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Archive for the ‘Taxation’ Category

When I debate class warfare issues, here’s something that happens with depressing regularity.

I’ll cite research from a group like the Tax Foundation on how an overwhelming share of the income tax is borne by upper-income taxpayers.

The statist I’m arguing with will then scoff and say the Tax Foundation is biased, thus implying that I’m sharing bogus data.

I’ll then respond that the group has a very good reputation and that their analysis is directly based on IRS data, but I may as well be talking to a brick wall. It seems leftists immediately close their minds if information doesn’t come directly from a group that they like.

So I was rather happy to see that the Internal Revenue Service, in the Spring 2015 Statistics of Income Bulletin, published a bunch of data on how much of the income tax is paid by different types of taxpayers.

I’ll be very curious to see how they respond when I point out that their favorite government agency admits that the bottom 50 percent of earners only pay 2.8 percent of all income tax. And I’ll be every more curious to see how they react when I point out that more than half of all income taxes are paid by the top 3 percent of taxpayers.

There’s a famous saying, generally attributed to Daniel Patrick Moynihan, that “Everyone is entitled to his own opinion, but not his own facts.”

With this in mind, I’m hoping that this data from the IRS will finally put to rest the silly leftist talking point that the “rich” don’t pay their “fair share.”

This doesn’t mean, by the way, that the debate about policy will be settled.

Getting statists to accept certain facts is just the first step.

But once that happens, we can at least hope that their minds will be opened to subsequent steps, such as understanding the economic impact of punitive tax rates, recognizing that high tax rates won’t necessarily collect more revenue, or realizing that ordinary workers suffer when harsh tax policies reduce economic vitality.

Though I’m not holding my breath and expecting miracles. After all, some leftists openly state that they don’t care if the economic damage of high tax rates is so significant that government doesn’t collect any tax revenue.

You can see an example of one of these spite-motivated people at the 4:20 mark of the video I narrated on class-warfare taxation.

P.S. Shifting to another tax topic, some of you may have heard about the massive data breach at the IRS. Here’s some of what CNN is reporting.

The Internal Revenue Service believes that a major cyber breach that allowed criminals to steal the tax returns of more than 100,000 people originated in Russia, Rep. Peter Roskam confirmed to CNN on Thursday. …The IRS announced Tuesday that organized crime syndicates used personal data obtained elsewhere to access tax information, which they then used to file $50 million in fraudulent tax refunds.

I suppose I could use this opportunity to take a few potshots at the IRS, but there’s a far more important issue to raise.

I’m guessing the IRS probably has the best computer security of any tax bureaucracy in the world. Yet even all the IRS’s expertise couldn’t stop hackers from obtaining sensitive information.

Now let’s contemplate something truly frightening. The Obama Administration wants the United States to be part of an OECD pact that obligates participating nations to promiscuously share information with dozens of other governments, including untrustworthy, hostile, and/or corrupt regimes such as Russia and China, not to mention make information available to jurisdictions that presumably will have very little technical capacity to guard data from hackers and identity thieves. Here’s the list of participating nations on the OECD website, and it includes Azerbaijan, Cameroon, Greece, Indonesia, Mexico, Nigeria, Romania, Saudi Arabia, and Ukraine.

Yet none of this reckless endangerment would be an issue if we had a simple territorial tax system like the flat tax. Under such a simple and fair system, only income inside America’s borders would be taxed (unlike the wretched system of worldwide taxation we have now), so there would be no need to have risky information-swapping deals with dodgy foreign governments.

P.P.S. Senator Rand Paul is one of the few lawmakers fighting to protect Americans from having their information shared with foreign governments.

P.P.P.S. Shifting back to the original topic of class-warfare taxation, here’s a lesson on the Laffer Curve I offered to President Obama.

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Two years ago, I shared a map looking at how heavily wine was taxed in different states.

What is showed was that you shouldn’t sip your Chardonnay or guzzle your Merlot in Kentucky. Unless, of course, you wanted to give politicians a lot more money to spend (or you slip across the border like Michael J. Rodrigues when buying booze).

Now the good people at the Tax Foundation have a related map. It shows which states have the highest and lowest taxes on beer.

