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Archive for the ‘Taxation’ Category

I’m a big fan of tax competition because politicians (i.e., stationary bandits) are far more likely to control their greed (i.e., keep tax burdens reasonable) if they know taxpayers have the ability to shift economic activity to lower-tax jurisdictions.

For all intents and purposes, tax competition helps offset the natural tendency (caused by “public choice“) of politicians to create “goldfish government” by over-taxing and over-spending.

In other words, tax competition forces politicians to adopt better policy even though would prefer to adopt worse policy.

I’ve shared many real-world examples of tax competition. Today, let’s augment that collection with a story from Indonesia.

Indonesian presidential candidate Prabowo Subianto will slash corporate and personal income taxes if he comes to power, part of a plan to compete with low-tax neighbors like Singapore in luring more investment to Southeast Asia’s biggest economy. …While he didn’t disclose possible tax rates, he said the aim is to lower them “on par with Singapore.” Indonesia currently has a top personal income tax rate of 30 percent and a corporate tax rate of 25 percent. Singapore has a corporate tax rate of 17 percent and a top individual rate of 22 percent for residents. “Our nominal tax rate is too high,” Wibowo said in an interview in Jakarta on Wednesday. Tax reform is needed to attract more foreign business as well as to encourage compliance, he said.

I have no idea if this candidate is sincere. I have no idea if he has a chance to win.

But I like how he embraces lower tax rates to compete with low-tax competitors in the region, such as Singapore.

The story, from Bloomberg, does include a chart that cries out for some corrective analysis.

There are two things to understand.

First, there are vast differences between Singapore and Indonesia. Singapore is ranked #2 by Economic Freedom of the World while Indonesia is only #65. And the reasons for the vast gap is that Indonesia gets very low scores for rule of law, regulation, and trade.

Moreover, while their scores for fiscal policy are similar, Singapore’s good score is a conscious choice whereas Indonesia has a small public sector because the government is too corrupt and incompetent to collect much money.

But this brings us to the second point. Tax collections are low in part because people don’t comply.

Indonesia has one of the region’s lowest tax-to-GDP ratios of about 11 percent and a poor record of tax compliance.

But that’s a reason to lower tax rates.

The bottom line is that I hope Indonesia adopts pro-growth tax reform but there are much bigger problems to solve.

P.S. Since I’ve been comparing Indonesia to Singapore, look at how the OECD and Oxfam made fools of themselves when comparing Singapore to other nations.

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The most disturbing outcome of the recent mid-term election isn’t that Alexandria Ocasio-Cortez will be a Member of Congress. I actually look forward to that because of the humor value.

Instead, with the Democrats now controlling the House of Representatives, I’m more worried about Donald Trump getting tricked into a “budget summit” that inevitably would produce a deal with higher taxes and more spending. Just in case you think I’m being paranoid, here are some excerpts from a recent Politico report.

The dust has barely settled on the midterm elections, yet tax talk is already in the air thanks to President Donald Trump signaling openness to higher taxes, at least for some. …Trump said he’d be open to making an “adjustment” to recent corporate and upper-income tax cuts… Those off-the-cuff comments are sure to spark concerns among Republican leaders… Trump also suggested he could find common ground with Democrats on health care and infrastructure.

To be fair, Trump was only talking about higher taxes as an offset to a new middle-class tax package, but Democrats realize that getting Trump to acquiesce to a net tax hike would be of great political value.

And I fear they will be successful in any fiscal negotiations. Just look at how Trump got rolled on spending earlier this year (and that orgy of new spending took place when Democrats were in the minority).

I fear a deal in part because I object to higher taxes. But also because it’s quite likely that we’ll get the worst kind of tax hikes – i.e., class-warfare increases in tax rates or work, saving, investment, and entrepreneurship.

The political dynamic of budget deals is rather straightforward. So long as the debate is whether to raise taxes or not, the anti-tax crowd has the advantage since most Americans don’t want to give more of their money to politicians.

