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Archive for the ‘Tax Increase’ Category

The recipe for growth and prosperity isn’t very complicated.

Adam Smith provided a very simple formula back in the 1700s.

For folks who prefer a more quantitative approach, the Fraser Institute’s Economic Freedom of the World uses dozens of variables to rank nations based on key indices such as rule of law, size of government, regulatory burden, trade openness, and stable money.

One of the heartening lessons from this research is that countries don’t need perfect policy. So long as there is simply “breathing room” for the private sector, growth is possible. Just look at China, for instance, where hundreds of millions of people have been lifted from destitution thanks to a modest bit of economic liberalization.

Indeed, it’s remarkable how good policy (if sustained over several decades) can generate very positive results.

That’s a main message in this new video from the Center for Freedom and Prosperity.

The first part of the video, narrated by Abir Doumit, reviews success stories from around the world, including Hong Kong, Singapore, Chile, Estonia, Taiwan, Ireland, South Korea, and Botswana.

Pay particular attention to the charts showing how per-capita economic output has grown over time in these jurisdictions compared to other nations. That’s the real test of what works.

The second part of the video exposes the scandalous actions of international bureaucracies, which are urging higher fiscal burdens in developing nations even though no poor nation has ever become a rich nation with bigger government. Never.

Yet bureaucracies such as the United Nations, the International Monetary Fund, and the Organization for Economic Cooperation and Development are explicitly pushing for higher taxes in poor nations based on the anti-empirical notion that bigger government is a strategy for growth.

I’m not joking.

As Ms. Doumit remarks in the video, these bureaucracies never offer a shred of evidence for this bizarre hypothesis.

And what’s especially frustrating is that the big nations of the western world (i.e., the ones that control the international bureaucracies) all became rich when government was very small.

And while the bureaucracies never provide any data or evidence, the Center for Freedom and Prosperity’s video is chock full of substantive information. Consider, for instance, this chart showing that there was almost no redistribution spending in the western world as late as 1930.

Unfortunately, the burden of government spending in western nations has metastasized starting in the 1930s. Total outlays now consume enormous amounts of economic output and counterproductive redistribution spending is now the biggest part of national budgets.

But at least western nations became rich first and then made the mistake of adopting bad fiscal policy (fortunately offset by improvements in other areas such as trade liberalization).

The international bureaucracies are trying to convince poor nations, which already suffer from bad policy, that they can succeed by imposing additional bad fiscal policy and then magically hope that growth will materialize.

And having just spent last week observing two conferences on tax and development at the United Nations in New York City, I can assure you that this is what they really think.

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To pick the state with the best tax policy, the first step is to identify the ones with no income tax and then look at other variables to determine which one deserves the top ranking.

For what it’s worth, I put South Dakota at the top.

Picking the state with the worst tax policy is more difficult. There are lots of reasons to pick California, in part because it has the highest income tax rate of any state. But there are also strong arguments that New York, Illinois, and New Jersey deserve the worst rating.

And let’s not forget my home state of Connecticut, which invariably ranks near the bottom based on research from the Tax Foundation, the Mercatus Center, the Cato Institute, the Fraser Institute, and WalletHub.

The Wall Street Journal opined yesterday about Connecticut’s metamorphosis from a zero-income-tax state to a high-tax swamp.

Hard to believe, but a mere 25 years ago—a lifetime for millennials—Connecticut was a low-tax haven for Northeasterners. The state enacted an income tax in 1991 that was initially a flat 4.5% but was later made steeply progressive. In 2009 former Republican Governor Jodi Rell raised the top rate on individuals earning $500,000 or more to 6.5%, which Democratic Gov. Dannel Malloy has lifted to 6.99% (as if paying 0.01% less than 7% is a government discount). Connecticut’s top tax rate is now higher than the 5.1% flat rate in the state formerly known as Taxachusetts.

This big shift in the tax burden has led to predictably bad results.

