Archive for the ‘Higher Taxes’ Category

A couple of decades can make a huge difference in the political and economic life of a jurisdiction.

And here’s something especially amazing from a bit more than five decades in the past. New Jersey used to have no state income tax and no state sales tax.

Yes, your eyes are not deceiving you. The basket case of New Jersey used to be a mid-Atlantic version of New Hampshire. But once the sales tax was imposed in 1966 and the income tax was imposed in 1976, it’s been all downhill ever since.

An article in the City Journal helps to explain the state’s fiscal decay.

Brendan Byrne, a Democratic former governor of the Garden State, …told mayors that the state would need a “large revenue package”… The heart of the package would be a new statewide income tax, which went into permanent effect in 1977. Byrne promised that the additional money would help relieve the high property-tax burden on New Jersey’s citizens… Four decades later, the plan has failed. …politicians and special interests don’t see new streams of tax revenue as a means to replace or eliminate an existing stream, but rather as a way of adding to the public coffers. (For those who entertain fantasies of a value-added tax replacing the federal income tax, take heed.) New Jersey’s income tax started with a top rate of about 2.5 percent; it’s now around 9 percent.

Needless to say, nothing politicians promised has happened.

Property taxes haven’t been reduced. They’ve gone up. The government schools haven’t improved. Instead, the test scores in the state are embarrassing. And debt hasn’t gone down. Red ink instead has skyrocketed.

And what’s amazing – and depressing – is that New Jersey politicians continue to make a bad situation worse. Here are some excerpts from a Bloomberg report.

New Jersey Governor Phil Murphy proposed taxing online-room booking, ride-sharing, marijuana, e-cigarettes and Internet transactions along with raising taxes on millionaires and retail sales to fund a record $37.4 billion budget that would boost spending on schools, pensions and mass transit. …Murphy, a Democrat…has promised additional spending on underfunded schools and transportation in a credit-battered state with an estimated $8.7 billion structural deficit for the fiscal year that starts July 1. …Murphy said Tuesday in his budget address to lawmakers. “A millionaire’s tax is the right thing to do –- and now is the time to do it.” …The budget…would…restore the state’s sales tax to 7 percent from 6.625 percent… Murphy’s proposal would almost triple the direct state subsidy for New Jersey Transit, which has been plagued by safety and financial issues.

More taxes, more spending, followed by even more taxes and more spending.

I wonder if Greek taxpayers would want to tell their counterparts in New Jersey how that story ends.

Assuming, of course, there are any taxpayers left in the Garden State. There’s already been a big exodus of productive people who are tired of being treated like fatted calves.

And don’t forget that New Jersey taxpayers no longer have unlimited ability to deduct their state and local taxes on their federal tax return. So these tax hikes will hurt much more than past increases.

In any event, taxpayers better escape before the die.

Though I know one guy who won’t be leaving.

P.S. Anybody want to guess whether New Jersey collapses before California, Illinois, or Connecticut? They’re all in the process of committing slow-motion suicide.

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I wrote last month about the risk of Trump harming American workers, consumers, and producers by pulling the United States out of NAFTA.

That’s still a danger to the U.S. economy, but it’s been pushed to the back burner by a more immediate threat – the President’s unilateral decision to impose big tax increases on steel and aluminum imports.

American trade law (specifically the Trade Expansion Act of 1962) does give Trump the authority to impose such taxes, but it’s worth noting that Congress has the power to change the law and negate the President’s short-sighted actions.

To be sure, such a change presumably would require two-thirds support to override a Trump veto. And I have no idea how many congressional Republicans are loyal to free markets rather than Trump, and I also don’t know how many congressional Democrats would vote against Trump’s protectionism, either because they support trade or because they simply don’t like the President.

But I do know that there would be lots of support. In today’s Washington Post, Charles Koch makes a principled case for open trade and condemns the President’s protectionism.

Countries with the freest trade have tended to not only be the wealthiest but also the most tolerant. Conversely, the restriction of trade — whether through tariffs, quotas or other means — has hurt the economy and pitted people against each other. Tariffs increase prices, limit choices, reduce competition and inhibit innovation. Equally troubling, research shows that they fail to increase the number of jobs overall. …History is filled with examples of administrations that have implemented trade restrictions with devastating results. At the dawn of the Great Depression, the Smoot-Hawley Tariff Act raised U.S. tariffs on more than 20,000 imported goods, which accelerated our decline instead of correcting it. More recently, President George W. Bush’s 30 percent steel tariff led to increased consumer costs and higher unemployment. And President Barack Obama’s 2009 decision to raise tariffs on Chinese tires ultimately burdened consumers with $1.1 billion in higher prices. The cost per job saved was nearly $1 million , not considering all the lost jobs that went unmeasured.