Kentucky is still a high-tax state, but the “winner” of the beer tax contest is Tennessee.

At the risk of drawing too many conclusions, it does appear that southeastern states generally have high taxes on booze. Along with Alaska.

Maybe that’s a “Bible Belt” phenomenon. Though I’m somewhat forgiving of Tennessee for high excise taxes since the Volunteer State at least avoids the huge mistake of imposing an income tax on the wages and salaries of residents. No wonder it’s been growing faster than neighboring states.

Returning to the main topic, the Tax Foundation explains, taxes amount to a big share of the final price.

The Beer Institute points out that “taxes are the single most expensive ingredient in beer, costing more than labor and raw materials combined.” They cite an economic analysis that found “if all the taxes levied on the production, distribution, and retailing of beer are added up, they amount to more than 40% of the retail price.”

P.S. Since we’re looking at states, I can’t resist sharing bad news from one state and good news from another state.

We’ll start with some grim news from Minnesota. I’ve already commented on the insanity of using the State Department’s refugee program to subsidize terrorists.

Well, the Daily Caller reports that terrorists also have learned to bilk other programs to finance that hate of the modern world.

Two Somali-American men living in Minnesota are facing fraud charges — in addition to terrorism charges — after they allegedly used federal student loan money to purchase airline tickets to get them to Syria in order to join ISIS. …

This doesn’t quite entitle them to join the Moocher Hall of Fame, but it should outrage taxpayers anyhow.

Our good news come  from California.

J.D. Tuccille of Reason speculates that gun control has basically become impossible in the Golden State because there are simply too many guns.

California is a state where officials pride themselves on tightening the screws on gun owners. …But it’s a losing battle. Even in a political environment where villainizing guns and gun owners is a winning tactic, the ranks of the same are beyond officials’ grasp, and growing. Last year, almost one million firearms were sold in the state…it’s a good bet that California’s gun owners, and their guns, are here to stay.

Here’s a chart he including showing gun sales.

And J.D. reminds us that these are just the legal sales. As illustrated by the amusing t-shirt at the bottom of this post, there are doubtlessly lots of undocumented weapons in the state.

The bottom line is that future gun control efforts in California will probably run into the same problems that have thwarted the schemes of despicable politicians in Connecticut. Three cheers for the Americans who disobey bad law!

And since it’s Memorial Day weekend, it’s a good time to be thankful the all the folks in the military who fought to preserve our freedoms. Including the freedom to engage in civil disobedience when politicians try to trample our rights.

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The American Enterprise Institute has published a comprehensive budgetary plan entitled, “Tax and spending reform for fiscal stability and economic growth.”

Authored by Joseph Antos, Andrew G. Biggs, Alex Brill, and Alan D. Viard, all of whom I know and admire, this new document outlines a series of reforms designed to restrain the growth of government and mitigate many of the tax code’s more punitive features.

Compared to current law, the plan is a huge improvement.

But huge improvement isn’t the same as perfect, so here’s my two cents on what’s really good, what’s partially good, and what has me worried.

I’ll start with something that’s both good and bad.

According to the latest CBO estimates, federal tax revenues for 2015 will absorb 17.7 percent of GDP and spending will consume 20.4 percent of economic output. Now look at this table showing the impact of the AEI proposal. As you can see, the burden of taxes and spending will both be higher in the future than today.

That’s obviously bad. One would think a conservative organization would present a plan that shrinks the size of government!

But here’s the catch. Under current law, the burden of government is projected to climb far more rapidly, largely because of demographic changes and poorly designed entitlement programs. So if we do nothing and leave government on auto-pilot, America will be saddled with a European-sized welfare state.

From that perspective, the AEI plan actually is good since it is based on reforms that stop most – but not all – of the already-legislated expansions in the size of the public sector.

So here’s the bottom line. Compared to what I would like to see, the AEI plan is too timid. But compared to what I fear will happen, the AEI plan is reasonably bold.

Now let’s look at the specific reforms, staring with tax policy. Here’s some of what’s in the report.