…the tax hikes have been a disaster. A net 30,000 residents moved to other states last year. Since 2010 seven of Connecticut’s eight counties have lost population, and the hedge-fund haven of Fairfield County shrank for the first time last year. In the last five years, 27,400 Connecticut residents have moved to Florida. …More than 3,000 Connecticut residents have moved to zero income-tax New Hampshire in the last two years. While liberals wax apocalyptic about Kansas’s tax cuts, the Prairie State has welcomed 1,430 Connecticut refugees since 2011 and reversed the outflow between 2005 and 2009. Yet liberals deny that tax policies influence personal or business decisions.

The good news is that the state’s leftist politicians recognize that there’s a problem. The bad news is that they don’t want to undo the high tax rates that are causing the problems. Instead, they want to use some favoritism, cronyism, and social engineering.

Connecticut’s progressive tax experiment has hit a wall. Tens of thousands of residents are fleeing for lower tax climes, which has prompted Democrats to propose—get this—paying new college grads a thousand bucks to stick around. …proposing a tax credit averaging $1,200 for grads of Connecticut colleges who live in the state as well as those of out-of-state schools who move to the state within two years of earning their degree.

As the WSJ points out, special tax credits won’t be very effective if the job market stinks.

Yet the main reason young people are escaping is the lack of job opportunities. Since 2010 employment in Connecticut has grown at half the rate of Massachusetts and more slowly than in Rhode Island, New Jersey or Kansas.

By the way, this isn’t the first time that Connecticut’s politicians have resorted to special-interest kickbacks.

The Wall Street Journal also editorialized last year about the state’s one-off bribe to keep a hedge fund from fleeing to a state with better policy.

Last week the Governor presented Bridgewater with $5 million in grants and $17 million in low-interest, forgivable loans to renovate its headquarters in Westport along the state’s Gold Coast.

But the bit of cronyism won’t help ordinary people.

Connecticut has lost 105,000 residents to other states over the last five years while experiencing zero real economic growth. …So here is the new-old progressive governing model: Raise taxes relentlessly in the name of soaking the 1% to pay off government unions. When that drives people out of the state, subsidize the 0.1% to salvage at least some jobs and revenue. Ray Dalio gets at least some of his money back. The middle class gets you know what.

What’s particularly frustrating is that the state’s leftist governor understands the consequences of bad tax policy, even though he’s unwilling to enact the right solution.

Mr. Malloy said that other states including New York were trying to lure Bridgewater, and Connecticut couldn’t afford to lose the $150 billion fund or its 1,400 high-income employees. …The Governor’s office says Nutmeg State tax revenues could shrink by $4.9 billion over the next decade if all of Bridgewater’s employees departed. …“We see what happens in places like New Jersey when some of the wealthiest people move out of the state,” Mr. Malloy warned. This is the same Governor who has long echoed the progressive left’s claim that tax rates don’t matter. Maybe he was knocked off his horse by a vision on the road to Hartford.

This is remarkable.

Governor Malloy recognizes that tax-motivated migration is a powerful force.

He even admits that it causes big Laffer Curve effects, meaning governments actually lose revenue over time when tax rates are punitive.

Yet he won’t fix the underlying problem.

Maybe there’s some unwritten rule that Connecticut has to have bad governors?

Mr. Malloy’s Republican predecessor Jodi Rell raised the top marginal tax rate to 6.5% from 5% on individuals earning more than $500,000, and Mr. Malloy raised it again to 6.99%. Hilariously, Ms. Rell said last month that she’s also moving her residence to Florida because of the “downward spiral” in Connecticut that she helped to propel.

And lots of other people are moving as well.

The death tax plays a role, as explained in a column for the Hartford Courant.

Connecticut spends beyond its means and, therefore, taxes more than it should. …they’re driving the largest taxpayers away. We’ve passed the tipping point beyond which higher taxes beget lower revenues… The wealthy, in particular, have decided in swelling numbers they won’t be caught dead — literally — in our state. Evidence strongly suggests that estate and gift taxes are the final straw. To avoid Connecticut’s estate tax, wealthy families are moving to one of the 36 states without one.

And the loss of productive people means the loss of associated economic activity.

Including tax revenue.