And he specifically condemns the new trade taxes Trump has imposed.

The administration’s recent decision to impose major steel and aluminum tariffs — on top of higher tariffs on washing machines and solar panels — will have the same harmful effect. …those who can least afford it will be harmed the most. Having just helped consumers keep more of their money by passing tax reform, it makes little sense to take it away via higher costs.

Mr. Koch also observed that we’ve become richer during a period when trade taxes fell.

It is no coincidence that our quality of life has improved over the years as the average U.S. tariff on imported goods has fallen — from nearly 20 percent in 1932 to less than 4 percent in 2016.

This is an under-appreciated point. I’ve argued – and shared evidence – that trade liberalization played a key role in offsetting the damage of higher fiscal burdens in the post-WWII era. Yet Trump wants to reverse some or all of this progress.

The Wall Street Journal also opined on this issue.

President Trump could reduce the benefits of his tax cuts and regulatory rollback with protectionism. This risk became more serious after the Commerce Department…recommended broad restrictions on aluminum and steel imports that would punish American businesses and consumers. …the wide-ranging economic damage from restricting imports would overwhelm the narrow benefits to U.S. steel and aluminum makers.

The protectionists try to justify tariffs on the basis of national defense, but this is a silly argument since we’re not relying on potential enemies.

Canada accounts for 43% of aluminum imports—more than twice as much as China and Russia combined. Steel imports are also diversified with Canada (17%), South Korea (12%) and Mexico (9%) accounting for three of the top four foreign sources. China accounts for about 2% of steel and 10% of aluminum imports.

The WSJ then lists some of the harmful effects of trade taxes.

About 16 times more workers are employed today in U.S. steel-consuming industries than the 140,000 American steelworkers. Economists Joseph Francois and Laura Baughman found that more U.S. workers lost jobs (200,000) due to George W. Bush’s 2002 steel tariffs than were employed by the entire steel industry (187,500) at the time. …Raising the cost of steel and aluminum inputs would impel many manufacturers to move production abroad to stay competitive globally. Does Mr. Trump want more cars made in Mexico? …Oh, and don’t forget that other countries could retaliate with trade barriers that hurt American exporters. …Why would Mr. Trump undercut his achievements with trade barriers that harm American workers and consumers?

Irwin Stelzer, writing for the Weekly Standard, also is quite critical.

…the president doesn’t like trade deficits—job killers as he sees it—and so he has put tariffs on washing machines and solar panels and now is deciding what costs and restrictions to place on imports of steel and aluminium. …Never mind that such measures will raise the costs of steel and aluminum-using industries such as autos, making them less competitive with imports that can keep their costs down by buying cheaper, un-tariffed metals. One economic study after George W. Bush imposed tariffs on steel in 2002 concluded that job losses in steel-consuming industries exceeded the number that would have been lost had the entire American steel industry gone out of business. …if that causes job losses scattered among a lot of other industries and states, then so be it. Trump figures that those voters won’t make the connection between the job losses and the steel tariffs.

Last but not least, Tom Mullen eviscerates protectionism in a piece for CapX.

When Adam Smith wrote The Wealth of Nations, it…was to refute the kinds of protectionist ideas championed by conservatives like Edmund Burke and Alexander Hamilton in Smith’s day, Abraham Lincoln eighty years later, and Trump today. Bastiat remade Smith’s case in 1848. Henry Hazlitt did so again in 1946. …What is unseen is the money American consumers no longer have when the tariffs are put in place. For example, the tariff may result in them paying $200 for the same pair of sneakers they previously paid $100 for. That means they no longer have $100 they previously had after buying the sneakers, which they could spend on other products. Whatever jobs they were supporting with that $100 are now lost. …When the ledger is balanced, Americans, in general, are far better off without the tariff.

Here’s more on the economic poison of protectionism.

The lower prices Americans pay for automobiles, clothing, Apple iPhones, and Bobcats allow them to patronise those American industries which operate more efficiently than their overseas competitors. That’s called “comparative advantage,” something else free market advocates since Adam Smith have been educating people about. …No matter what spurious arguments special interests make in favour of tariffs, they are, at the end of the day, just another tax. …And don’t forget, all the unseen, negative consequences of tariffs apply equally to foreigners. If they are taxing imports on automobiles, their citizens have less money to spend on other products. Their businesses that use imported materials must raise their prices and become less competitive. Any advantage they appear to gain in one sector, they lose in another, with the same overall net loss as we experience.


Protectionism is a no-win game. Politicians in Country A take aim at businesses in Country B, but the main casualties are inside their own borders. Consumers lose, taxpayers lose, and all the upstream and downstream businesses in the supply chain lose.