But if both parties agree with the notion that taxes should increase, then most Americans will – for reasons of self defense – want higher taxes on the rich (with “rich” defined as “making more money than me”). And those are the tax increases that do the most damage.

Interestingly, even economists from the International Monetary Fund agree with me about the negative consequences of higher tax rates. Here’s the abstract of a recent study.

This paper examines the macroeconomic effects of tax changes during fiscal consolidations. We build a new narrative dataset of tax changes during fiscal consolidation years, containing detailed information on the expected revenue impact, motivation, and announcement and implementation dates of nearly 2,500 tax measures across 10 OECD countries. We analyze the macroeconomic impact of tax changes, distinguishing between tax rate and tax base changes, and further separating between changes in personal income, corporate income, and value added tax. Our results suggest that base broadening during fiscal consolidations leads to smaller output and employment declines compared to rate hikes, even when distinguishing between tax types.

Here’s a bit of the theory from the report.

Tax-based fiscal consolidations are generally associated with large output declines, but their composition can matter. In particular, policy advice often assumes that measures to broaden the tax base by reducing exemptions and deductions are less harmful to economic activity during austerity. …base broadening often tends to make taxation across sectors, firms, or activities more homogeneous, contrary to rate increases. This helps re-allocate resources to those projects with the highest pre-tax return, thereby improving economic efficiency.

By the way, “base broadening” is the term for when politicians collect more revenue by repealing or limiting deductions, exemptions, exclusions, credits, and other tax preferences (“tax reform” is the term for when politicians repeal or limit preferences and use the money to finance lower tax rates).

Anyhow, here are some of the findings from the IMF study on the overall impact of tax increases.

The chart on the right shows that higher taxes lead to less economic output, which certainly is consistent with academic research.

And the chart on the left shows the revenue impact declining over time, presumably because of the Laffer Curve (further confirming that tax hikes are bad even if they generate some revenue).

But the main purpose of the study is to review the impact of different types of tax increases. Here’s what the authors found.

Our key finding is that tax base changes during consolidations appear to have a smaller impact on output and employment than tax rate changes of a similar size. We find a statistically significant one-year cumulative tax rate multiplier of about 1.2, rising to about 1.6 after two years. By contrast, the cumulative tax base multiplier is only 0.3 after one year, and 0.4 after two years, and these estimates are not statistically significant.

And here’s the chart comparing the very harmful impact of higher rates (on the left) with the relatively benign effect of base changes (on the right).

For what it’s worth, the economic people in the Trump Administration almost certainly understand that there shouldn’t be any tax increases. Moreover, they almost certainly agree with the findings from the IMF report that class-warfare-style tax increases do the most damage.

Sadly, politicians generally ignore advice from economists. So I fear that Trump’s spending splurge has set the stage for tax hikes. And I fear that he will acquiesce to very damaging tax hikes.

All of which will lead to predictably bad results.

P.S. A columnist for the New York Times accidentally admitted that the only budget summit that actually led to a balanced budget was the 1997 that lowered taxes.

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There are three reasons why the right kind of tax reform can help the economy grow faster.

  1. Lower tax rates give people more incentive to earn income.
  2. Less double taxation boosts incentives to save and invest.
  3. Fewer loopholes improves incentives for economic efficiency.

Let’s focus on the third item. I don’t like special preferences in the tax code because it’s bad for growth when the tax code lures people into misallocating their labor and capital. Ethanol, for instance, shows how irrational decisions are subsidized by the IRS.

Moreover, I’d rather have smart and capable people in the private sector focusing how to create wealth instead of spending their time figuring out how to manipulate the internal revenue code.

That’s why, in my semi-dream world, I’d like to see a flat tax.* Not only would there be a low rate and no double taxation, but there also would be no distortions.

But in the real world, I’m happy to make partial progress.

That’s why I was happy that last year’s tax bill produced a $10,000 cap for the state and local tax deduction and reduced the value of other write-offs by increasing the standard deduction. Yes, I’d like to wipe out the deductions for home mortgage interest, charitable giving, and state and local taxes, but a limit is better than nothing.