Where wealthy families choose to establish residency has important ramifications for Connecticut’s economy and fiscal health. The earlier these golden geese flee, the greater the cumulative loss of golden eggs in the form of income taxes, sales taxes, jobs created by their companies, philanthropic support and future generations of precious taxpayers.

The data on tax-motivated migration is staggering.

Between 2010 and 2013, the number of federal tax returns with adjusted gross incomes of $1 million or more grew only 9.5 percent here vs. 22 percent in Massachusetts, 16 percent in New York and Rhode Island, and 30 percent in Florida. Slow economic growth and ever higher taxes are both cause and effect of out-migration. …In 2008, the state Department of Revenue Services asked accountants and tax lawyers whether clients moved out of state due to the estate tax, and 53 percent of respondents said it was the principal reason. …The outflow accelerated following 2011’s historic $2.5 billion tax increase. In the following two years, Connecticut suffered a net out-migration of more than 27,000 residents who took nearly $4 billion in annual adjusted gross income elsewhere, a stunning $500,000 per household. According to the Yankee Institute, the average adjusted gross income of each person leaving tripled in the past 10 years. At an average tax rate of 6.5 percent, this represents more than $250 million in lost income tax revenue annually, which is 50 percent more than the state collected in estate and gift taxes in 2014.

By the way, just in case some of you are skeptical and think that Connecticut’s deterioration is somehow unconnected to tax policy, I’ll close with this excerpt from some academic research that calculated the nationwide impact of state tax policy differences.

We consider the complete sample of all U.S. establishments from 1977-2011 belonging to firms with at least 100 employees and having operations in at least two states. On the extensive margin, we find that a one percentage point increase (decrease) in the state corporate tax rate leads to the closing (opening) of 0.03 establishments belonging to firms organized as C corporations in the state. This corresponds to an average change in the number of establishments per C corporation of 0.4%. A similar analysis shows that a one percentage point change in the state personal tax rate a§ects the number of establishments in the state per pass-through entity by 0.2-0.3%. These effects are robust to controls for local economic conditions and heterogeneous time trends. …This lends strong support to the view that tax competition across states is economically relevant.

To be sure, the numbers cited above may not sound large.

But keep in mind that small changes, if sustained over time, grow into very big results.

In the case of Connecticut, we have a state that has suffered dramatic negative consequences ever since the income tax was imposed back in 1991.

P.S. While my former state obviously has veered sharply in the wrong direction on fiscal policy, I must say that I’m proud that residents are engaging in civil disobedience against the state’s anti-gun policies.

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I wrote yesterday about how the Organization for Economic Cooperation and Development (OECD) is pushing for bigger government in China. That’s a remarkable bit of economic malpractice by the Paris-based international bureaucracy, especially since China is only ranked #113 in the latest scorecard from Economic Freedom of the World. The country very much needs smaller government to become rich, yet the OECD is preaching more statism.

But nobody should be surprised. The OECD, perhaps because its membership is dominated by European welfare states, has a dismal track record of reflexive support for bigger government.

It supports higher taxes and bigger government in Asia, in Latin America, and…yes, you guessed correctly…the United States.

And here’s the latest example. In a new publication, OECD bureaucrats recommend policy changes that ostensibly will produce more growth for the United States. Basically, America should become more like France.

Income inequality has continued to widen… Public infrastructure is not keeping pace… Promote mass transit… Implement usage fees based on distance travelled…to help fund transportation… Expand federal programmes designed to improve access to fixed broadband. …Expand funding for reskilling… Require paid parental leave… Expand the Earned Income Tax Credit and raise the minimum wage.

To be fair, not every recommendation involves bigger government.

Adopt legislation that cuts the statutory marginal corporate income tax rate…

But even that single concession to good policy is matched by proposals to squeeze more money from the private sector.

…and broaden the tax base. …Continue with measures to prevent base erosion and profit shifting.

By the way, even though European nations dominate the OECD’s membership, American taxpayers provide the largest share of funding for the OECD.

In other words, we’re paying more taxes to have a bunch of international bureaucrats urge that we get hit with even higher taxes. And to add insult to injury, OECD bureaucrats are exempt from paying taxes!

