.

And the WSJ editorial also castigated the state and federal bureaucrats that wrote memos rather than warning citizens.

MDEQ and the EPA were chatting about Flint’s system as early as February. MDEQ said it wanted to test the water more before deciding on corrosion controls, though it isn’t clear that federal law allows this. …the region’s top EPA official, political appointee Susan Hedman, responded… “When the report has been revised and fully vetted by EPA management, the findings and recommendations will be shared with the City and MDEQ and MDEQ will be responsible for following up with the City.” She also noted over email that it’s “a preliminary draft” and it’d be “premature to draw any conclusions.” The EPA did not notify the public.

The lesson is that adding state and federal bureaucracy impedes effective and competent local government.

The broader lesson is that ladling on layers of bureaucracy doesn’t result in better oversight and safety. It sometimes lets agencies shirk responsibility for the basic public services like clean water that government is responsible for providing.

Here’s the bottom line.

Federalism is about getting better government by creating clear lines of responsibility and accountability in an environment that allows state and local governments to learn from each other on best practices.

The current system blurs responsibility and accountability, by contrast, while also imposing needless expense and bureaucracy. And we get Katrina and Flint with this dysfunctional approach.

So whether it’s Medicaid, education, transportation, welfare, or disasters, involvement from Washington makes things worse rather than better.

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Federalism is great for many reasons. When you have dozens of states with the freedom to choose different policies, you get lots of innovation and diversity, which helps identify policies that work.

You also can minimize the cost of mistakes. When a policy error occurs in one state (for example, government-run healthcare in Vermont), it quickly becomes obvious and the damage can be contained and maybe even reversed. But when a mistake is made nationally (such as Obamacare), it’s not as easy to pinpoint why the economy is weakening and fixing the error thus becomes more difficult.

And it should go without saying that federalism is desirable because it facilitates and enables competition among jurisdictions. And that limits the power of governments to impose bad policy.

These are some of the reasons why I’m a huge fan of the Tax Foundation’s State Business Tax Climate Index. It’s a rigorous publication that calculates the good and bad features of every state’s tax system. It then add together all that data to generate a very helpful ranking of the nation’s best and worst state tax systems.

And since that’s what people care most about, let’s cut to the chase and look at the states at the top and the bottom of the Index.

There are a couple of things which should be obvious from these two lists.

First, it’s a very good idea to be part of the no-income-tax club. It’s no coincidence that 7 out of the top 10 states don’t have that pernicious levy.

Second, perhaps the biggest lesson from the states in the bottom 10 is that it’s basically impossible for a state with a big government to have a good tax system.

Third (and here’s where I’m going to be a contrarian), I’m not sure that Wyoming and Alaska really deserve their high rankings. Both states use energy severance taxes to finance relatively large public sectors. And while it’s true that energy severance taxes don’t do as much damage to a state’s competitiveness as other revenue sources, I nonetheless think there should be an asterisk next to those two states.

So I actually put South Dakota in first place (though I realize I’m implicitly incorporating government spending into the equation while the Tax Foundation is only measuring the tax environment for business).

Now that we’ve hit the main highlights, here’s some explanatory information from the Index.

…the Index is designed to show how well states structure their tax systems, and provides a roadmap for improvement. …The absence of a major tax is a common factor among many of the top ten states. …This does not mean, however, that a state cannot rank in the top ten while still levying all the major taxes. Indiana and Utah, for example, levy all of the major tax types, but do so with low rates on broad bases. The states in the bottom 10 tend to have a number of afflictions in common: complex, non-neutral taxes with comparatively high rates.

And here’s some details about the Index’s methodology.

The Index…comparing the states on over 100 different variables in the five major areas of taxation (corporate taxes, individual income taxes, sales taxes, unemployment insurance taxes, and property taxes)… Using the economic literature as our guide, we designed these five components to score each state’s business tax climate…The five components are not weighted equally… This improves the explanatory power of the State Business Tax Climate Index as a whole. …this edition is the 2016 Index and represents the tax climate of each state as of July 1, 2015, the first day of fiscal year 2016 for most states.