And I’m also happy that lower tax rates are an indirect way of reducing the value of loopholes and other preferences.

To understand the indirect benefits of low tax rates, consider this new report from the Washington Post. Unsurprisingly, we’re discovering that a less onerous death tax means less demand for clever tax lawyers.

A single aging rich person would often hire more than a dozen people — accountants, estate administrators, insurance agents, bank attorneys, financial planners, stockbrokers — to make sure they paid as little as possible in taxes when they died. But David W. Klasing, an estate tax attorney in Orange County, Calif., said he’s seen a sharp drop in these kinds of cases. The steady erosion of the federal estate tax, shrunk again by the Republican tax law last fall, has dramatically reduced the number of Americans who have to worry about the estate tax — as well as work for those who get paid to worry about it for them, Klasing said. In 2002, about 100,000 Americans filed estate tax returns to the Internal Revenue Service, according to the IRS. In 2018, only 5,000 taxpayers are expected to file these returns… “You had almost every single tax professional trying to grab as much of that pot as they could,” Klasing said. “Now almost everybody has had to find other work.”

Needless to say, I’m delighted that these people are having to “find other work.”

By the way, I’m not against these people. They were working to protect families from an odious form of double taxation, which was a noble endeavor.

I’m simply stating that I’m glad there’s less need for their services.

Charles “Skip” Fox, president of the American College of Trust and Estate Counsel, said he frequently hears of lawyers shifting their focus away from navigating the estate tax, and adds that there has been a downturn in the number of young attorneys going into the estate tax field. Jennifer Bird-Pollan, who teaches the estate tax to law students at the University of Kentucky, said that nearly a decade ago her classes were packed with dozens of students. Now, only a handful of students every so often may be interested in the subject or pursuing it as a career. “There’s about as much interest in [the class] law and literature,” Pollan said. “The very, very wealthy are still hiring estate tax lawyers, but basically people are no longer paying $1,000 an hour for advice about this stuff. They don’t need it.”

Though I am glad one lawyer is losing business.

Stacey Schlitz, a tax attorney in Nashville, said when she got out of law school about a decade ago roughly 80 percent of her clients were seeking help with their estate taxes. Now, less than 1 percent are, she said, adding that Tennessee’s state inheritance tax was eliminated by 2016. “It is disappointing that this area of my business dried up so that such a small segment of society could get even richer,” Schlitz said in an email.

I hope every rich person in Nashville sees this story and steers clear of Ms. Schlitz, who apparently wants her clients to be victimized by government.

Now let’s shift to the business side of the tax code and consider another example showing why lower tax rates produce more sensible behavior.

Now that the corporate tax rate has been reduced, American companies no longer have as much desire to invest in Ireland.

US investment in Ireland declined by €45bn ($51bn) in 2017, in another sign that sweeping tax reforms introduced by US president Donald Trump have impacted the decisions of American multinational companies. …Economists have been warning that…Trump’s overhaul of the US tax code, which aimed to reduce the use of foreign low-tax jurisdictions by US companies, would dent inward investment in Ireland. …In November 2017, Trump went so far as to single out Ireland, saying it was one of several countries that corporations used to offshore profits. “For too long our tax code has incentivised companies to leave our country in search of lower tax rates. It happens—many, many companies. They’re going to Ireland. They’re going all over,” he said.

Incidentally, I’m a qualified fan of Ireland’s low corporate rate. Indeed, I hope Irish lawmakers lower the rate in response to the change in American law.

And I’d like to see the US rate fall even further since it’s still too high compared to other nations.

Heck, it would be wonderful to see tax competition produce a virtuous cycle of rate reductions all over the world.

But that’s a topic I’ve addressed before.

Today’s lesson is simply that lower tax rates reduce incentives to engage in tax planning. I’ll close with simple thought experiment showing the difference between a punitive tax system and reasonable tax system.