Which is why researchers inevitably find that trade barriers are associated with net job losses. In other words, the “unseen” losses are far larger than the “seen” gains.

Which is exactly what Bastiat warned about more than 150 years ago.

P.S. Shifting gears, I’ve periodically complained about the immoral and amoral actions of large corporations. Simply stated, big businesses oftentimes are perfectly happy to use the coercive power of government to grab unearned wealth.

Koch Industries is a noble exception. Here’s another excerpt from Charles Koch’s Washington Post column.

One might assume that, as the head of Koch Industries — a large company involved in many industries, including steel — I would applaud such import tariffs because they would be to our immediate and financial benefit. But corporate leaders must reject this type of short-term thinking, and we have. …We only support policies that are based on equality under the law and that help people improve their lives. This is why we successfully lobbied to end direct ethanol subsidies, despite being one of the largest ethanol producers in the United States. It is why we fought against the inclusion of a border adjustment tax in the tax-reform package, even though it would have greatly increased our profits by increasing costs to consumers.

I’m obviously pleased that the folks at Koch are on the right side of the ethanol and BAT issues, but that’s a secondary matter. What’s praiseworthy is that the company rejects all cronyism. Even when it would benefit.

If more businesses acted that way, there would be a lot more support for free enterprise.

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I sometimes sardonically comment about Democratic politicians playing Santa Claus, but Republicans can play that game as well.

Trump and his allies in Congress recently agreed on a big-spending budget deal that lavishes more money on both the Pentagon and domestic programs, and that was only a few weeks after agreeing on a tax reform plan that lower taxes (though only for nine years).

Even if I like part of what’s been happening, that kind of populist approach at some point becomes unsustainable. And when the D.C. swamp ultimately has to choose between lower taxes or higher spending, they’ll go with the latter and make things even worse by jacking up the tax burden.

My frustration is apparent in this recent interview.

And I’m not the only one who sees the long-run dangers.

In a column for the Wall Street Journal, Professor Edward Lazear of Stanford explores the economic damage of ever-expanding government.

The budget deal President Trump signed earlier this month will send federal spending and the deficit skyrocketing. On top of this spending explosion, the administration now plans to add a $500 billion infrastructure bill. …over time high spending necessitates high taxes, and high taxes reduce work and restrain growth. Economic trends in developed nations consistently show that low taxes and hard work are linked to robust growth.

He looks at some of the cross-country evidence.

European countries trail the U.S. in working hard and controlling taxes, and their economies have lagged in comparison. France has a tax-to-GDP ratio of about 44%, and in Italy it’s 43%. The French and Italians work almost 30% fewer hours per person than Americans. Notably, the French economy has flatlined since 2010 while Italy’s has contracted. …Data from the Organization for Economic Cooperation and Development suggests that a 1% increase in a nation’s tax rate is associated with a 1.4% decrease in hours worked per person in the working-age population.

Here’s the part that resonated with me. It’s excessive spending that ultimately is the problem.

…taxes are ultimately dictated by spending. Countries can borrow to finance short-run spending, but they must eventually levy taxes to repay the loans. Whether a government raises taxes now or later to pay for expenditures is a minor consideration compared with its decision to spend in the first place. …Higher spending goes hand in hand with higher taxes, higher deficits, fewer worked hours and less growth. The international comparisons suggest that a 4% increase in spending is associated with a decrease of roughly 0.5 percentage point in the average annual growth rate. Furthermore, it is spending—rather than the deficit—that correlates with sluggish growth. …Deficits often coincide with low growth because deficit increases are usually caused by heightened spending, not reduced taxes. Raising taxes, or keeping them high without lowering spending, stifles growth.

Heck, even the OECD has produced research on the negative impact of government spending on economic performance.

And this approach can lead to a downward spiral.

To the extent that government spending goes to programs such as welfare that directly discourage work, it has an additional growth-reducing effect. When fewer people work, those who do must be taxed even more to cover public expenses. These heightened taxes on labor discourage work in turn, pushing more potential workers toward government support.

In other words, if we stay on this path, we’ll eventually become Greece. Not a good idea, to put it mildly.

Since we’re on the topic, let’s look at some additional evidence. Three economists from Australia and the United Kingdom did a meta-analysis of studies on the relationship between government spending and economic growth. Here are some of the findings.

One of the most contentious issues in economics is whether ‘big government’ is good or bad for economic growth. …Theoretically, big government can have both negative and positive effects on growth. …In this study, we include all effect-size estimates reported by empirical studies that examine the direct effect of government size on growth.

Here’s what they found.