Here’s a map showing the ranking of every state.

Top-10 states are in blue and bottom-10 states are in orange. At the risk of repeating myself, notice how zero-income tax states rank highly.

The Wall Street Journal editorial page combed through the report for highlights. The biggest success story in recent years is North Carolina, which joined the flat tax club.

…North Carolina, which in 2013 slashed its top 7.75% income tax to a flat 5.75% and its corporate rate to 5% from 6.9%. The former 44th is now ranked 15th.

Given Martin O’Malley’s horrible record in Maryland, I’m surprised that he hasn’t picked up more support from crazy lefties in the Democratic Party.

As Governor of Maryland from 2007 to 2015, Democrat Martin O’Malley increased some 40 taxes including the corporate rate to 8.25% from 7% and the sales tax to 6% from 5%.

And here’s some good news from an unexpected place.

The trophy for most-improved this year goes to Illinois, which jumped to 23rd from 31st… The Tax Foundation notes that the leap occurred “due to the sunset of corporate and individual income tax increases”… First-year Republican Governor Bruce Rauner has let the income-tax rate lapse to 3.75% from 5% and the corporate rate to 7.75% from 9.5%, though Democrats are trying to push them back up.

Given how the tax hike backfired, let’s hope the Governor holds firm in this fight.

Now let’s return to some of the analysis in the Tax Foundation’s Index. Here’s some of the academic evidence on the importance of low tax burdens.

Helms concluded that a state’s ability to attract, retain, and encourage business activity is significantly affected by its pattern of taxation. Furthermore, tax increases significantly retard economic growth when the revenue is used to fund transfer payments. …Bartik (1989) provides strong evidence that taxes have a negative impact on business startups. He finds specifically that property taxes, because they are paid regardless of profit, have the strongest negative effect on business. Bartik’s econometric model also predicts tax elasticities of –0.1 to –0.5 that imply a 10 percent cut in tax rates will increase business activity by 1 to 5 percent. …Agostini and Tulayasathien (2001)…determined that for “foreign investors, the corporate tax rate is the most relevant tax in their investment decision.” …Mark, McGuire, and Papke (2000) found that taxes are a statistically significant factor in private-sector job growth. Specifically, they found that personal property taxes and sales taxes have economically large negative effects on the annual growth of private employment. …the consensus among recent literature is that state and local taxes negatively affect employment levels. Harden and Hoyt conclude that the corporate income tax has the most significant negative impact on the rate of growth in employment. Gupta and Hofmann (2003)…model covered 14 years of data and determined that firms tend to locate property in states where they are subject to lower income tax burdens.

The message is that all the major revenue sources – income, sales, and property – can have negative effects.

Which explains, of course, why it’s important to control state government spending.

And one final point to make is that we should do everything possible to shrink the size of the central government in Washington and transfer activities to the private sector or states. This isn’t because states don’t make mistakes, but rather because competition between states will produce far better results than a one-size-fits-all approach from Washington.

P.S. A study from German economists finds that decentralization limits economically harmful redistribution outlays.

P.P.S. And a study from the IMF reveals that decentralized government is more competent and efficient.

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I’ve argued (repeatedly) that we should abolish the Department of Transportation and allow states to make decisions on how to fund and whether to fund transportation projects.

As an interim measure to control federal spending, involvement, and intervention, I’ve explained that Congress should do nothing to increase revenues into the highway trust fund.

Supporters of centralization disagree, arguing that there would be inadequate transportation funding if the federal government doesn’t have a large – and growing – role. Most of them want a higher gas tax to finance an expansion of federal transportation spending.

I’ve never thought this claim made sense. After all, how do you magically get more roads built by sending money in a leaky budget to Washington, only to then turn around and send those funds in a leaky budget back to the states? Seems to me like that’s nothing more than a unsavory recipe for an additional layer of bureaucracy and lobbying.