  • 60 percent tax rate – If you do nothing, you only get to keep 40 cents of every additional dollar you earn. But if you find some sort of deduction, exemption, or exclusion, you increase your take-home pay by an additional 60 cents. That’s a good deal even if the tax preference loses 30 cents of economic value.
  • 20 percent tax rate – If you do nothing, you get to keep 80 cents of every dollar you earn. With that reasonable rate, you may not even care about seeking out deductions, exemptions, and exclusions. And if you do look for a tax preference, you certainly won’t pick one where you lose anything close to 20 cents of economic value.

The bottom line is that lower tax rates are a “two-fer.” They directly help economic growth by increasing incentives to earn income and they indirectly help economic growth by reducing incentives to engage in inefficient tax planning.

*My semi-dream world is a flat tax. My dream world is when the federal government is so small (as America’s Founders envisioned) that there’s no need for any broad-based tax.

P.S. It’s not the focus of today’s column, but since I talked about loopholes, it’s worth pointing out that they should be properly defined. Sadly, that simple task is too challenging for the Joint Committee on Taxation, the Government Accountability Office, and the Congressional Budget Office (or even the Republican party).

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The mid-term elections take place on Tuesday and the crowd in DC is focused on who will control the House and Senate. I’ll make my (sometimes dubious, sometimes accurate) congressional predictions next Monday.

The goal today is to call attention to the key initiatives and referendums that also will occur next week.

As a matter of logic, I can’t really argue with the notion that voting is a waste of time. Nonetheless, I hope the right people in certain states will be illogical.

As far as I’m concerned, the most important contest is in Colorado, where voters are being asked to replace the state’s flat tax with a discriminatory system of graduated rates. Here’s how CNBC describes the awful proposal.

Amendment 73 would break up its current flat tax of 4.63 percent, adding four new individual income tax brackets. Taxpayers earning less than $150,000 would see no change; at $150,001, a new rate of 5 percent would kick in, with a new top rate of 8.25 percent on taxable income over $500,000. The measure also includes a boost in the corporate income rate (from 4.63 percent to 6 percent).

Since I’m a fan of the flat tax (combined with TABOR, it helps to explain the state’s prosperity), I obviously hope voters reject this self-destructive scheme to turn Colorado into California.

The second-most important referendum is probably the battle over school choice in Arizona. Here’s how Reason characterizes that battle.

…since we’ve grown accustomed to the idea that governments should mug us in order to fund an army of loyal employees and their fumbling attempts to hammer knowledge into our kids’ heads, attempts to provide widely accessible alternatives to government schooling inevitably involve diverting some of those stolen funds. And diverting those funds requires political battles against entrenched allies of the state monopoly—such as that playing out in Arizona over an effort to expand a school voucher program. …Last year, lawmakers voted to expand eligibility for the empowerment scholarship accounts program to all students, with participation capped at around 30,000 kids. But opponents of school choice won a battle to put the program’s expansion on the ballot as Proposition 305. …As of last week, polling on Proposition 305 conducted by Suffolk University and the Arizona Republic shows a plurality of Arizona voters (41 percent) supporting expansion of the program, with 32 percent opposed and 27 percent undecided.

The third-most important referendum is actually four different measures. There are proposals to expand Medicaid in Idaho, Montana, Nebraska, and Utah.

The Wall Street Journal editorializes about these dangerous initiatives.

One of the worst deals in state spending is coming to a red state near you, and that’s expanding Medicaid to adult men above the poverty line. …Expansion extends the benefit to prime-age adults without children up to 138% of the poverty line. The feds pay more than 90% of the cost for the new beneficiaries… Every state that has expanded Medicaid has blown the budget by spending more money on more people. The cost overruns are more than double on average. …Medicaid is already the fastest growing line item in nearly every state in the country. …The idea that the feds will continue to pick up 90% of the tab forever is fantasy. The GOP has vowed to equalize the funding formula and make states pay closer to 30% to 50% like they do for traditional Medicaid. States shouldn’t assume that Democrats will be more merciful when they want to pay for something else and stick more of the Medicaid bill on states.