… findings indicate that: (i) total government expenditures have a medium and adverse effect on per-capita income growth in developed countries only; (ii) the effect of government consumption on per-capita income growth is also medium in developed countries and in developed and LDCs pooled together; and (iii) neither total expenditures nor government consumption has a significant effect on per-capita income growth in LDCs.

I’m not surprised that they didn’t find a strong link in poor nations. The data show that those countries are generally too mismanaged and corrupt to collect much revenue. Therefore, as I noted in my recent analysis of Indian economic policy, they can’t spend much.

What’s primarily holding back those countries is weak rule of law, excessive regulation, and protectionism.

But I’m digressing. The study also acknowledges the Rahn Curve, though they call it the Armey Curve.

…government size tends to have a negative effect on per-capita income growth as the level of income increases. This finding ties in with the Armey curve hypothesis (Armey, 1995), which posits an inverted-U relationship between government size and economic growth. The theoretical argument here is that government size may be characterised by decreasing returns. Another theoretical argument relates to the distortionary nature of taxes, which is minimal for low levels of taxation, but beyond a certain threshold, they grow rapidly and become extremely large.

Quite true.

Sadly, some people mistakenly conclude that if a little bit of government is associated with more prosperity, then a bloated public sector must be even better.

On a related note, Professor Alexander Salter dismisses the assertion (pushed by international bureaucracies) that big government is a pre-condition for prosperity. Here’s some of what he wrote.

Why are Western countries like the United States and Germany so much richer today than other countries around the world? …One explanation for the success of the West is, in a word, liberty. Over the last few hundred years, classical liberal ideas such as the rights of man and the rule of lawput constraints on European governments’ power, which resulted in a strong protection of private property rights. This resulted in meteoric economic growth, which delivered the modern cornucopia of wealth. …Free countries get rich; unfree countries stay poor.

But there’s a competing theory.

…another explanation — state capacity…is the idea that economic development requires strong, centralized states to uphold the rule of law and provide crucial public goods. …The state capacity literature in economics…places heavy emphasis on a single, strong, central legal authority. In this framework, the fractured and decentralized legal authorities in medieval and early modern Europe are now seen as antithetical to economic development.

Salter is skeptical of the second theory.

…it is undeniable that economic growth in the West did not take off until the rise of modern nation-states. … While governance institutions obviously began centralizing at the beginning of the modern era, …that’s insufficient as a causal explanation. …the state capacity literature has a hard time dealing with a very troubling counterexample: the totalitarian states of the 20th century: like the USSR and China. These states had plenty of capacity, as evidenced by their ability to murder millions of their own citizens… Needless to say, these kinds of things aren’t conducive to economic development.

So he concludes that the first theory must be the answer, at least in part.

…whatever is “doing the work” of promoting economic growth, it is upstream of the creation of states. …State capacity may or may not be a valuable steppingstone to an explanation, but it is not itself an explanation that social scientists should accept. …it seems the old hypothesis — that the big ideas of classical liberalism created Western economic growth — is worth another look!

My bottom line, for what it’s worth, is that the classical-liberalism approach is the necessary condition, but that doesn’t automatically make it a sufficient condition.

In a column last year on the emerging micro-state of Liberland, I tried to square the circle. Here’s some of what I wrote after looking at the literature on state capacity.

…the key to prosperity is having a state strong enough and effective enough to provide rule of law, but to somehow constrain that state so that it doesn’t venture into destructive redistribution policies. This is why competition between governments played a key role in the economic development of the western world. When governments have to worry about productive resources escaping, that forces them to focus on things that help an economy (i.e., rule of law) while minimizing the policies that hinder prosperity (i.e., high taxes and spending). …America’s Founding Fathers dealt with the same issues… Their solution was a constitution that explicitly limited the size and scope of the federal government. …that system worked reasonably well until the 1930s.

I find this issue fascinating, but I suspect most people are more concerned about the real-world consequences rather than the theoretical underpinnings.

So I’ll end on a pessimistic note by observing that we normally get bad fiscal policy from Democrats and worse fiscal policy from Republicans (Reagan being the only modern-era exception).

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The worst-international-bureaucracy contest is heating up.

In recent years, the prize has belonged to the Paris-based Organization for Economic Cooperation and Development for reasons outlined in this interview. Indeed, I’ve even argued that subsidies for the OECD are the worst expenditure in the federal budget, at least when measured on a damage-per-dollar-spent basis.

But the International Monetary Fund stepped up its game in 2017, pushing statism to a much higher level.