Well, we now have some very powerful evidence from a report in the Washington Post that states will act – at least once they conclude that “free” money from Uncle Sam won’t be as forthcoming.

While Congress remains stalled on a long-term plan for funding highways, state lawmakers and governors aren’t waiting around. Nearly one-third of the states have approved measures this year that could collectively raise billions of dollars through higher fuel taxes, vehicle fees and bonds to repair old bridges and roads and relieve traffic congestion, according to an analysis by The Associated Press. The surge of activity means at least half of the states — from coast to coast, in both Republican and Democratic areas — now have passed transportation funding measures since 2013. And the movement may not be done yet. …The widespread focus on transportation funding comes as state officials are becoming frustrated by federal inaction in helping to repair roads and bridges described as crumbling, aging and unsafe.

By the way, I have no idea if these states are making sensible decisions. Indeed, based on what was proposed (and rejected) in Michigan, I wouldn’t be surprised to learn that many of these initiative contain wasteful pork-barrel projects (just like when funded from DC). And my colleague Chris Edwards has poked holes in the assertion that we’re facing an infrastructure crisis.

But who cares? The beauty of federalism is that states are free to make their own decisions so long as they’re playing with their own money.

If they waste the money and make bad choices, at least the damage will be contained. And voters presumably have some ability to change the direction of policy if repeated mistakes are made.

To get a sense of how things would work at the state level with real federalism, here are some excerpts from a column in the Tampa Tribune by Karen Jaroch, a member of the Hillsborough Area Regional Transit agency.

…what if you could pay less at the pump? With passage of H.R. 2716 — the Transportation Empowerment Act — this could be possible. H.R. 2716 would devolve the responsibility for our surface transportation programs (including transit) to the states by incrementally decreasing the federal gas tax over five years from 18.3 cents to 3.7 cents per gallon. That reduction would empower the states to fund and manage it — not politicians and Washington bureaucrats. The bill was filed by Florida’s U.S. Rep. Ron DeSantis, R-Ponte Vedra Beach, and cosponsored by Rep. David Jolly, R-Indian Shores, with Sen. Marco Rubio co-sponsoring the bill’s twin in the Senate.

I can understand why Florida lawmakers are especially interested in decentralization.

As you can see from this map and table, the Sunshine State is one of many that lose out because of the redistribution inherent in a centralized scheme.

The real question if why politicians in California, Texas, and Ohio aren’t also pushing for federalism.

Though it’s important to underscore that this issue shouldn’t be determined based on which states get more money or less money. It’s really about getting better decisions when states raise and spend their own money.

Particularly when compared to a very inefficient Washington-centric system, as Ms. Jaroch explains.

Well-heeled lobbyists and those in Congress who would see their power base decline are in opposition. …The feds fund roughly 30 percent of Florida’s transportation infrastructure; however, the costly regulations, red tape and strings they tack on permeate the process almost universally. As a board member of the Hillsborough Area Regional Transit Authority (HART), I’ve witnessed the agency routinely shackled by federal handcuffs that are common when accepting federal funds. H.R. 2716 would wrest control from D.C. bureaucrats and politicians in 49 other states that have never commuted on our streets and roads and instead empower state and local agencies like HART that are better positioned to make these decisions. …A new state-led process would be controlled entirely by Floridians and would be absent the horse trading and infighting between 49 other states, two houses of Congress, a president of a different party and a myriad of federal agencies.

Last but not least, state and local governments will be far less likely to engage in boondoggle spending if they can’t shift some of the cost to Uncle Sam.

P.S. While decentralization is a good first step, the ideal end point is to have more private-sector involvement in transportation.

P.P.S. If you think the federal government’s involvement is bad now, you probably don’t even want to know about some of the ideas floating around Washington for further greedy and intrusive revenue grabs.