The fourth-most important measure to watch is a referendum for a big carbon tax in the state of Washington. The Wall Street Journal opined about this revenue grab.

Two years ago nearly 60% of Washington voters rejected a ballot initiative to impose a “revenue neutral” carbon tax. Green groups opposed the referendum because it wouldn’t generate money for environmental largess. …Liberals have now fixed what they thought was the fatal flaw of the first referendum—namely, revenue neutrality. This year’s initiative would impose a $15 per ton carbon “fee” that would increase by $2 per year. …the $2.3 billion in revenue it is projected to generate over the next five years would mostly be earmarked for “clean air and energy” programs… But revenues are fungible, and the carbon tax proceeds would invariably finance government spending in other areas. …The tax would raise gas prices by 13 cents a gallon in 2020 and 59 cents a gallon by 2035. Washington currently has the third highest gas prices in the country after Hawaii and California… National Economic Research Associates estimates that the tax would cost Washington households on average $440 in 2020 and would reduce state economic growth by 0.4% over the next two years. …liberals care more about increasing tax revenue to spend than they do about reducing emissions.

This is exactly why I warn against a national carbon tax. No matter what proponents say, it will wind up being an excuse to finance even more wasteful spending.

Last but not least, our fifth-most important ballot initiative is from California, which has a very misguided referendum that would allow more rent control in the state. Michael Tanner has an appropriate description of this scheme in National Review.

But the prize for perhaps the worst ballot idea goes — naturally — to California, which will vote on whether to allow local communities to impose rent control. Approval can be guaranteed to benefit the wealthy and middle class while reducing the availability of rental housing for the poor. It’s almost as if the measure’s supporters had never glimpsed an economics textbook.

For what it’s worth, one of the state’s Senators, Kamala Harris, has a national plan to wreck housing markets.

Here are some additional initiatives on taxes which merit a brief mention, particularly since they may have an impact on competitiveness.

  • Arizona has an initiative to prevent politicians from imposing any new sales taxes on services.
  • There’s a measure to increase tobacco taxes in South Dakota.
  • In California, there’s a referendum to repeal a recent hike in the gas tax and to require future increases to be approved by voters.
  • There’s also an initiative in the Golden State to boost the sales tax to finance more transportation spending.
  • In Florida, where there’s an initiative to require a two-thirds vote of the legislature to increase revenue.
  • Oregon voters will choose whether to impose a requirement that three-fifths of the legislature vote for indirect revenue increases.
  • North Carolina voters will decide whether to lower the maximum-allowable tax rate from 10 percent to 7 percent.

From a libertarian perspective, I’ll also be paying attention to a measure to restrict gun rights in the state of Washington, as well as an initiative to legalize marijuana in Michigan.

There are initiatives to increase the minimum wage in Arkansas (to $11.00 per hour) and Missouri (to $12.00 per hour). If they are approved, the consequences will be both negative and predictable.

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President Trump thinks he can boost Republicans next Tuesday by promising a new round of tax relief for the middle class.

I’m skeptical of his sincerity, as noted in this segment from a recent interview, but I also warn that his proposed tax cut is impractical because Republicans have done a lousy job on spending. And I also point out that it is ironic that Trump is urging lower taxes for the middle class when his protectionist tariffs (trade taxes) are hurting the same people.

At first, I wasn’t going to bother writing about this topic for the simple reason that Trump isn’t serious (if he was, he wouldn’t have meekly allowed the big spenders to bust the spending caps).

But then I saw that Tom Giovanetti of the Institute for Policy Innovation wrote a column for the Wall Street Journal explaining how reforming Social Security would be great news for lower- and middle-income taxpayers.

