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Archive for the ‘Higher Taxes’ Category

With two dozens candidates in the race, it’s not feasible to review the fiscal and economic plans of every potential nominee for the Democratic Party.

But that doesn’t mean I’ll be silent. I’ve written several times about Crazy Bernie’s agenda, and I’ve recently opined about shortcomings in the plans of Kamala Harris and Elizabeth Warren (I haven’t written about Joe Biden’s agenda since he presumably represents a restoration of Obama’s knee-jerk statism).

Today let’s turn our attention to Pete Buttigieg. Known as Mayor Pete, he positions himself as a pragmatic millennial.

Notwithstanding his moderate demeanor, though, he’s been very aggressive about proposing higher taxes. And, as revealed in this report from Fox, that includes promoting new taxes as part of his unconventional campaign.

On fiscal policy, Buttigieg pushed for four distinct tax hikes when asked about the deficit, saying he favored a “fairer, which means higher” marginal income tax, a “reasonable” wealth tax “or something like that,” a financial transactions tax, and closing “corporate tax loopholes.” …Buttigieg indicated that the long odds didn’t faze him. “There’s a lot of us running for president on the Democratic side, but I think it’s safe to say I’m not like the others,” Buttigieg told Wallace, noting that seeking the presidency is inherently “audacious” — especially given that he would be the youngest person to ever become president. “I would say being a mayor in a city of any size in America right now is about as relevant as it gets,” Buttigieg added.

I agree. Mayor Pete is audacious.

But not because he’s running for President with so little experience. Instead, he’s audacious because his tax agenda is so troubling.

I don’t like that he wants to increase the tax burden. Especially since it’s easy to fix budget problems with some modest spending restraint.

I also don’t like that he wants higher marginal tax rates on households and businesses. Because of exponentially increasing deadweight losses, that’s one of the most economically destructive ways of extracting revenue from the economy’s productive sector.

And I’m most worried about his advocacy of two new sources of taxation. Both proposals would do considerable damage. A financial transactions tax would wreak havoc with financial markets. And a wealth tax would dramatically reduce incentives to save and invest since it’s an explicit form of double taxation.

By the way, Mayor Pete probably supports a national energy tax. At least that’s a logical conclusion given his views on global warming. So we should add that levy to the list as well.

P.S. The only good news is that Buttigieg hasn’t (yet) embraced a value-added tax.

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I’m doing my third field trip to the United Nations.

In 2012, I spoke at a conference that was grandiosely entitled, “The High Level Thematic Debate on the State of the World Economy.” I was a relatively lonely voice trying to explain that a bigger burden of government would hinder rather than promote economic development.

In 2017, I was a credentialed observer to the 14th Session of the Committee of Experts on International Cooperation in Tax Matters, as well as the Special Meeting of ECOSOC on International Cooperation in Tax Matters. I somehow survived having to spend several days listening to government officials wax poetic about various schemes to extract more money from the productive sector of the economy.

This year, I”m at the U.N. participating in the 17th International Forum of the Convention of Independent Financial Advisors. My panel focused on taxation and the U.N.’s Sustainable Development Goals.

Here are the goals, which presumably are widely desirable.

The controversial part is how to achieve these goals.

Many of the folks at the U.N. assert that governments need more money. A lot more money.

A new Fund to support UN activities that will help countries achieve the Sustainable Development Goals was launched today by UN Deputy-Secretary-General Amina Mohammed at a ministerial meeting to review financing for sustainable development. …Ms. Mohammed said the new Fund will “provide some muscle” to help UN country teams support countries’ efforts and priorities to achieve the 2030 Agenda – the global agenda that sets out 17 goals to promote prosperity and improve people’s well-being while protecting the environment. “It will help us hit the ground running and to pick up the pace,” for financing the Goals, she said, cautioning that it was still only part of the estimated $300 trillion that will be needed.

Needless to say, $300 trillion is a lot of money. Even when spread out between now and 2030.

To put that number in perspective, the annual GDP (economic output) of the United States is about $20 trillion.

My concern, whether the number is $300 or $300 trillion, is that folks at the United Nations have a very government-centric view of development.

Which is why I tried to explain that the only successful recipe for progress is free markets and small government.

Take a look at this list of the top-25 jurisdictions as ranked by the United Nations.