The goal of our tax reform is to eliminate the income tax’s inherent bias against saving and investment and to reduce other tax distortions. To achieve this goal, the income tax system and the estate and gift taxes would be replaced by a progressive consumption tax, in the form of a Bradford X tax consisting of a…37 percent flat-rate firm-level tax on business cash flow and a graduated-rate household-level tax, with a top rate of 35 percent, on wages and fringe benefits.

At the risk of oversimplifying, the AEI folks decided that it was very important to solve the problem of double taxation and not so important to deal with the problem of a discriminatory and punitive rate structure. Which is sort of like embracing one big part of the flat tax while ignoring the other big part.

We’d have a less destructive tax code than we have now, but it wouldn’t be as good as it could be. Indeed, the plan is conceptually similar to the Rubio-Lee proposal, but with a lot more details.

Not that I’m happy with all those additional details.

To address environmental externalities in a more cost-effective and market-based manner, energy subsidies, tax credits, and regulations would be replaced by a modest carbon tax. The gasoline tax would be increased to cover highway-related costs.

I’m very nervous about giving Washington a new source of revenue. And while I’m open (in theory) to the argument that a carbon tax would be a better (less worse) approach than what we have now, I’m not sure it’s wise to trust that politicians won’t pull a bait and switch and burden us with both a costly energy tax and new forms of regulatory intervention.

And I definitely don’t like the idea of a higher gas tax. The federal government should be out of the transportation business.

There are also other features that irk me, including the continuation of some loopholes and the expansion of redistribution through the tax code.

Child and dependent care expenses could be deducted… A 15 percent refundable credit for charitable contributions… A 15 percent refundable credit for mortgage interest… A refundable credit for health insurance…the EITC for childless workers would be doubled relative to current law.

Though I should also point out that the new tax system proposed by AEI would be territorial, which would be a big step in the right direction. And it’s also important to note that the X tax has full expensing, which solves the bias against investment in a depreciation-based system.

But now let’s look at the most worrisome feature of the plan. It explicitly says that Washington should get more money.

… we also cannot address the imbalance simply by cutting spending… The tax proposals presented in this plan raise necessary revenues… Over time, tax revenue would gradually rise as a share of GDP… The upward path of tax revenue is necessary to finance the upward path of federal spending.

This is very counterproductive. But I don’t want to regurgitate my ideological anti-tax arguments (click here if that’s what you want). Let’s look at this issue from a strictly practical perspective.

I’ve reluctantly admitted that there are potential tax-hike deals that I would accept, at least in theory.

But those deals will never happen. In the real world, once the potential for additional revenue exists, the appetite for genuine spending restraint quickly evaporates. Just look at the evidence from Europe about the long-run relationship between taxes and debt and you’ll see that more revenue simply enables more spending.

Speaking of which, now let’s shift to the outlay side of the fiscal ledger.

We’ll start with Social Security, where the AEI folks are proposing to turn Social Security from a substandard social insurance program, which is bad, to a flat benefit, which might even be worse since it involves a shift to a system that is even more focused on redistribution.

The minimum benefit would be implemented immediately, increasing benefits for about one third of retirees, while benefits for middle- and high-earning individuals would be scaled down to the wage-indexed poverty level between now and 2050.

Yes, the system they propose is more fiscally sustainable for government, but what about the fact that most workers are paying record amounts of payroll tax in exchange for a miserly monthly payment?

This is why the right answer is personal retirement accounts.

The failure to embrace personal accounts may be the most disappointing feature of the AEI plan. And I wouldn’t be surprised if the authors veered in this unfortunate direction because they put the cart of debt reduction ahead of the horse of good policy.

To elaborate, a big challenge for real Social Security reform is the “transition cost” of financing promised benefits to current retirees and older workers when younger workers are allowed to shift their payroll taxes to personal accounts. Dealing with this challenge presumably means more borrowing over the next few decades, but it would give us a much better system in the long run. But this approach generally isn’t an attractive option for folks who fixate on near-term government debt.

That being said, there are spending reforms in the proposal that are very appealing.

The AEI plan basically endorses the good Medicare and Medicaid reforms that have been part of recent GOP budgets. And since those two programs are the biggest drivers of our long-run spending crisis, this is very important.