Maybe that’s why they’re so blind to the harmful impact of bad tax policy.

It’s especially discouraging that the bureaucrats are even advocating greater levels of discriminatory taxation of saving and investment. Here are some blurbs from a report in the Wall Street Journal.

The Paris-based think tank has just junked the conventional economic wisdom on tax it had been promoting for years. …“For the past 30 years we’ve been saying don’t try to tax capital more because you’ll lose it, you’ll lose investment. Well this argument is dead…,” Pascal Saint-Amans, the OECD’s tax chief, said in an interview. …Since the 1970s economists had argued capital income should be taxed relatively lightly because it was more mobile across countries and attracting investment would boost economic growth, ultimately benefiting everyone.

Actually, the argument on not over-taxing capital income is based on the merits of a neutral tax system that doesn’t undermine growth by punishing saving and investment.

The fact that capital is “mobile across countries” was something that constrained politicians from imposing bad tax policy. In other words, tax competition promoted better (or less worse) policy.

But now that tax havens and tax competition have been weakened, politicians are pushing tax rates higher. And the OECD is cheering this destructive development.

Here are some passages from the OECD report on this topic.

…there have been calls to move away from a narrow focus on economic growth towards a greater emphasis on inclusiveness. …Inclusive economic growth…implies that the benefits of increased prosperity and productivity are shared more evenly between people… More specifically with regard to tax policy, inclusive economic growth is related to managing tradeoffs between equity and efficiency. Growth-enhancing tax reforms might come at certain costs in terms of meeting equity goals so tax design for inclusive growth requires taking into account the distributional implications of tax policies.

In other words, the OECD wants to shift away from policies that lead to a growing economic pie and instead fixate on how to re-slice and redistribute a stagnant pie.

And here’s a flowchart from the OECD report. Keep in mind that “inclusive growth” actually means less growth. I’ve helpfully put red stars next to the items that involve more transfers of money from the productive sector of the economy to the government.

That flowchart shows what the OECD wants.

But if you want a real-world example, just look at Greece, France, and Italy.

Which brings me to my final point. To be blunt, it’s crazy that American taxpayers are subsidizing a left-wing overseas bureaucracy like the OECD.

If Republicans have any brains and integrity (I realize that’s asking a lot), they should immediately pull the plug on subsidies for the Paris-based bureaucracy. Sure, it’s only about $100 million per year, but – on a per-dollar spent basis – it’s probably the most destructive spending in the entire budget.

P.S. The OECD even wants a type of World Tax Organization.

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Once of the reasons that tax increases in Washington are such a bad idea (and one of the reasons why a value-added tax is an especially bad idea) is that the prospect of additional tax revenue kills any possibility of genuine entitlement reform. Simply stated, politicians won’t do the heavy lifting of fixing those programs if they think can use a tax hike to prop up the current system for a few more years.

However, if we don’t fix the entitlements, the United States faces a very grim fiscal future regardless of new revenue because the burden of government spending will be expanding faster than the growth of the private economy.

Indeed, tax hikes presumably will accelerate the problems by weakening economic performance, creating an even bigger gap between the growth of government spending and the growth of productive output. Sort of a double violation of my Golden Rule.

Well, the same thing is happening in Illinois.

That state is a fiscal disaster. Taxes already are high, government spending already is excessive, and promises of lavish future benefits for government bureaucrats have created a mountain of unfunded liabilities. To make matters worse, there’s a never-ending trickle of taxpayers fleeing to other states, thus making the long-run outlook even worse.

A column in today’s Wall Street Journal discusses this unfolding disaster.

…what about the state’s fiscal apocalypse, which is not only happening right now but has plunged Illinois into a bona fide financial disaster? …the state has amassed $11 billion in unpaid bills—predicted to climb to more than $27 billion by the end of 2019. Illinois is facing the worst pension crisis of any U.S. state, with unfunded obligations totaling $130 billion, according to the state’s Commission on Government Forecasting and Accountability. That amounts to about $10,000 in debt for each resident. …Illinois also had the lowest credit rating among the 50 states as of October, when Moody’s Investors Service downgraded it again… Given all this, it’s no surprise that people are leaving. In 2016 Illinois lost more residents than any other state—for the third consecutive year. A total of 37,508 people fled, leaving the state’s population at its lowest level in nearly a decade.