And what do these places have in common?

They generally became rich when government was a very minor burden.

This means the 1800s and early 1900s for nations in North America and Western Europe.

And it means the post-World War II era for some of the Pacific Rim jurisdictions.

I concluded with my challenge, asking participants to identify a single nation – anywhere in the world at any point in history – that became rich with big government and high taxes.

The answer is none. Zero. Zilch. Nada.

The bottom line is that many people at the U.N. have a sincere desire to help the world’s less-fortunate people. But they need to put facts and empirical data above statist ideology.

P.S. Maybe the U.N. doesn’t do the right thing about fighting poverty because it has some people who are very dishonest about the topic?

P.P.S. I don’t know whether to classify this as absurd or dishonest, but Jeffrey Sachs actually claimed that Cuba ranks about the United States in meeting the Sustainable Development Goals.

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Back in 2015, when Trump was a long-shot candidate for the Republican nomination, I criticized him for not signing the no-tax-hike pledge.

But he then pushed through a better-than-expected tax plan after getting the White House. And that package reduces the tax burden (at least for the first nine years).

So is it time for me to retract my 2015 criticism?

Nope.

Look at this horrifying tweet that Trump issued yesterday. The President is actually claiming that the economy is doing well because of higher tax payments.

This has to be Trump’s worst-ever tweet, at least with regards to economic policy.

Normally, only hard-left politicians and international bureaucracies have the gall to claim that you can strengthen an economy by having governments collect more money.

Needless to say, it’s strange to see a Republican president make the same argument.

But Trump’s tweet isn’t just bad from the perspective of fiscal policy.

He also shows that he doesn’t understand trade policy, either from a technical perspective or an economic perspective.

For instance, the tariffs (i.e., trade taxes) technically are paid by those making the purchases (i.e., importers), not by the sellers (i.e., Chinese companies).

But just as the corporate income tax is really a tax on people (either as workers, consumers, or shareholders), the burden of trade taxes also falls on people.

In other words, American consumers are paying for Trump’s tariffs.

Which gives me an excuse to share Trump’s second-worst-ever tweet, which was issued this morning.

At the risk of understatement, the United States doesn’t “lose” $500 billion by trading with China.

Americans voluntarily purchase lots of output from China and both sides benefit (otherwise the transactions wouldn’t occur).

And many Chinese use the dollars they earn to invest in the U.S. economy, another set of win-win transactions.

The net result of all these voluntary transactions is that America has a trade deficit, which is a meaningless figure. Basically the flip side of having a capital surplus.

The bottom line is that Trump should stick to tax policy and regulatory policy, since those are areas where his policies have been beneficial.

P.S. If Trump was focused on Chinese technology theft or Chinese industrial subsidies, I would be at least partly sympathetic. Especially if he utilized the World Trade Organization and included our allies. But he’s mostly attacking China because he doesn’t like the voluntary decisions of American and Chinese consumers and businesses.

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If the people who advocate higher taxes really think it’s a good idea to give politicians more cash, why don’t they voluntarily send extra money with their tax returns?

Massachusetts actually makes that an easy choice since state tax forms give people the option of paying extra, yet tax-loving politicians such as Elizabeth Warren and John Kerry never avail themselves of that opportunity.

And the Treasury Department has a website for people who want to give extra money to the federal government, yet proponents of higher taxes (at least for you and me) never lead by example.

For lack of a better phrase, let’s call this type of behavior – not choosing to pay extra tax – conventional hypocrisy.

But what about politicians who support higher taxes while dramatically seeking to reduce their own tax payments? I guess we should call that nuclear-level hypocrisy.

And if there was a poster child for this category, it would be J.B. Pritzker, the Illinois governor who is trying to replace his state’s flat tax with a money-grabbing multi-rate tax.

The Chicago Sun Times reported late last year that Pritzker has gone above and beyond the call of duty to make sure his money isn’t confiscated by government.

…more than $330,000 in property tax breaks and refunds that…J.B. Pritzker received on one of his Gold Coast mansions — in part by removing toilets… Pritzker bought the historic mansion next door to his home, let it fall into disrepair — and then argued it was “uninhabitable” to win nearly $230,000 in property tax breaks. …The toilets had been disconnected, and the home had “no functioning bathrooms or kitchen,” according to documents Pritzker’s lawyers filed with Cook County Assessor Joseph Berrios.