  • In June, I wrote about the IMF pushing a theory that higher taxes would improve growth in the developing world.
  • In July, I wrote about the IMF complaining that tax competition between nations is resulting in lower corporate tax rates.
  • In October, I wrote about the IMF asserting that lower living standards are desirable if everyone is more equally poor.
  • Also in October, I wrote about the IMF concocting a measure of “fiscal space” to justify higher taxes across the globe.
  • In November, I wrote about the IMF publishing a study expanding on its claim that equal poverty is better than unequal prosperity.

And the IMF is continuing its jihad against taxpayers in 2018.

The head bureaucrat at the IMF just unleashed a harsh attack on the recent tax reform in the United States, warning that other nations might now feel compelled to make their tax systems less onerous.

IMF Managing Director Christine Lagarde said the Trump administration’s $1.5 trillion tax cut could prompt other nations to follow suit, fueling a “race to the bottom” that risks hemming in public spending. …It also will fuel inflation, she said. “What we are beginning to see already and what is of concern is the beginning of a race to the bottom, where many other policy makers around the world are saying: ‘Well, if you’re going to cut tax and you’re going to have sweet deals with your corporates, I’m going to do the same thing,”’ Lagarde said.

Heaven forbid we have lower tax rates and more growth!

Though the really amazing part of that passage is that Ms. Lagarde apparently believes in the silly notion that tax cuts are inflationary. Leftists made the same argument against the Reagan tax cuts. Fortunately, their opposition we ineffective, Reagan slashed tax rates and inflation dramatically declined.

What’s also noteworthy, as illustrated by this next excerpt, is that Lagarde doesn’t even bother with the usual insincere rhetoric about using new revenues to reduce red ink. Instead, she openly urges more class-warfare taxation to finance ever-bigger government.

The IMF chief’s blunt assessment follows an unusually public disagreement between the fund and President Donald Trump’s administration last fall over an IMF paper arguing that developed nations can share prosperity more evenly, without sacrificing growth, by shifting the income-tax burden onto the rich. Competitive tax cuts risk holding back governments in spending on anything from defense and infrastructure to health and education, Lagarde said.

What makes her statements so absurd is that even IMF economists have found that higher taxes and bigger government depress economic activity. But Ms. Largarde apparently doesn’t care because she’s trying to please the politicians who appointed her.

By the way, keep in mind that Ms. LaGarde’s enormous salary is tax free, as are the munificent compensation packages of all IMF employees. So it takes enormous chutzpah for her to push for higher taxes on the serfs in the economy’s productive sector.

But it’s not just Lagarde. We also have a new publication by two senior IMF bureaucrats that urges more punitive taxes on saving and investment.

Although Thomas Piketty has famously proposed a coordinated global wealth tax of the wealthiest at two percent, there are now very few effective explicit wealth taxes in either developing or advanced economies. Indeed between 1985 and 2007, the number of OECD countries with an active wealth tax fell from twelve to just four. And many of those were, and are, of limited effectiveness. …This hot topic of how tax systems can assist in addressing excessive increases in wealth inequality was discussed at the regular IMF-World Bank session on taxation last October. …some among the very rich recognize some social benefit from being taxed more heavily (for instance, Bill Gates’ father). Perhaps then there is more that can be done to foster that sense of social responsibility… The exchange of tax information between countries is a powerful tool…and perhaps ultimately game-changing approach to the taxation of the wealthy…we do see good cause to be less pessimistic than even a few years ago.

Once again, we can debunk the IMF by….well, by citing the IMF. The professional economists at the bureaucracy have produced research showing that discriminatory taxes on capital are very bad for prosperity.

But the top bureaucrats at the organization are driven by either by statist ideology or by self interest (i.e., currying favor with the governments that decide senior-level slots).

The bottom line is that perhaps the IMF should be renamed the Anti-Empirical Monetary Fund.

And with regards to worst-international-bureaucracy contest, I fully expect the OECD to quickly produce something awful to justify its claim to first place.

P.S. I’m not a fan of the United Nations, but that bureaucracy generally is too ineffective to compete with the IMF and OECD.

P.P.S. The World Bank also does things I don’t like (as well as some good things), but it generally doesn’t push a statist policy agenda, at least compared to the nefarious actions of OECD and IMF.

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I don’t like it when voters support tax increases.

Needless to say, voters rarely if ever vote to raise their own taxes. Instead, they get seduced into robbing their neighbors in exchange for the promise of new goodies from politicians.

Regardless, it’s still very unfortunate when it happens because it shows an erosion in the American spirit (we should be more like Switzerland!).

I raise this issue because the people of Oregon just gave fairly strong support to a tax-hike referendum. Here are some of the details.

…voters approved hundreds of millions of dollars in health care taxes in a special election. Measure 101, which led 62 percent to 38 percent with returns partially tallied, was the only issue on the ballot. It will raise $210 million to $320 million in taxes on Oregon’s largest hospitals and many health insurance policies by 2019.