By the way, the net payers of tax are the ones leaving, not the net consumers of tax. And every time one of the geese with golden eggs decides to fly away, Illinois falls deeper into a hole.

I discussed this phenomenon in a column for The Hill.

…there are some very uncompetitive, high-tax states, such as Illinois, that are in deep trouble due to internal migration.Most people have focused on the overall population loss of 37,508 in Illinois, but the number that should worry state politicians is, on net, a staggering 114,144 people left for other states. Only New York (another high-tax state with a grim future) lost more people to internal migration.Of course, what really matters, at least from a fiscal perspective, is the type of person who leaves. Data from the internal revenue service shows that states like Illinois are losing people with above-average incomes. In other words, the net taxpayers are escaping.

And don’t forget that Illinois is increasingly uncompetitive compared to neighboring states.

Here’s a blurb from a Wall Street Journal editorial in January,

Nearby Kentucky passed a right-to-work law last week and Missouri is expected to take up similar legislation in coming weeks. …this would leave Illinois, a non-right-to-work state, as an island with undesirable labor laws surrounded by states including Michigan, Indiana and Wisconsin that provide more worker choice and business flexibility.

I have some theoretical problems with right-to-work laws, but the WSJ is correct that private employers tend to avoid states where unions wield a lot of power.

Also, we can’t forget that the main city in Illinois has its own set of problems.

As discussed in an article for the American Thinker, Chicago adds crime and corruption to the mix.

Chicago has become the icon of bloody violence on its streets, but corruption also is part of its misery… Chicago’s city government is known for much more than just its one-sidedness.  From Mayor Richard J. Daley’s well known rackets of yesteryear to former U.S House representative Jesse Jackson, Jr. (who just last year completed his prison sentence after having pleaded guilty to multiple federal charges including fraud, conspiracy, wire fraud, criminal forfeiture, and more), the list of Democrats committing and getting caught committing fraud, taking bribes, running scams, and other malfeasance while in office is very long. …As reported by Gazette.com, “according to Illinois corruption researchers Dick Simpson and Thomas Gradel, more than 30 Chicago aldermen have been convicted of crimes since 1973, most of them on bribery and extortion charges. “More than 1,000 public officials and businessmen in Illinois have been convicted of public corruption since 1970, including imprisoned former Gov. Rod Blagojevich. But corruption among politicians on Chicago’s premier lawmaking body has been ‘particularly persistent’, the researchers wrote in an anti-corruption report.”

Gee, what a surprise. Politicians create big government in part so they have lots of goodies to distribute, and they then use those goodies to extort money from people.

Hmmm…, where have I seen that message before?

But let’s not get distracted. We’ve now established that Illinois is a giant mess. We also know that the state can only be saved if there is both short-run spending restraint and long-run spending restraint (to deal with unaffordable benefits promised to the state’s massive bureaucracy). Though we also know that the chances of getting those necessary reforms will evaporate if tax hikes are an option.

So is anybody surprised that the state’s supposedly anti-tax governor is getting seduced/pressured into throwing taxpayers under the bus?

The Wall Street Journal opines on this development.

Illinois Governor Bruce Rauner has been trying to pull the Land of Lincoln out of economic decline…, and it’s a losing battle. After two years without a state budget, Mr. Rauner is now bending as Democrats promise to hold the budget hostage if he doesn’t sign a tax increase. In his State of the State address last week, Mr. Rauner said he was open to “consider revenue increases” in conjunction with “job-creating changes” in pursuit of a budget deal. He endorsed negotiations underway with state lawmakers to craft a “grand bargain”…the speech was greeted with derision by the state’s Springfield mafia that assumes it now has the Governor where it wants him. …The deal now being crafted in the state Senate would increase the state’s flat income-tax rate to somewhere around 5% from the current 3.75%. …Democrats are still peddling that they can tax their way out of Illinois’s economic decline, while taxpayers are picking up and heading to neighboring states.