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When giving speeches outside the beltway, I sometimes urge people to be patient with Washington. Yes, we need fundamental tax reform and genuine entitlement reform, but there’s no way Congress can make those changes with Obama in the White House.

But there are some areas whether progress is possible, and people should be angry with politicians if they deliberately choose to make bad decisions.

For instance, the corrupt Export-Import Bank has expired and there’s nothing that Obama can do to restore this odious example of corporate welfare. It will only climb from the grave if Republicans on Capitol Hill decide that campaign cash from big corporations is more important than free markets.

Another example of a guaranteed victory – assuming Republicans don’t fumble the ball at the goal line – is that there’s no longer enough gas-tax revenue coming into the Highway Trust Fund to finance big, bloated, and pork-filled transportation spending bills. So if the GOP-controlled Congress simply does nothing, the federal government’s improper and excessive involvement in this sector will shrink.

Unfortunately, Republicans have no desire to achieve victory on this issue. It’s not that there’s a risk of them fumbling the ball on the goal line. By looking for ways to generate more revenue for the Trust Fund, they’re moving the ball in the other direction and trying to help the other team score a touchdown!

The good news is that Republicans backed away from awful proposals to increase the federal gas tax.

But the bad news is that they’re coming up with other ideas to transfer more of our income to Washington. Here’s a look at some of the revenue-generating schemes in the Senate transportation bill.

Since the House and Senate haven’t agreed on how to proceed, it’s unclear which – if any – of these proposals will be implemented.

But one thing that is clear is that the greed for more federal transportation spending is tempting Republicans into giving more power to the IRS.

Republicans and Democrats alike are looking to the IRS as they try to pass a highway bill by the end of the month. Approving stricter tax compliance measure is one of the few areas of agreement between the House and the Senate when it comes to paying for an extension of transportation funding. …the Senate and House are considering policy changes for the IRS ahead of the July 31 transportation deadline. …With little exception, the Senate bill uses the same provisions that were in a five-month, $8 billion extension the House passed earlier this month. The House highway bill, which would fund programs through mid-December, gets about 60 percent of its funding from tax compliance measures. …it’s…something of a shift for Republicans to trust the IRS enough to back the new tax compliance measures. House Republicans opposed similar proposals during a 2014 debate over highway funding, both because they didn’t want to give the IRS extra authority and because they wanted to hold the line on using new revenues to pay for additional spending.

Gee, isn’t it swell that Republicans have “grown in office” since last year.

But this isn’t just an issue of GOPers deciding that the DC cesspool is actually a hot tub. Part of the problem is the way Congress operates.

Simply stated, the congressional committee system generally encourages bad decisions. If you want to understand why there’s no push to scale back the role of the federal government in transportation, just look at the role of the committees in the House and Senate that are involved with the issue.

Both the authorizing committees (the ones that set the policy) and the appropriating committees (the ones that spend the money) are among the biggest advocates of generating more revenue in order to enable continued federal government involvement in transportation.

Why? For the simple reason that allocating transportation dollars is how the members of these committees raise campaign cash and buy votes. As such, it’s safe to assume that politicians don’t get on those committees with the goal of scaling back federal subsidies for the transportation sector.

And this isn’t unique to the committees that deal with transportation.

It’s also a safe bet that politicians that gravitate to the agriculture committees have a strong interest in maintaining the unseemly system of handouts and subsidies that line the pockets of Big Ag. The same is true for politicians that seek out committee slots dealing with NASA. Or foreign aid. Or military bases.

The bottom line is that even politicians who generally have sound views are most likely to make bad decisions on issues that are related to their committee assignments.

So what’s the solution?

Well, it’s unlikely that we’ll see a shift to random and/or rotating committee assignments, so the only real hope is to have some sort of overall cap on spending so that the various committees have to fight with each other over a (hopefully) shrinking pool of funds.

That’s why the Gramm-Rudman law in the 1980s was a step in the right direction. And it’s why the spending caps in today’s Budget Control Act also are a good idea.