With regards to discretionary spending, the program maintains sequester/Budget Control Act spending levels for domestic programs, which is far too much since we should be abolishing departments such as HUD, Agriculture, Transportation, Education, etc.

But since Congress presumably would spend even more, the AEI plan could be considered a step in the right direction.

Finally, the AEI plan calls for military spending to consume 3.8 percent of economic output in perpetuity. National defense is one of the few legitimate functions of the federal government, but that doesn’t mean the Pentagon should get a blank check, particularly since big chunks of that check get used for dubious purposes. But I’ll let the foreign policy and defense crowd fight that issue since it’s not my area of expertise.

P.S. The Heritage Foundation also has thrown in the towel on personal retirement accounts and embraced a basic universal flat benefit.

P.P.S. On a completely different topic, here’s a fascinating chart that’s being shared on Twitter.

As you can see, the United States is an exception that proves the rule. I don’t know that there are any policy implications, but I can’t help but wonder whether America’s greater belief in self-reliance is linked to the tendency of religious people to believe in individual ethics and moral behavior.

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In my ultimate fantasy world, Washington wouldn’t need any sort of broad-based tax because we succeeded in shrinking the federal government back to the very limited size and scope envisioned by our Founding Fathers.

In my more realistic fantasy world, we might not be able to restore constitutional limits on Washington, but at least we could reform the tax code so that revenues were generated in a less destructive fashion.

That’s why I’m a big advocate of a simple and fair flat tax, which has several desirable features.

The rate is as low as possible, to minimize penalties on productive behavior.

There’s no double taxation, so no more bias against saving and investment.

And there are no distorting loopholes that bribe people into inefficient choices.

But not everyone is on board, The class-warfare crowd will never like a flat tax. And Washington insiders hate tax reform because it undermines their power.

But there are also sensible people who are hesitant to back fundamental reform.

Consider what Reihan Salam just wrote for National Review. He starts with a reasonably fair description of the proposal.

The original flat tax, championed by the economists Robert Hall and Alvin Rabushka, which formed the basis of Steve Forbes’s flat-tax proposal in 1996, is a single-rate tax on consumption, with a substantial exemption to make the tax progressive at the low end of the household-income distribution.

Though if I want to nit-pick, I could point out that the flat tax has effective progressivity across all incomes because the family-based exemption is available to everyone. As such, a poor household pays nothing. A middle-income household might have an effective tax rate of 12 percent. And the tax rate for Bill Gates would be asymptotically approaching 17 percent (or whatever the statutory rate is).

My far greater concerns arise when Reihan delves into economic analysis.

…the Hall-Rabushka tax would be highly regressive, in part because high-income households tend to consume less of their income than lower-income households and because investment income would not be taxed (or rather double-taxed).

This is a very schizophrenic passage since he makes a claim of regressivity even though he acknowledged that the flat tax has effective progressivity just a few sentences earlier.

And since he admits that the flat tax actually does tax income that is saved and invested (but only one time rather than over and over again, as can happen in the current system), it’s puzzling why he says the system is “highly regressive.”

If he simply said the flat tax was far less progressive (i.e., less discriminatory) than the current system, that would have been fine.

Here’s the next passage that rubbed me the wrong way.

…there is some dispute over whether ending the double taxation of savings would yield significant growth dividends. Chris William Sanchirico of Penn Law School takes a skeptical view in a review of the academic research on the subject, in part because cutting capital-income taxation as part of a revenue-neutral reform would require offsetting increases in labor-income taxation, which would dampen long-term economic growth in their own right.

I’m not even sure where to start. First, Reihan seems to dismiss the role of dynamic scoring in enabling low tax rates on labor. Second, he cites just one professor about growth effects and overlooks the overwhelming evidence from other perspectives. And third, he says the flat tax would be revenue neutral, when virtually every plan that’s been proposed combines tax reform with a tax cut.

On a somewhat more positive note, Reihan then suggests that lawmakers instead embrace “universal savings accounts” as an alternative to sweeping tax reform.