At first glance, this is just another example of Oregon voters voting for bigger government and more class warfare.

But as you read further in the story, you’ll find something remarkable.

…the tax deal was a victory for…the health care industry, which bankrolled the “yes” campaign. …The largest contributor to the campaign to pass the taxes was the association that represents Oregon hospitals. Other health care companies also spent heavily to pass the measure.

Huh? Why would an industry support and bankroll an initiative to give more of their money to government?!?

It turns out that the industry isn’t filled with masochists (like the neurotic trust fund leftists who posture in favor of higher taxes). Instead, the special interests such as the hospital lobby viewed a couple of hundred million of taxes as an “investment” that will generate about $1 billion of taxpayer-financed loot.

…the health care industry…will benefit from the resulting $1 billion-plus that will be spent on Oregonians’ health care.

And taxpayers in other states will pick up a majority of the tab!

That tax revenue will enable Oregon to qualify for $630 million to $960 million in federal Medicaid matching funds that benefit the state’s health care industry. …state taxes would allow the state to keep federal matching funds.

This scam was exposed last year in a Wall Street Journal column.

…42 states tax hospitals. Why? One answer is the perverse incentives built into the Medicaid law. When a state returns tax money to hospitals through Medicaid “supplemental payments,” it qualifies for matching funds from Washington. …Medicaid supplemental payments, as the term implies, are separate and distinct from the reimbursements that cover the actual cost of services rendered to beneficiaries. But the federal government turns a blind eye to the circular nature of the arrangement: Hospitals and other providers are both the source and the recipient of most of the funds.

Here are more details on this oleaginous ripoff.

…supplemental-payment schemes…“have the effect of shifting costs to the federal government,” according to a 2014 study by the Governmental Accountability Office. The more a state taxes its hospitals and then gives them money back, the more federal funds it can obtain. …The hospital tax is the biggest revenue-raiser, but 44 states also tax nursing homes, and 34 tax at least one other type of health-care provider. The GAO study found that these taxes had almost doubled nationally, from about $9.5 billion in 2008 to $18.5 billion in 2012.

By the way, I have written on this topic before, and even included a handy infographic that explains a version of the scam.

Let’s now return to the column. The author cites an example from Connecticut.

Connecticut hospitals will pay $900 million in taxes, but the state will offset that with $600 million in supplemental Medicaid payments—matched with $450 million of federal funds. The state keeps those matching funds, plus the $300 million from the hospital tax, meaning Hartford comes out ahead in the whole scheme by $750 million. Nice work if you can get it.

I’m not a fan of my home state, but the Nutmeg State is hardly alone is playing this game.

What’s remarkable is that there are 8 states what don’t participate in the ripoff.

Anyhow, I can’t resist making one final point. Here’s a sordid tidbit from the earlier story about what happened in Oregon.

Democrats in the Oregon House helped achieve the deal by agreeing to fund three projects in a Medford Republican’s district, in exchange for that lawmaker providing the lone Republican “yes” vote in the state House.

One more piece of evidence that Republicans often are the most despicable people.

P.S. While today’s column focused on an odious quirk in the Medicaid program, let’s not lose sight of the forest by fixating on this particular tree. The reason we should care is that Medicaid is an initiative-sapping, money-draining program that greatly contributes to the mess in our overall healthcare system.

P.P.S. Which is why I encourage folks to watch the short video I narrated on the program. Pay close attention to the discussion that starts at 1:48. I explain that programs with both federal and state spending create perverse incentives for even more spending (e.g., what I wrote today). This is mostly because politicians in either Washington or state capitals can expand eligibility and take full credit for new handouts while only being responsible for a portion of the costs.

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Here are three things I’ve written about tax policy. See if you can detect a pattern:

  • I’ve written that I don’t want a value-added tax because the money would be used to finance bigger government.
  • I’ve also explained I don’t want a carbon tax because the revenue from such a levy would finance bigger government.
  • I’ve given thumbs down to financial transactions taxes as well because I don’t want to finance bigger government.

Just in case it’s not obvious, the common theme is that I don’t want to give politicians new sources of revenue that would be used to expand the burden of government spending.

Some of my technocrat friends get upset by these writings. They argue, often correctly, that some of these taxes are not as destructive as the current tax code.

My response is that they’re making an irrelevant argument. Politicians who advocate the above taxes are not proposing to eliminate the income tax and repeal the 16th Amendment. Instead, they simply want to levy a new tax without fully repealing the awful system that already exists.

And now there’s a new tax idea gaining steam.

The Task Force on Fiscal Policy for Health…will examine the evidence on excise tax policy for health, including barriers to implementation, and make recommendations on how countries can best leverage fiscal policies to yield improved health outcomes for their citizens with the added benefit of bringing in additional revenue.