Wow, maybe I should remove the toilets from my house and see if the kleptocrats in Fairfax County will slash my property taxes.

And since I’m an advocate of lower taxes (for growth reasons and for STB reasons), I won’t be guilty of hypocrisy.

Though Pritzker may be guilty of more than that.

According to local media, the tax-loving governor may face legal trouble because he was so aggressive in dodging the taxes he wants other people to pay.

Democratic Illinois Gov. JB Pritzker, his wife and his brother-in-law are under federal criminal investigation for a dubious residential property tax appeal that dogged him during his gubernatorial campaign last year, WBEZ has learned. …The developments demonstrate that the billionaire governor and his wife may face a serious legal threat arising from their controversial pursuit of a property tax break on a 126-year-old mansion they purchased next to their Gold Coast home. …The county watchdog said all of that amounted to a “scheme to defraud” taxpayers out of more than $331,000. …Pritzker had ordered workers to reinstall one working toilet after the house was reassessed at a lower rate, though it’s unclear whether that happened.

This goes beyond nuclear-level hypocrisy – regardless of whether he’s actually guilty of a criminal offense.

Though he’s not alone. Just look at the Clintons. And Warren Buffett. And John Kerry. And Obama’s first Treasury Secretary. And Obama’s second Treasury Secretary.

Or tax-loving international bureaucrats who get tax-free salaries.

Or any of the other rich leftists who want higher taxes for you and me while engaging in very aggressive tax avoidance.

To be fair, my leftist friends are consistent in their hypocrisy.

They want ordinary people to send their kids to government schools while they send their kids to private schools.

And they want ordinary people to change their lives (and pay more taxes) for global warming, yet they have giant carbon footprints.

P.S. There is a quiz that ostensibly identifies hypocritical libertarians.

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Bernie Sanders demonizes the rich and argues that millionaires need to pay higher tax rates in order to finance a bigger burden of government.

Which presumably means that he should surrender more of his income, since he is part of the gilded class. The New York Times has a report on the Vermont Senator’s lavish income.

Senator Bernie Sanders of Vermont, a leading candidate for the Democratic presidential nomination, disclosed 10 years of tax returns on Monday… He and his wife, Jane O’Meara Sanders, reported income that topped $1 million in 2016 and 2017… Mr. Sanders’s higher income in recent years has created some political awkwardness for the senator, who in his 2016 presidential campaign frequently railed against “millionaires and billionaires” and their influence over the political process. …His income now puts him within the top 1 percent of taxpayers, according to data from the Internal Revenue Service.

Yet when asked why he didn’t pay a big chunk of his income to the IRS, Sanders showed typical statist hypocrisy by giving the same reason used by every rich person (including Trump) and every big corporation.

Fox News has the details.

Early in the program, Sanders was asked about the 10 years worth of tax returns he had released just before the program, which showed that he had an adjusted gross income of $561,293 in 2018, on which he paid a 26 percent effective tax rate. Baier asked Sanders why he’s holding onto his wealth rather than refusing deductions or writing a check to the Treasury Department — since Sanders had said he voted against Trump’s tax bill that he himself benefitted from. “Pfft, come on. I paid the taxes that I owe,” Sanders replied.

If he actually followed the law and paid his taxes, that puts him ahead of some of his fellow leftists, such as Tim Geithner and Tom Daschle.

But that’s still not good enough, at least if Sanders is serious in wanting to resurrect FDR’s infamous second Bill of Rights.

For what it’s worth, the notion that people have a right to free stuff is the core principle behind the so-called Green New Deal.

Yet if Sanders wants to minimize his own tax bill, why should he complain when the rest of us try to protect ourselves from being victimized by his redistribution agenda?

Though I will admit that Sanders is probably a sincere hypocrite.

After all, would anyone other than a committed leftist support Venezuela’s leftist dictatorship?

And let’s not overlook the fact that Crazy Bernie has some crazy advisers with the same crazy viewpoint, as revealed by the Wall Street Journal. Like their boss, they have a perverse admiration for the despotic hellhole of Venezuela.