Incidentally, there was a temporary hike in the tax to 5 percent a few years ago. How did that work out?

…the years of an elevated income tax produced one of the country’s weakest state economic recoveries, with bond-rating declines in Chicago and staggering deficits statewide. …Senate President John Cullerton said the point of the temporary hike was to pay pensions, “pay off our debt [and] to have enough money to pay the interest on that debt.” But the roughly $31 billion it generated made hardly a dent. Since 2011 the unfunded pension liability in Illinois has grown by $47 billion, even as the tax hike was mostly spent on pensions.

Here’s the bottom line. Governor Rauner made a huge mistake by stating that he would “consider revenue increases.”

Illinois, after all, is not suffering from inadequate tax collections.

Moreover, now that Rauner has waved the white flag, there’s a near-zero chance that he’ll be able to get something in exchange such as a Colorado-style spending cap or much-need constitutional reform to control pension expenditures.

Instead, higher revenues will trigger even more wasteful outlays (as leftists in the state sometimes accidentally admit).

I guess there’s still a chance he’ll do what’s best for the state and reject tax hikes, but as of now it looks like Rauner will be the next winner of the Charlie Brown Award.

Oh, and he’ll also jeopardize his own political career. Which helps to explain why the GOP is known as the “stupid party.”

P.S. I don’t think it beats my examples from Greece and Japan, but Illinois at least can compete in the dumbest-regulation contest.

P.P.S. Illinois is a terrible state for gun rights, and it even persecutes people who use guns to fight crime. The only silver lining to that dark cloud is this amusing example of left-wing social science.

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I don’t have strong views on global warming. Or climate change, or whatever it’s being called today.

But I’ve generally been skeptical about government action for the simple reason that the people making the most noise are statists who would use any excuse to increase the size and power of government. To be blunt, I simply don’t trust them. In Washington, they’re called watermelons – green on the outside (identifying as environmentalists) but red on the inside (pushing a statist agenda).

But there are some sensible people who think some sort of government involvement is necessary and appropriate.

George Schultz and James Baker, two former Secretaries of State, argue for a new carbon tax in a Wall Street Journal column as part of an agenda that also makes changes to regulation and government spending.

…there is mounting evidence of problems with the atmosphere that are growing too compelling to ignore. …The responsible and conservative response should be to take out an insurance policy. Doing so need not rely on heavy-handed, growth-inhibiting government regulations. Instead, a climate solution should be based on a sound economic analysis that embodies the conservative principles of free markets and limited government. We suggest…creating a gradually increasing carbon tax…, returning the tax proceeds to the American people in the form of dividends. And…rolling back government regulations once such a system is in place.

A multi-author column in the New York Times, including Professors Greg Mankiw and Martin Feldstein from Harvard, also puts for the argument for this plan.

On-again-off-again regulation is a poor way to protect the environment. And by creating needless uncertainty for businesses that are planning long-term capital investments, it is also a poor way to promote robust economic growth. By contrast, an ideal climate policy would reduce carbon emissions, limit regulatory intrusion, promote economic growth, help working-class Americans and prove durable when the political winds change. …Our plan is…the federal government would impose a gradually increasing tax on carbon dioxide emissions. It might begin at $40 per ton and increase steadily. This tax would send a powerful signal to businesses and consumers to reduce their carbon footprints. …the proceeds would be returned to the American people on an equal basis via quarterly dividend checks. With a carbon tax of $40 per ton, a family of four would receive about $2,000 in the first year. As the tax rate rose over time to further reduce emissions, so would the dividend payments. …regulations made unnecessary by the carbon tax would be eliminated, including an outright repeal of the Clean Power Plan.

They perceive this plan as being very popular.

Environmentalists should like the long-overdue commitment to carbon pricing. Growth advocates should embrace the reduced regulation and increased policy certainty, which would encourage long-term investments, especially in clean technologies. Libertarians should applaud a plan premised on getting the incentives right and government out of the way.