Instead of campaigning for a flat tax, GOP candidates ought to consider backing Universal Savings Accounts (USAs)… The main difference between USAs and Roth IRAs is that “withdrawals could be made at any time for any reason,” a change that would make the accounts far more attractive to far more people. …Unlike a wholesale shift to consumption taxation, USAs with a contribution limit are a modest step in the same general direction, which future reformers can build on.

I have no objection to incremental reform to reduce double taxation, and I’ve previously written about the attractiveness of USAs, so it sounds like we’re on the same page. And if you get rid of all double taxation and keep rates about where they are now, you get the Rubio-Lee tax plan, which I’ve also argued is a positive reform.

But then he closes with an endorsement of more redistribution through the tax code.

Republicans should put Earned Income Tax Credit expansion and other measures to improve work incentives for low-income households at the heart of their tax-reform agenda.

I want to improve work incentives, but it’s important to realize that the EIC is “refundable,” which is simply an inside-the-beltway term for spending that is laundered through the tax code. In other words, the government isn’t refunding taxes to people. It’s giving money to people who don’t owe taxes.

As an economist, I definitely think it’s better to pay people to work instead of subsidizing them for not working. But we also need to understand that this additional spending has two negative tax implications.

  1. When politicians spend more money, that either increases pressure for tax increases or it makes tax cuts more difficult to achieve.
  2. The EIC is supposed to boost labor force participation, but the evidence is mixed on this point, and any possible benefit with regards to the number of people working may be offset by reductions in actual hours worked because the phase out of the EIC’s wage subsidy is akin to a steep increase in marginal tax rates on additional labor supply.

In any event, I don’t want the federal government in the business of redistributing income. We’ll get much better results, both for poor people and taxpayers, if state and local government compete and innovate to figure out the best ways of ending dependency.

The rest of Reihan’s column is more focused on political obstacles to the flat tax. Since I’ve expressed pessimism on getting a flat tax in my lifetime, I can’t really argue too strenuously with those points.

In closing, I used “friendly fight” in the title of this post for a reason. I don’t get the sense that Mr. Salam is opposed to good policy. Indeed, I would be very surprised if he preferred the current convoluted system over the flat tax.

But if there was a spectrum with “prudence” and “caution” on one side and “bold” and “aggressive” on the other side, I suspect we wouldn’t be on the same side. And since it’s good for there to be both types of people in any movement, that’s a good thing.

P.S. I got a special treat this morning. I was at Reagan Airport for a flight to Detroit at the same time as a bunch of America’s World War II vets arrived on an Honor Flight to visit the WWII Memorial.

Here’s my rather pathetic attempt to get a photo of one of the vets being greeted.

Since I’ll never be in demand as a photographer, you should watch this video to learn more about this great private initiative to honor World War II veterans.

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I’ve openly stated that there are tax-hiking budget deals that theoretically would be attractive.

But notice that “theoretically” is part of that sentence.

That’s because in the real world, tax hikes have a poisonous effect on fiscal policy. Instead of being the lubricant that produces concessions from the big-government crowd, the prospect of additional revenue is like putting blood in the water when hungry sharks are circling.

The bottom line is that trying to cure deficits with taxes is like trying to cure alcoholics by giving them keys to a liquor store.

Indeed, the New York Times accidentally proved my point by putting together a chart showing that the only successful budget deal was the one that cut taxes instead of raising them.

So this is why I’m a huge fan of Americans for Tax Reform’s no-tax-hike pledge.

Simply stated, I want to restrain – and hopefully reduce – the burden of government spending. And that definitely won’t happen if politicians think more revenue is an option.

So I get excited any time voters express the same sentiment. As such, you can imagine my feeling of happiness that Michigan voters overwhelmingly rejected a big tax increase that was supported almost the entire political establishment.

Here are some of the joyous details from a Detroit Free Press report.

With all counties reporting, 1.4 million Michiganders voted no on Proposal 1 while less than 351,000 voted yes, according to the Michigan Secretary of State’s office. The 80-20 rejection may be the most one-sided loss for a proposed constitutional amendment in state history. …Proposal 1 would have hiked the state sales tax to 7% from 6%, taken the sales tax off fuel sales, and hiked fuel taxes — raising close to $1.3 billion extra for roads. When fully implemented, the plan would have also generated about $200 million a year more for schools; $116 million for transit and rail; sent $111 million more to local governments; and given a $260-million tax break to low- and moderate-income families through restoration of the Earned Income Tax Credit.