Socialism is cool again, and Bernie Sanders wants to reassure voters that there’s nothing to worry about. “I think what we have to do, and I will be doing it, is to do a better job maybe in explaining what we mean by socialism—democratic socialism,” Mr. Sanders said last month. …But we’ve been reading the work of Bernie’s senior political advisers… Take speechwriter David Sirota, who joined the Sanders campaign in March… Mr. Sirota wrote an op-ed for Salon in 2013 titled “Hugo Chávez’s Economic Miracle.” …Sirota wrote… “in a United States that has become more unequal than many Latin American nations, are there any constructive lessons to be learned from Chávez’s grand experiment with more aggressive redistribution?” …Mr. Sanders’ political director, Analilia Mejia, spent part of her childhood in Venezuela and told the Atlantic in 2016 that “it was better to live on poverty-level wages in a shantytown in Venezuela than on a garment-worker’s salary in Elizabeth, New Jersey.” …senior policy adviser Heather Gautney visited Caracas in 2006…wrote about how Chávez had “implemented a serious [sic] of programs to redistribute the wealth of the country and bolster social welfare.” …She also wrote that “today’s neoliberal capitalist system has become utterly incompatible with the requisites of democratic freedom.” …Mr. Sanders is…a leading candidate…and these are the people who would staff his White House. Voters need to understand that they don’t merely admire Venezuela. By their own words, they want America to emulate it.

I’m almost at a loss for words. People are starving in Venezuela. Women are being forced into prostitution. Families are eating household pets.

Yet Bernie’s people think we should mimic Venezuela’s horrid socialism.

I’m not sure whether to laugh or cry.

But since I prefer laughter, let’s close with same Bernie-themed humor, starting with this gem from the satirists at Babylon Bee.

Needing to cool off from the high-stress life of a U.S. senator who has to work three days a week, Bernie Sanders was spotted Tuesday ranting at the wide selection of deodorants at a D.C.-area Target. “There are people who don’t have enough food to eat in this world, and yet there are 29 different brands of deodorant here!” Sanders bellowed, citing the two completely unrelated facts for some reason. … Several shoppers attempted to go around Sanders but he blocked the aisle, ranting to them about the 1% and the failures of capitalism before they ran away, frightened. …At publishing time, Sanders was seen in the snacks aisle ranting about how no country needs three different varieties of Flamin’ Hot Cheetos.

By the way, this isn’t random humor.

Sanders is such a crazy crank that he actually has condemned capitalism for providing too many underarm choices.

This Branco cartoon also hits the nail on the head.

P.S. If you like this bit of mockery, you’ll probably like Branco’s cartoons about the sequester and “you didn’t build that.”

P.P.S. And you can find my collection of Bernie humor by clicking here.

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Singapore is routinely ranked as the world’s 2nd-freest economy, trailing only Hong Kong.

The nation’s laissez-faire approach has yielded big dividends. Singapore is now über prosperous, richer than both the United States and United Kingdom.

But there are problems in paradise.

Advocates of class-warfare policy (see here and here) are urging higher tax burdens. And even though there’s no reason to raise taxes (Singapore has a huge budget surplus), politicians have catered to this noisy clique in recent years (see here and here).

In a column for the Straits Times that I co-wrote with Donovan Choy of Singapore’s Adam Smith Centre, we explain why the government should slam the door on all tax hikes, especially proposals targeting entrepreneurs and investors.

Singapore has shown that conventional theories about economic growth need to be updated to reflect that growth doesn’t necessarily need to weaken once a nation becomes prosperous. Singaporeans should be thankful for the sensible governance that has made the nation a role model. Unfortunately, some people are willing to threaten the country’s prosperity by urging higher tax burdens on the wealthy. They risk national competitiveness by advocating additional layers of tax on income that is saved and invested. This “class warfare” approach is deeply misguided, especially in a globalised economy.

We list six specific guidelines for sensible policy.

Two of them are worth highlighting, starting with the fact that Singapore so far has avoided the trap of “Wagner’s Law.”

What makes Singapore special is that it avoided the mistakes other nations made when they became rich. Countries in North America and Western Europe created costly welfare states once they became relatively prosperous. This is known to academics as Wagner’s Law, and it has serious consequences since larger public sectors reduce competitiveness and lead to less growth.

We also explain that discriminatory taxes on saving and investment are the most destructive method of collecting revenue.