I hate to be the skunk at the party, but I’m a libertarian and I’m not applauding. I explain some of my concerns about the general concept in this interview.

In the plus column, there would be a tax cut and a regulatory rollback. In the minus column, there would be a new tax. So two good ideas and one bad idea, right? Sounds like a good deal in theory, even if you can’t trust politicians in the real world.

However, the plan that’s being promoted by Schultz, Baker, Feldstein, Mankiw, etc, doesn’t have two good ideas and one bad idea. They have the good regulatory reduction and the bad carbon tax, but instead of using the revenue to finance a good tax cut such as eliminating the capital gains tax or getting rid of the corporate income tax, they want to create universal handouts.

They want us to believe that this money, starting at $2,000 for a family of four, would be akin to some sort of tax rebate.

That’s utter nonsense, if not outright prevarication. This is a new redistribution program. Sort of like the “basic income” scheme being promoted by some folks.

And it creates a very worrisome dynamic since people will have an incentive to support ever-higher carbon taxes in order to get ever-larger checks from the government. Heck, the plan being pushed explicitly envisions such an outcome.

I’ve made the economic argument against carbon taxes and the cronyism argument against carbon taxes. Now that we have a real-world proposal, we have the practical argument against carbon taxes.

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I’ve put forth lots of arguments against tax increases, mostly focusing on why higher tax rates will depress growth and encourage more government spending.

Today, let’s look at a practical, real-world example.

I wrote a column for The Hill looking at why Greece is a fiscal and economic train wreck. I have lots of interesting background and history in the article, including the fact that Greece got into the mess by overspending and also explaining that politicians like Merkel only got involved because they wanted to bail out their domestic banks that foolishly lent lots of money to the Greek government.

But the most newsworthy part of my column was to expose the fact that “austerity” hasn’t worked in Greece because the private sector has been suffocated by giant tax hikes.

…the troika…imposed the wrong kind of fiscal reforms. …what mostly happened is that Greek politicians dramatically increased the nation’s already punitive tax burden. The Organization for Economic Cooperation and Development’s fiscal database tells a very ugly story. …on the eve of the crisis, the tax burden in Greece totaled 38.9 percent of GDP. This year, taxes are projected to reach 52.0 percent of economic output. Every major tax in Greece has been dramatically increased, including personal income taxes, corporate income taxes, value-added taxes, and property taxes. It’s been a taxpalooza… What’s happened on the spending side of the fiscal ledger? Have there been “savage” and “draconian” budget cuts? …there have been some cuts, but the burden of government spending is still a heavy weight on the Greek economy. Outlays totaled 54.1 percent of GDP in 2009 and now government is consuming 52.2 percent of economic output.

For what it’s worth, the spending numbers would look better if the economy was stronger. In other words, Greece’s performance wouldn’t be so dismal if GDP was growing rather than shrinking.

And that’s why tax increases are so misguided. They give politicians an excuse to avoid much-needed spending cuts while also hindering growth, investment and job creation.

Let’s close by reviewing Greece’s performance according to Economic Freedom of the World. The overall score for Greece has dropped slightly since 2009, but the real story is that the nation’s fiscal score has dramatically worsened, falling from 5.61 to 4.66 on a 0-10 scale. In other words, during a period of time in which Greece was supposed to sober up and become more fiscally responsible, the politicians engaged in an orgy of tax hikes and Greece went from a failing grade for fiscal policy to a miserably failing grade.

Here’s a the relevant graph from the EFW website. As you can see, the score has been dropping for a decade, not just since 2009.

This is remarkable result. Greek politicians should have been pushing the nation’s fiscal score to at least 7 out of 10, if not 8 out of 10. Instead, the score has gone in the wrong direction because of tax increases.

Though I don’t expect Hillary and Bernie to learn the right lesson.

P.S. For more information, here’s my five-picture explanation of the Greek mess.

P.P.S. And if you want to know why I’m so dour about Greece’s future, how can you expect good policy from a nation that subsidizes pedophiles and requires stool samples to set up online companies?

P.P.P.S. Let’s close by recycling my collection of Greek-related humor.