…44% of Americans no longer pay any federal income tax at all, and many more pay very little. …On the other hand, low- and middle-income workers do send the government a large share of their earnings in the form of payroll taxes. That same family of four pays $12,240 at the 15.3% combined rate for Social Security and Medicare. If you want to cut taxes for middle-class and low-income workers, that’s where you have to do it. …instead of…a payroll-tax cut of 4% of income, why not redirect that same 4% into personal retirement accounts for every worker? …With no decline in disposable income, American workers would suddenly be investing for retirement at market rates in accounts they own and control, instead of relying on Congress to keep Social Security solvent.

Not only would personal retirement accounts be good for workers, they also would help deal with the looming entitlement crisis.

America’s entitlements are on a path to collapse, and few politicians—including Mr. Trump—have an appetite to do anything about it. When the crisis comes, no tax increase will be big enough to solve the problem. Knowing the U.S. government is eventually going to fudge its commitment to retirees, policy makers should at least give workers a fair chance to amass the savings they will need to support themselves. The back-door solution to the entitlement crisis is to make workers wealthy. Will you worry about Social Security’s solvency or a Medicare collapse if you have more than enough money in a real retirement account to buy a generous annuity and cover your health insurance?

At the risk of stating the obvious, this is the right approach. Both for workers and the country.

To be sure, I don’t think it’s likely since Trump opposes sensible entitlement reform. But Tom’s column at least provides a teaching moment.

I’m not sure when we’ll have a chance to address this simmering crisis. But if you’re wondering whether changes are necessary, check out this chart I put together earlier this year showing Social Security’s annual shortfall (adjusted for inflation, so we’re comparing apples-to-apples).

P.S. This video has more details on the benefits of personal retirement accounts.

P.P.S. And this video shows why the left’s plan to “fix” Social Security would be so destructive.

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Like any sensible person, I want victimless crimes to be legalized. In part because I believe in freedom, but also for utilitarian reasons.

  • I don’t approve of drugs and I’ve never used drugs, but I think the social harm of prohibition is greater than the social harm of legalization.
  • I don’t particularly like alcohol and I am almost a teetotaler, but I’m glad there’s now a consensus that the social harm of prohibition was greater than the social harm of legalization.
  • I don’t approve of prostitution and I’ve never consorted with a prostitute (other than the political ones in DC), but I think the social harm of prohibition is greater than the social harm of legalization.

So it won’t surprise you to learn that I want gambling to be legal because the social harm of prohibition is greater than the social harm of legalization.

But that definitely doesn’t mean I want government to be in charge, which is why I’m not a fan of state-sponsored lotteries.

Joe Setyon, in a column for Reason, points out that politicians are the only group that actually benefits from these schemes.

At some point in the near future, the record-high Mega Millions jackpot is going to make someone very, very rich. But as is usually the case when it comes to the lottery, the biggest winner will be the government. …there are a few things us suckers need to keep in mind about the lotto. First, the majority of lottery revenue goes back to the government. In 2015, The Atlantic estimated that 40 percent of all lottery ticket sales are allocated to state governments. …Meanwhile, some states that allow lotteries crush their competition with strict gambling regulations. In Texas, for instance, most forms of gambling are illegal. This means the government has a near-monopoly. The double standard for public and private gambling operations is obvious. Ultimately, the lottery system is a kind of regressive tax on low-income earners. “If the promised return is by far illusory—and it is—it would be hard to argue that those purchases do not constitute a tax on those who believe the state’s hype,” Fiscal Policy Institute research associate Brent Kramer wrote in 2010.

And here’s an article from CNBC that reveals the unpalatable tax consequences for the “lucky” people who happen to win a big prize.

…there’s at least one guaranteed recipient of a chunk of the loot — the IRS. …If you happen to beat the astronomical odds and hit all winning numbers in either game, be aware that the taxation of your prize starts before even reaching you. Whether you take your haul as a lump sum or as an annuity spread out over three decades, your win is reduced by a 24 percent federal tax withholding… The immediate cash option for Mega Millions is $904 million. The federal withholding would reduce that by $217 million. For the $354.3 million Powerball lump sum, it would mean $85 million getting shaved off the top. …However, that’s just the start of what you’d owe. The top income tax rate for individuals is 37 percent… That rate applies to adjusted gross income of $500,000 or more. In other words, hitting either jackpot would mean facing that top rate. …On top of the federal withholding, you’ll owe state taxes on the money unless you live where lottery wins are untaxed. …Translation: You might pay north of 45 percent altogether in taxes, depending on where you purchased the ticket and where you live.