Most important, it’s why we should have a limit on all spending, such as what’s imposed by the so-called Debt Brake in Switzerland.

Heck, even the crowd at the IMF has felt compelled to admit spending caps are the only effective fiscal tool.

Maybe, just maybe, a firm and enforceable spending cap will lead politicians in Washington to finally get the federal government out of areas such as transportation (and housing, agriculture, education, etc) where it doesn’t belong.

One can always hope.

In the meantime, since we’re on the topic of transportation decentralization, here’s a map from the Tax Foundation showing how gas taxes vary by states.

This data is useful (for instance, it shows why drivers in New York and Pennsylvania should fill up their tanks in New Jersey), but doesn’t necessarily tell us which states have the best transportation policy.

Are the gas taxes used for roads, or is some of the money siphoned off for boondoggle mass transit projects? Do the states have Project Labor Agreements and other policies that line the pockets of unions and cause needlessly high costs? Is there innovation and flexibility for greater private sector involvement in construction, maintenance, and operation?

But this is what’s good about federalism and why decentralization is so important. The states should be the laboratories of democracy. And when they have genuine responsibility for an issue, it then becomes easier to see which ones are doing a good job.

So yet another reason to shut down the Department of Transportation.

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I wrote just yesterday about new evidence showing that decentralized government is more efficient.

Part of the reason is because local governments are easier for voters to monitor and more likely to reflect the actual preferences of residents.

Another reason is tax competition. It’s relatively easy to “vote with your feet” by moving from one community to another, and this makes it difficult for interest groups and politicians to impose excessive tax burdens.

Now we have some serendipity.

I’m in Gdansk, Poland, for a Liberty Fund seminar on “Economic Growth, Entrepreneurship, and the Future of the Welfare State.”

Two of the readings, by great scholars from the Austrian school of economics, had passages about the importance of decentralization.

In 1960, here’s some of what Friedrich Hayek wrote in his classic, The Constitution of Liberty.

While it has always been characteristic of those favoring an increase in governmental powers to support maximum concentration of these powers, those mainly concerned with individual liberty have generally advocated decentralization. There are strong reasons why action by local authorities offers the next-best solution…it has many of the advantages of private enterprise and fewer of the dangers of coercive action by government. Competition between local authorities or between larger units within an area where there is freedom of movement…will secure most of the advantages of free growth. Though the majority of individuals may never contemplate a change of residence, there will usually be enough people, especially among the young and more enterprising, to make it necessary for the local authorities to provide as good services at a reasonable costs as their competitors. It is usually the authoritarian planner who…supports the centralist tendencies.

I should have remembered that quote from my collection of pro-tax competition statements by Nobel laureates.

In any event, I’m glad my memory was refreshed.

And here’s some of what Ludwig von Mises wrote in his 1944 book, Omnipotent Government. He approached the issue from the opposite direction, explaining that proponents of redistribution needed centralization so their intended victims couldn’t escape by moving across city borders.

Every step toward more government interference and toward more planning means at the same time an expansion of the jurisdiction of the central government. …It is a very significant fact that the adversaries of this trend toward more government control describe their opposition as a fight against Washington…against centralization. …This evolution is not accidental. It is the inevitable outcome of policies of interference and planning. …There can be no question of adopting these measure for only one state. It is impossible to raise production costs within a territory not sheltered by trade walls.

And remember that there’s academic evidence showing that decentralization limits redistribution.

So the statists were smart to oppose welfare reform, since that meant decentralization and less wasteful and counterproductive spending.

Just as the statists are smart to push for a nationwide sales tax cartel. And just as the statists are wise to push for an end to international tax competition.

All of which means, of course, that the rest of us (at least those of us who value liberty) should follow the wisdom of Hayek and Mises.

P.S. Hayek even has groupies.

P.P.S. And Hayek even came back to life for Part I and Part II of the Hayek v Keynes rap videos.

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