This cartoon is quite  good, but this this one is my favorite. And the final cartoon in this post also has a Greek theme.

We also have a couple of videos. The first one features a video about…well, I’m not sure, but we’ll call it a European romantic comedy and the second one features a Greek comic pontificating about Germany.

Last but not least, here are some very un-PC maps of how various peoples – including the Greeks – view different European nations.

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In one of my periodic attempts to create themes for these columns, I developed a “fiscal fights with friends” category.

  • Part I was a response to Riehan Salam’s well-meaning critique of the flat tax.
  • Part II was a response to a good-but-timid fiscal plan from folks at AEI.
  • Part III was a response to Jerry Taylor’s principled case for an energy tax.
  • And I’m going to retroactively categorize my friendly attacks on the destination-based cash-flow tax as Part IVa, Party IVb, and Part IVc.

Today’s column could be considered Part IIIb since I’m going to revisit the case against energy taxes. Except it’s not going to be a friendly assessment. That’s because there’s a legitimate case (made by Jerry) for a carbon tax, based on the notion that it could address an externality, obviate the need for command-and-control regulation, and provide revenue to finance pro-growth tax cuts.

But there’s also a distasteful argument for such a tax and it revolves around crony capitalists seeking to obtain unearned wealth by imposing costs on their competitors.

Elon Musk already is infamous for trying to put taxpayers on the hook for some of his grandiose schemes. Now, as reported by Bloomberg, he wants an energy tax on American consumers.

Tesla Motors Inc. founder Elon Musk is pressing the Trump administration to adopt a tax on carbon emissions, raising the issue directly with President Donald Trump and U.S. business leaders at a White House meeting Monday regarding manufacturing.

But what the article doesn’t mention is that such a tax would make his electric cars more financially attractive. It’s rather unseemly (and I’m bending over backwards for a charitable characterization) that a rich guy is pushing a tax on the rest of us as a way of lining his pockets.

What’s ironic, though, is that he’s probably being short-sighted because a carbon tax presumably would hit coal, and that’s a common source of energy for electrical generation. So while regular drivers would pay a lot more for gas, Tesla drivers would pay more at charging stations.

Some big oil companies also are flirting with an energy tax for cronyist reasons. An article in the Federalist notes that some of those firms support carbon taxes because they want to create hardships for their competitors.

…carbon taxes do not affect all fossil fuels equally. So just as some fossil fuels are much more carbon-intensive than others, here we can begin to understand how, beyond the benefits of predictability, a carbon tax might actually help some fossil-fuel providers… As a recent National Bureau of Economic Research working paper illustrates, for example, in the United States a tax on carbon would disproportionately impact the use of coal relative to natural gas for energy production. …Don’t be surprised, then, if some domestic producers of natural gas end up promoting a carbon tax, not only out of concern for regime stability but also out of a concern to make their product more competitive in the energy marketplace.

To be fair, I suppose that Musk and the energy companies might actually think energy taxes are a good idea, so their support may have nothing to do with self interest.

But it’s always a good idea to “follow the money” when looking at how policy really gets made in Washington.

Even more depressing, the adoption of one bad policy may lead to the expansion of another bad policy. More specifically, some proponents of energy taxes admit that ordinary taxpayers and consumers will be hurt. But rather than realize that a new tax is a bad idea, they decide to match a tax increase with more spending. Here is a blurb from a report by the American Enterprise Institute.

Using emissions and other data from 2013 and 2014, we also find that the revenue from the carbon tax could be enough to expand the EITC to childless workers and hold other low income households harmless, combining a regressive tax with progressive benefits.

This is not good. The EITC already is the fastest-growing redistribution program in Washington. Making it even bigger would exacerbate the fiscal burden of the welfare state.

P.S. Now that I think about it, because much of my work on spending caps is designed to educate policymakers that a focus on balanced budget rules is well-meaning but misguided, I’m going to classify my columns on spending caps as Part Va, Part Vb, Part Vc, Part Vd, Part Ve, Part Vf, Part Vg, Part Vh, Part Vi, and Part Vj of my fiscal-fights-with-friends collection.

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