In other words, the government pillages people when they buy tickets.

And then the government pillages the tiny fraction of people who actually win something.

As I wrote above, the only real winners are politicians.

The biggest losers, by the way, are poor people.

Arthur Brooks of the American Enterprise Institute summed up this sad state of affairs in a column for the Wall Street Journal.

Powerball—the lottery shared by 44 states, the District of Columbia and two territories—is just one of the sweepstakes run by 47 jurisdictions in the U.S. These games produce nearly $70 billion a year in government revenue and enjoy profits of about 33%—much higher than margins in the private gambling industry. Who are these lotteries’ most loyal customers? Poor people. …the poorest third of Americans buy more than half of all lotto tickets… Scholars have dug up evidence that states intentionally direct such ads at vulnerable citizens. A marketing plan for Ohio’s lottery some years back recommended scheduling campaigns to coincide with the distribution of “government benefits, payroll and Social Security payments.” …the average return from $1 spent on lottery tickets is 52 cents… After a state introduces the lotto, the bottom third of households shift about 3% of their food expenditures and 7% of their mortgage payments, rent and other bills. Effectively, the lottery works like a regressive tax. …Is there any set of policies more contradictory than pushing lotto tickets on poor people, and then signing them up for welfare programs that make them financially dependent on the government?

Here’s some additional analysis from the Wall Street Journal, this time from Holman Jenkins.

Gambling is what economists call an “inferior good”—demand is higher among those at the lower end of the income scale. As economist Sam Papenfuss argued in a 1998 paper, state-sponsored gambling became popular as a way for high-income taxpayers to recoup some of the money spent on programs for the poor. State-sponsored gambling in the form of lotteries (now in 44 states) arrived on the same antitax wave that gave us property-tax caps and other antitax measures in the 1970s and ’80s. It should not surprise anyone that Democrats, as big supporters of the welfare state, have been the biggest supporters (though by no means exclusively so) of gambling as a way to finance it.

Last but not least, here are excerpts from a column I wrote for the Washington Times more than 20 years ago.

…government-run lotteries represent bad public policy. The No. 1 objection is that they lead to more government spending. …Perhaps even more disturbing, government lotteries victimize the poor. More than any other group, lower-income residents are the ones who play the lottery, often shelling out hundreds of dollars each year in the hope of striking it rich. Yet these are precisely the people who should avoid lotteries. As an investment, lotteries are lousy, paying out only about half of what they take in. …why should state governments be running lotteries? If nothing else, lotteries show how much better consumers are treated by the free market system. Private gambling operations pay out about 90 cents for every dollar wagered (even higher for games such as blackjack), a far better deal than the miserly return provided by government-run lotteries. …This analysis applies to illegal gambling as well. Bookies traditionally allow customers to bet against the point spread for sporting events, and they make their money by applying a 10 percent charge on the money wagered by those who make losing bets.

Two decades later and I wouldn’t change a single thing I wrote.

I don’t like when politicians mistreat rich people, but I get far more upset when they do things that impose disproportionate costs on poor people. This is one of the reasons I don’t like government flood insurance, Social Security, the Export-Import Bank, the mortgage interest deduction, or the National Endowment for the Arts.

And lotteries definitely belong on that list as well.

I’m not a paternalist. I support legal gambling and I don’t want to prohibit poor people from making (what I think) are misguided decisions.

But at least leave the gambling to the private sector so poor people will get back, on average, 90 cents of every dollar they bet.