If the Michigan earned-income credit works the same way as the one in Washington, it’s not a tax break. It’s simply a wage subsidy, a form of redistribution that gets laundered through the tax code.

But that’s not terribly relevant for purposes of today’s discussion. What really matters is that politicians were pushing a big increase in the overall burden of spending financed by a big increase in the overall burden of taxation.

And they had special interests on their side, which enabled them to out-spend the pr0-taxpayer side by a margin of about 20-1.

the Safe Roads Yes committee, which pushed for a yes vote on Proposal 1, reported raising $9.6 million to spend on its campaign. Of that, $5.8 million came from the Michigan Infrastructure & Transportation Association, a lobbying group for road builders and their suppliers. …The main no committee, the Coalition Against Higher Taxes and Special Interest Deals, reported raising just under $500,000 as of Monday.

But special-interest money doesn’t necessarily translate into votes. At least it didn’t in Michigan on Tuesday.

By the way, I’m not claiming voters always make the right choices. As we saw from referenda in Oregon and California, they can sometimes be lured into voting yes on tax hikes if they’re told “the rich” are the only ones who will pay.

John Miller of Hillsdale College (site of my flat tax v. fair tax debate) explains that the politicians in Lansing were simply too greedy. Writing for the Wall Street Journal before the vote, Miller suggests voters were unhappy that they were being asked for a big tax hike, when 40 percent of the money was going to be diverted to non-transportation purposes.

…the measure would generate more than $2 billion in revenue a year. Yet the amount that would go to transportation—mostly roads and bridges, but also bike paths, light rail and “streetscape” projects that aim to improve the look of downtown areas—is only about $1.2 billion. …In other words, taxpayers will get less than $1.2 billion in roadwork for the price of more than $2 billion.

How typical. Politician proposed a tax hike for one reason, but then hijacked their own plan and made it a Christmas tree of special-interest spending.

P.S. Here are my five policy and five political reasons against higher taxes in Washington.

P.P.S. The international evidence also shows that higher taxes are a recipe for bigger government and more debt.

P.P.P.S. I don’t fixate too much on the bias of the establishment media. It’s annoying, to be sure, but it doesn’t help to get all agitated about things outside of my control. That being said, I thought it was very revealing that the home pages of both the New York Times and Washington Post didn’t have any stories on the Michigan referendum. If the vote had gone the other way, I feel 99 percent confident in stating that the story would have been prominently displayed with lots of “analysis” about why the vote was hugely important.

P.P.P.P.S. Needless to say, Republicans who refuse to take the no-tax-hike pledge should be viewed with considerable suspicion.

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For the people of China, there’s good news and bad news.

The good news, as illustrated by the chart, is that economic freedom has increased dramatically since 1980. This liberalization has lifted hundreds of millions from abject poverty.

The bad news is that China still has a long way to go if it wants to become a rich, market-oriented nation. Notwithstanding big gains since 1980, it still ranks in the lower-third of nations for economic freedom.

Yes, there’s been impressive growth, but it started from a very low level. As a result, per-capita economic output is still just a fraction of American levels.

So let’s examine what’s needed to boost Chinese prosperity.

If you look at the Fraser Institute’s Economic Freedom of the World, there are five major policy categories. As you can see from this table, China’s weakest category is “size of government.” I’ve circled the most relevant data point.

The bottom line is that China could – and should – boost its overall ranking by improving its size-of-government score. And that means reducing the burden of government spending and lowering tax rates.

With this in mind, I was very interested to see that the International Monetary Fund just published a study entitled, “China: How Can Revenue Reforms Contribute to Inclusive and Sustainable Growth.”

Did this mean the IMF was recommending pro-growth tax reform? After reading the following sentence, I was hopeful.

We highlight tax policies that can facilitate economic transition to high income status, promote fiscal sustainability and make growth more inclusive.