For readers who aren’t familiar with DC bureaucrat-speak, “leverage fiscal policies” means higher taxes. More specifically, advocates want higher “sin taxes” on unhealthy food and drink.

This Task Force is being spearheaded by Larry Summers (yes, that Larry Summers) and Mike Bloomberg (yes, that Mike Bloomberg), so it’s no surprise that this pair of leftists view “additional revenue” as an “added benefit.”

While my focus is on the negative fiscal and economic consequences of higher taxes and more spending, it’s worth pointing out the moral and practical argument against sin taxes.

Bill Wirtz, in a column for CapX, warns that nanny-state policies treat people as infants.

2017 has seen yet another increase in lifestyle regulations and sin taxes… Historically, it was social conservatives pushing for this kind of meddling. …How different is today’s excruciatingly irritating public health lobby…? Food and non-alcoholic drinks are…under fire, and blamed for a range of health issues. France and Ireland are now cracking down on that scourge on society: fizzy drinks. Ireland introduced a new tax on sugary drinks, while France increased the tax created in 2012 under French president Nicolas Sarkozy. Such policies are highly regressive… When Denmark introduced its controversial tax on fatty foods, consumers simply switched to cheaper – but equally unhealthy – alternatives. The country’s diet did not improve. …We are adults and we sometimes make decisions for ourselves which are unhealthy. The answer is for us to moderate our consumption, not quasi-prohibition. It’s time to stop infantilising the…consumer.

Charles Hughes of the Manhattan Institute reviews what happened with a new sin tax on sweetened beverages in Seattle.

Seattle recently became the latest major city to enact a sweetened beverage tax. …customers are reeling from sticker shock. One local reporter found that the tax added $10.34 to a case of Gatorade, bringing the final price to more than $26.00. …One of the justifications for beverage taxes is that customers will respond to price changes by reducing consumption of taxed beverages. The mechanism here is straightforward: tax something to get less of it. If people were to substitute diet sodas or other, less-harmful beverages for sugared sodas, they would be healthier.

But will such a policy work?

Many people are likely to avoid the tax by traveling to other untaxed locations to purchase groceries. Costco tells its customers about locations outside the city that are not subject to the beverage tax. …so the tax will have limited success in its health-related goals while also harming local businesses and failing to generate revenue.

Yet the fact the tax will be a failure at generating revenue isn’t stopping the city was squandering the money.

…revenue has already been allocated to a smorgasbord of causes, ranging from $500,000 for displaced worker retraining, to more than $1 million in tax administration costs, to vouchers to purchase fruits and vegetables.

While I’m glad consumers are escaping the tax by buying beverages from outside the city’s borders, in an ideal world, they would react in a bolder fashion.

If nothing else, the pro-tax crowd has a very elastic definition of sin.

They even want to tax meat.

Move over, taxes on carbon and sugar: the global levy that may be next is meat. Some investors are betting governments around the world will find a way to start taxing meat production… Meat could encounter the same fate as tobacco, carbon and sugar, which are currently taxed in 180, 60, and 25 jurisdictions around the world, respectively, according to a report Monday from investor group the FAIRR (Farm Animal Investment Risk & Return) Initiative. Lawmakers in Denmark, Germany, China and Sweden have discussed creating livestock-related taxes in the past two years.

By the way, the supposed Conservative Party in the United Kingdom is pushing sin taxes to finance bigger government.

The sugar tax was announced by Chancellor Philip Hammond in his budget statement in 2017. He said the money raised as part of the levy would go to the Department for Education. The former Chancellor said the new levy would be put on drinks companies and they would be taxed according to how much sugar was in their beverages. Two categories of taxation are set to come into force. One on the total sugar content on drinks with more than 5g per 100ml and a higher levy for drinks with 8g per 100ml or more. …The new tax could whack up the cost of a 2 litre bottle of Coca-Cola (10.6g per 100ml) by as much as 48p.

The nanny-state crowd complains that this isn’t enough.

Health campaigners have said the fizzy drinks tax should be extended to cover all chocolate, sweets and other confectionery containing the highest levels of sugar. …Action on Sugar is urging a mandatory levy set at a minimum of 20 per cent on all confectionery products that contain high levels of sugar.

Politicians in other nations also are using this excuse to extract more money from the citizenry.

Other countries have introduced similar measures and have seen some success in reducing the drinking of fizzy drinks. Mexico introduced a 10 per cent tax on sugary drinks in 2014 and saw a 12 per cent reduction over the first year. Hungary brought in a tax on the drinks companies and saw a 40 per cent decrease in the amount of sugar in the products. Brits will be joining some of our European neighbours with the move with similar measures in place on drinks in France and Finland and the Norwegians chocolate tax.