Proponents assert that dividend and capital gains taxes are needed so that upper-income people pay tax. But this line of thinking is misguided. Such income is already subject to 17 per cent corporate income taxation in Singapore. Imposing dividend and capital gains taxes would mean such income is subject to increasing layers of discriminatory taxation. The result is to discourage capital formation (savings and investment) – the very essence of entrepreneurship. And that approach is economically foolish, since all economic theories – even Marxism and socialism – agree that saving and investment are key to long-run growth and rising living standards.

Since today’s topic is Singapore, let’s look at some additional material.

We’ll start with two articles that Donovan wrote for the Foundation for Economic Education.

The first column explains a bit of the history.

The country’s first Prime Minister, Lee Kuan Yew, is often recognized as the father of Singapore. If that is so, then the grandfathers of Singapore would rightfully be three men: Sir Stamford Raffles, who founded the trade settlement, William Farquhar, whom Raffles put at the helm of Singapore in his periodic years of absences, and John Crawfurd, whom Raffles appointed to succeed Farquhar. …Raffles’s intentions were plain as he wrote in a letter in June 1819: “Our object is not territory but trade; a great commercial emporium…,” and to develop “the utmost possible freedom of trade and equal rights to all, with protection of property and person”. …Like Farquhar, Crawfurd shared Raffles’s strong free-market beliefs and pushed his laissez-faire policies even harder… The common denominator of the grandfathers of Singapore was their economic philosophies – capitalism and free enterprise were at the root of their beliefs. The first leaders of colonial Singapore were staunch classical liberals who professed strong beliefs in economic freedoms

You probably won’t be surprised to learn that this is somewhat similar to Hong Kong’s economic history.

Donovan’s next column looks at how Singapore has wisely limited redistribution.

The Singapore welfare system is considered one of the most successful by first-world standards. World Bank data shows that Singapore’s government health expenditure in 2015 is only 4.3 percent of GDP, a small fraction in comparison to other first-world countries…while achieving comparatively equal or better health outcomes… While most of Europe, Scandinavia, and North America spend 30-40 percent of GDP on social welfare programs, Singapore spends less than half as much… qualifying for welfare is notoriously difficult by the standards of most of the developed Western world. The Singapore government’s position on welfare handouts is undergirded by a staunch economic philosophy of self-reliance and self-responsibility where the first lines of welfare should be derived from one’s individual savings, the family unit, and local communities before turning to the government. …This philosophy of self-reliance and responsibility is prominent not only in social welfare but is also replicated in the Singapore government’s approach to retirement savings, health care, education, and housing. For instance, the state’s preferred policy of ensuring individuals have sufficient resources for a rainy day is via the Central Provident Fund, a government-mandated savings account.

Again, much like Hong Kong.

Singapore also has what is probably the most market-oriented healthcare system in the world.

Here are some excerpts from a story in the New York Times.

…it achieves some outcomes Americans would find remarkable. Life expectancy at birth is two to three years longer than in Britain or the United States. Its infant mortality rate is among the lowest in the world, about half that of the United States…about two-thirds of health care spending is private, and about one-third is public. It’s just about the opposite in the United States. …What also sets Singapore apart, and what makes it beloved among many conservative policy analysts, is its reliance on health savings accounts. All workers are mandated to put a decent percentage of their earnings into savings for the future. …why is Singapore so cheap? Some think that it’s the strong use of health savings accounts and cost-sharing. People who have to use their own money usually spend less.

The country is also remarkably free of crime, as noted by CNBC.

Singapore was recently ranked second on the Economist Intelligence Unit’s Safe Cities Index for 2017, coming in just behind Tokyo. In 2016, the island nation’s police reported 135 total days without any crimes including snatch-theft, house break-ins and robbery. That low crime rate means many small businesses enjoy little concern about shoplifting. …local businesses take few precautions when closing shop at night. For instance, in the ground floor lobby of a mixed-use building in the downtown business district, many shops don’t have windows, locks — or even doors.

Though it is not a total libertarian paradise.

A column in Bloomberg warns the Brexit crowd that there are statist components to Singapore’s regime.