After all, surely you make the “transition to high income status” with low tax rates rather than high tax rates, right?

Moreover, the study also acknowledged that China’s tax burden already is fairly substantial.

Tax revenue has accounted for about 22 percent of GDP in 2013…the overall tax burden is similar to the tax-to-GDP ratio for other Asian economies such as Australia, Japan, and Korea.

So what did the IMF recommend? A flat tax? Elimination of certain taxes? Reductions in double taxation? Lowering the overall tax burden?

Hardly.

The bureaucrats actually want China to become more like France and Greece.

I’m not joking. The IMF study actually wants people to believe that making the income tax more punitive will somehow boost prosperity.

Increasing the de facto progressivity of the individual income tax would promote more inclusive growth.

Amazingly, the IMF wants more “progressivity” even though the folks in the top 20 percent are the only ones who pay any income tax under the current system.

…around 80 percent of urban wage earners are not subject to the individual income tax because of the high basic personal allowance.

But a more punitive income tax is just the beginning. The IMF wants further tax hikes.

Broadening the base and unifying rates would increase VAT revenue considerably. …tax based on fossil fuel carbon emission rates can be introduced. …the current levies on local air pollutants such as SO2 and NOX emissions and small particulates could be significantly increased.

What’s especially discouraging is that the IMF explicitly wants a higher tax burden to finance an increase in the burden of government spending.

According to the proposed reform scenario, China could potentially aim to increase public expenditures by around 1 percent of GDP for education, 2‒3 percent of GDP for health care, and another 3–4 percent of GDP to fully finance the basic old-age pension and to gradually meet the legacy costs of current obligations. These would add up to additional social expenditures of around 7‒8 percent of GDP by 2030… The size of additional social spending is large but affordable as part of a package of fiscal reforms.

Indeed, the study explicitly says China should become more like the failed European welfare states that dominate the OECD.

Compared to OECD economies, China has considerable scope to increase the redistributive role of fiscal policy. …These revenue reforms serve as a key part of a package of reforms to boost social spending.

You won’t be surprised to learn, by the way, that the study contains zero evidence (because there isn’t any) to back up the assertion that a more punitive tax system will lead to more growth. Likewise, there’s zero evidence (because there isn’t any) to support the claim that a higher burden of government spending will boost prosperity.

No wonder the IMF is sometimes referred to as the Dr. Kevorkian of the global economy.

P.S. If you want to learn lessons from East Asia, look at the strong performance of Hong Kong, Taiwan, Singapore, and South Korea, all of which provide very impressive examples of sustained growth enabled by small government and free markets.

P.P.S. I was greatly amused when the head of China’s sovereign wealth fund mocked the Europeans for destructive welfare state policies.

P.P.P.S. Click here if you want some morbid humor about China’s pseudo-communist regime.

P.P.P.P.S. Though I give China credit for trimming at least one of the special privileges provided to government bureaucrats.

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Economists generally like competition because it promotes economic efficiency, more prosperity, lower prices, and higher wages.

But some types of competition can be misguided.

For instance, Americans used to dominate membership in the Bureaucrat Hall of Fame.

Now, however, government employees in other nations have risen to the challenge and shown they can be just as spectacularly unproductive and wasteful as their American counterparts.

Maybe even more so.

Consider the doctor for Italy’s government-run healthcare system who only worked 15 days over a nine-year period.

Even more impressive, how about the bureaucrat in India who managed to go 24 years without showing up for work.

Now we have another foreign honoree.

Here are some blurbs from a BBC report about one French bureaucrat who went above and beyond the call of duty.

A top French civil servant has been forced to resign after spending more than €40,000 (£29,000; $44,000) on taxis in 10 months. Agnes Saal stepped down as head of France’s TV and radio archives at the demand of the culture minister. She had previously argued she needed to travel by taxi, despite having a chauffeur as well as a private car. But she admitted her son was responsible for €6,700 of the bill… She said giving him her reservation number was a “silly mistake”.

Yes, there was a “silly mistake,” but that mistake took place when France decided to create a Ministry of Culture.

Then another “silly mistake” was creating a sub-bureaucracy to be in charge of archives.