Let’s sum this up. The case against sin taxes is based on two simple principles.

  1. Politicians want to seize more of our money in order to have greater ability to buy votes. Saying no to tax increases is a necessary (though sadly not sufficient) condition for good fiscal policy.
  2. Politicians want to tell us how to live our lives. But that’s not their job, even in cases where I agree with the underlying advice. Coerced good behavior is not a sign of virtue.

The bottom line is that some proponents of sin taxes presumably have their hearts in the right place. But they need their brains in a good place as well. If they want to be taken seriously, at the very least they should match their proposed sin taxes with permanent repeal of an existing tax of similar magnitude.

For example, offer to trade a sugar tax for repeal of the death tax. Or suggest a fat tax accompanied by elimination of the capital gains tax.

Until we see such offers, advocates of sin taxes should be met with unyielding opposition.

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I never saw The Nightmare Before Christmas, a 1993 film. But that’s fine, because I am already dealing with my own nightmare with the holiday just around the corner.

What’s haunting me in the specter of a value-added tax, which some reporters now think is a clear and present danger (my concern, not theirs).

We’ll start with this disconcerting report a couple of days ago from Politico.

Is the real lesson from tax reform that Americans rely too much on the income tax to fund their government? …Most other industrial nations lighten the load on their income tax by combining it with some form of consumption taxes… “If you want a code that is predictable and simple and competitive with rates on the global market place, you have to bring in other sources of income, other than the income tax,” said Sen. Ben Cardin (D-Md.). “A progressive consumption tax is the most logical way to move forward but we’re not there yet. I think ultimately we’ll get there.”

By the way, there’s a huge mistake in the above excerpt.

I don’t know if it’s because of dishonesty of incompetence, but the reporter is wrong to claim that other nations “lighten the load of their income tax.” Here’s a chart, based on OECD data, comparing the burden of personal income tax for the U.S. and Western Europe.

In other words, governments adopt VATs because politicians want to spend more.

And what sort of spending will we get?

Our statist friends are salivating at the thought of financing a bigger welfare state.

As a rule, the regressive nature of consumption taxes makes them less attractive to Democrats. But given concerns about climate change, a carbon tax is one consumption tax that has begun to attract some following. And economist Henry Aaron at the non-profit Brookings Institution said Democrats are “short-sighted” if they reject consumption taxes… Given the aging population and desire to do more to help workers adjust to technologies that threaten their jobs, the needs are there. “The bulk of redistribution occurs on the expenditure side of the budget,” Aaron said. “Those of us who want more progressivity would rather see a progressive tax … but the impact on income redistribution is going to be overwhelmed by what is done with revenue on the expenditure side. That’s going to completely overwhelm any regressivity in the collection mechanism.”

And here are some excerpts from a Yahoo column from earlier this month.

We’re being warned that politicians will use the next fiscal crisis to impose a VAT.

…at some point, the United States will have to reduce annual deficits that could swell to $1 trillion per year as early as 2019. Republicans would prefer to solve that problem by cutting social spending. But that seems unlikely. To make a difference, cuts in programs such as Social Security and Medicare would have to be vast, which would outrage voters. A more likely solution is a national consumption tax, otherwise known as a value-added tax, or VAT. “A 5% VAT would raise an enormous amount of money,” says Jeremy Scott, a tax attorney who is vice president of editorial at the publisher Tax Analysts. “The next major fiscal crisis might be followed by a VAT.”

Gee, isn’t that wonderful. The politicians will spend us into a fiscal cul-de-sac, and then use that spending crisis as an excuse to seize more of our money.

And I can’t resist sharing this passage to remind folks that those of us who opposed the “border-adjustment tax” were on the side of the angels. The BAT was basically a pre-VAT.

House Republicans actually proposed a tax similar to a VAT in the tax plan they introduced in 2016, and carried into 2017 as the starting point for the Trump tax cuts. That tax alone would have raised $1.2 trillion in new revenue during the first decade and more during the second decade — a large pot of new funds that would have allowed significant cuts elsewhere in the tax code. That tax was controversial, however, and Trump declared it too complicated. So House Republicans dropped it. Still, old ideas have a way of coming back around in Washington.

Yes, it is certainly the case that bad ideas never go away in Washington.

Let’s close with an amusing poem from Reddit‘s libertarian page.

P.S. If minimalist poetry isn’t your cup of tea, you can enjoy some cartoons about the VAT by clicking herehere, and here.

P.P.S. The clinching argument is that Reagan opposed a VAT and Nixon supported a VAT. That tells you everything you need to know.

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