Over 80 percent of the population lives in public housing… In industrial policy, the government oversees a plethora of schemes targeting mostly off-budget public funding to particular sectors such as biopharma and aerospace, as well as activities such as R&D and skills training. Government-linked companies, whose controlling shareholder is the sovereign wealth fund Temasek Holdings Pte. Ltd., are the dominant players in transport, communications, real estate and media.

Let’s close with a column Professor Steve Hanke authored for Forbes.

Singapore validates Adam Smith’s counsel on economic development: “Little else is requisite to carry a state to the highest degree of opulence from the lowest barbarism, but peace, easy taxes, and a tolerable administration of justice.” …Singapore, Hong Kong, and even the Cayman Islands exemplify commerce-oriented city-states. How can such a small player, like Singapore, achieve prominence on the world’s stage? …acting as a commercial republic and embracing a regime of entrepreneurial public finance. …the culture of an entrepreneurial inclined city-state – like Singapore – differs significantly from that of a parasitical state that feeds on tax extractions.

Here’s his comparison of a predatory government compared to a pro-market government.

Singapore is a successful example of the right column.

Sounds like a model the United States should follow.

Assuming, of course, Singapore retains good policy.

P.S. I’ve also had to explain why the Cayman Islands should retain good policy.

P.P.S. Regular readers won’t be surprised to learn that the OECD tries very hard to overlook the success of Singapore’s low-tax model.

P.P.P.S. Singapore is in first place in my “laissez-faire index.”

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President Kennedy’s tax rate reductions were a big success. Sadly, very few modern Democrats share JFK’s zeal for pro-growth tax policy.

And there’s another arrow in the class-warfare quiver.

The Wall Street Journal reports on a misguided new idea from Ron Wyden, the ranking Democrat on the Senate Finance Committee.

The top Democrat on the Senate’s tax-writing committee proposed taxing unrealized gains in investment assets every year at the same rates as other income…an idea that would transform how the U.S. taxes the wealthiest people. …Under Mr. Wyden’s concept, capital gains would be taxed annually based on how much assets have gained in value. Now, by contrast, gains are taxed only when assets are sold and at a top rate of 23.8% instead of 37% for ordinary income.

There are two big reasons why this is a terrible idea.

First, the right policy is to abolish any tax on capital gains. Drop the rate to zero.

Simply stated, there shouldn’t be an added layer of tax on people who earn money, pay tax on that money, and then buy assets with some of the remaining after-tax income.

Especially since the income generated by that additional investment already would be hit by the corporate income tax and the extra layer of tax on dividends.

This system is also very bad for workers because of the long-standing relationship between investment and employee compensation.

Second, levying such a tax would be a logistical nightmare. Here’s another brief excerpt from the article.

Mr. Wyden’s concept would present logistical challenges. He would need to figure out how to value complex assets, handle declines in value, deal with people without enough cash to pay the tax and address illiquid investments such as closely held businesses and real estate.

So why would Sen. Wyden propose such a clunky class-warfare scheme?

Because it would generate (at least on paper) a lot of money that could be used to buy votes.

This mark-to-market tax concept…could raise substantial money. A similar proposal…would generate an estimated $125 billion in 2025 alone… Democrats, who are campaigning on wide-ranging and costly ideas for more spending on health care, infrastructure and education, can point to plans by Mr. Wyden and others to explain how they would pay for policy proposals.

Of course, no amount of tax increases would generate the revenue to finance the so-called Green New Deal.

In reality, a major reason for Wyden’s plan is that the left is motivated by class warfare rather than revenue collection.

Democrats have frequently found unfairness in the different ways that the U.S. tax system approaches wage and investment income. They have focused their response, in part, on the “Buffett Rule”, inspired by Warren Buffett’s claim that he pays a lower tax rate than his secretary.

I added this final excerpt simply so I can point out that Buffett’s claim is utter nonsense.

And so is the “Buffett rule” that some folks on the left have proposed.

I’ll close by noting that the United States has one of the world’s least friendly tax codes for investment.

The lower corporate rate in the Trump tax plan was a step in the right direction.

But even with that positive reform, the overall tax burden on capital gains is very high compared to America’s major trading partners.

And now Senator Wyden wants to make a bad situation worse.

For further information, here’s my video explaining why there shouldn’t be any tax on capital gains.

P.S. Uncle Sam also forces investors to pay capital gains tax when assets rise in value because of inflation.

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