And then an additional “silly mistake” was to give the head bureaucrat of that useless division a credit card.

And perhaps the biggest “silly mistake” was to assign a chauffeur to a person holding a job that shouldn’t even exist.

All that being said, Ms. Saal deserves to be in the Bureaucrat Hall of Fame because it takes a special sense of entitlement to have a chauffeur yet still run up a $44,000 taxi bill in just 10 months.

That’s nearly $145 per day she foisted on overburdened French taxpayers, which doesn’t even count the cost of the car and chauffeur!

And I suppose we should give an “honorable mention” award to Ms. Saal’s predecessor. In his new position, he has also demonstrated an unwavering commitment to waste, fraud, and abuse.

She replaced Mathieu Gallet, who is now head of French public radio and is himself at the centre of a scandal after reportedly spending €100,000 on renovating his office and hiring a €90,000 PR consultant, just as he was preparing a cost-cutting plan.

Oh, and will anybody be surprised to learn that the over-paid bureaucrats at France’s taxpayer-subsidized radio network just finished a record-long strike?

Employees at Radio France ended their longest ever strike earlier this month, after walking out for 28 days.

Sigh. I can’t wait for the day when France will be forced to reconsider whether state-run and state-financed media networks are a proper function of government (like has already happened in Greece).

P.S. On another topic, I wrote a few days ago about the types of policies that lead to more “SuperEntrepreneurs” in a nation.

Well, the World Economic Forum has published related research about the impact of taxes on “superstar inventors.”

They start by looking at some of the research about taxation and labor mobility.

There is currently heated public debate about whether higher top tax rates will cause an exodus of valuable, high income and highly skilled economic agents. …Kleven et al. (2014) study a Danish tax reform that temporarily reduced top tax rates on high income foreigners and they find very strong effects on the inflow of migrants. In another recent paper Kleven, Landais, and Saez (2013) show that highly paid football players react to top tax rates when choosing in which country to work. …A group of highly valuable economic agents that policymakers perhaps might worry about is inventors, the creators of innovations and potential drivers of technological progress. Inventors may well be important factors for a country’s development and competitiveness – highly skilled migration has been shown to be both beneficial for a receiving country’s economy and to disproportionately contribute to innovation (Kerr 2013).

Then they focus specifically on highly productive inventors and how they migrate to places where the tax burden is less onerous.

…the average top 1% inventor has hundreds of times more citations. Among top inventors, some are highly successful migrants. In general, higher quality inventors are more mobile than lower quality inventors. …In recent research (Akcigit, Baslandze, and Stantcheva 2015) we study the international migration responses of superstar inventors to top income tax rates for the period 1977-2003 using data from the European and US Patent offices, as well as from the Patent Cooperation Treaty (Miguelez and Fink 2013). …From outside survey evidence, we know that superstar inventors are highly likely to be in the top tax bracket and, hence, directly subject to top tax rates. …There has is a strong and significant correlation between top tax rates and those inventors who remain in their home countries. The relation is strongest for superstar inventors. Figures 2 and 3 show that superstar inventors are highly sensitive to top tax rates. The elasticities imply that for a ten percentage point reduction of top tax rates from 50% to 40%, a country would be able to retain on average 3.3% more of its top 1% superstar inventors. …our results suggest that, given a ten percentage point decrease in top tax rates, the average country would be able to…attract 38% more foreign superstar inventors.

Here’s the bottom line.

The loss of highly skilled agents such as inventors might entail significant economic costs, not just in terms of tax revenues lost but also in terms of reduced positive spillovers from inventors and, ultimately, less innovation in a country.

In other words, class-warfare tax policy ultimately is very destructive for the jurisdictions that practice the politics of hate and envy.

P.P.S. I wrote a few years ago about legal tank ownership in America.

But there’s a catch. You theoretically have to disarm the gun, which would take away part of the fun.

Well, maybe you can make up for that loss of firepower by owning a flamethrower, which apparently is legal in 48 states.

Not sure I would want one of these, but I bet the answers to my IQ test for criminals and liberals would be even more interesting if homeowners added some their arsenals.

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