P.S. I just had a horrifying thought. What if politicians decided to legalize prostitution because they wanted more revenue. But instead of legalizing and taxing (like they do – often to excess – with marijuana), what if they followed the lottery approach and we wound up with government-run brothels?!?

P.P.S. To be fair, the government will continue to give you food stamps if you become a lottery millionaire.

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I’ve written about how taxes have a big impact on soccer (a quaint game with little or no scoring that Europeans play with their feet).

Taxes affect both the decisions of players and the success of teams.

Grasping and greedy governments also have an impact on football. Especially if teams play in Europe.

…the Los Angeles Chargers and Tennessee Titans traveled across the Atlantic to play a game in London’s Wembley Stadium. …Players spoke of the burdens of traveling so far to play a game, especially the team from California that had to cross eight time zones. Players also spoke out about the tax nightmare they faced when they got to the UK. …players talked ahead of time to their CPAs to determine the tax hit they’d take for the privilege of such a long road trip… Great Britain…levies high taxes on athletes who visit for an athletic match. Teams from California — the Raiders, Chargers, and Rams — already face the highest state income tax in the nation with a top rate of 13.3 percent. Of course, players also have to pay federal income tax. …To top it all off, those players who receive one of their 16 paychecks in London pay a 45 percent tax on a prorated amount based on the number of days they spend in the country. Bottom line: Players on California teams could end up paying 60 percent or more in income taxes for that game check. …For non-resident foreign athletes, HM Revenue and Customs (HMRC) reserves the right to tax not only the income they earn from competing in the match but a portion of any endorsement money they earn worldwide.

No wonder some of the world’s top athletes don’t want to compete in the United Kingdom.

And what about the NFL players, who got hit with a 60 percent tax rate for one game?

Those players are lucky they’re not Cam Newton, who paid a 198.8 percent tax for playing in the 2016 Super Bowl.

Last year’s tax bill also impacts professional football in a negative way. The IRS has decided that sports teams don’t count as “pass-through” businesses, as noted by Accounting Today.

Two major sports franchises might soon be on the auction block following Microsoft Corp. co-founder Paul Allen’s death last week. But a recent Internal Revenue Service rule could cut the teams’ sales prices. Allen died with no heirs and a $26 billion estate, including the National Football League’s Seattle Seahawks… The teams together are worth more than $3 billion, according to the Bloomberg Billionaires Index. …the IRS said in August that team owners would be barred from the write-off — one of the biggest benefits in the law — that allows owners of pass-through entities such as partnerships and limited liability companies to deduct as much as 20 percent of their taxable income. …Arthur Hazlitt, a tax partner at O’Melveny & Myers LLP in New York who provided the tax structure and planning advice for hedge fund manager David Tepper’s acquisition of the Carolina Panthers, estimates the IRS rules could spur potential bidders to offer at least tens of millions of dollars less.

Gee, what a surprise. Higher tax burdens lower the value of income-producing assets.

Something to keep in mind next them there’s a debate on whether we should be double-taxing dividends and capital gains.

Or the death tax.

Let’s close with a report from Bloomberg about some new research about the impact of taxes on team performance.

The 2017 law could put teams in states with high personal income tax rates at a disadvantage when negotiating with free agents thanks to new limits on deductions, including for state and local taxes, according to tax economist Matthias Petutschnig of the Vienna University of Economics and Business. Petutschnig’s research into team performance over more than two decades shows that National Football League franchises based in high-tax states lost more games on average during the regular season compared to teams in low or no-tax states. That’s because of the NFL’s salary cap for teams, according to Petutschnig; if they have to give certain players more money to compensate for higher taxes, it reduces how much they pay other players and lowers the team’s overall talent level. “The new tax law exacerbates my findings and makes it harder for high-tax teams to put together a high-quality roster,” Petutschnig said.

Here’s a chart from the article.

And here are more details.

A player for the Miami Dolphins or Houston Texans, where no state income taxes are levied, “was always going to come out a whole lot better than somebody playing in New York,” said Jerome Glickman, a director at accounting firm Friedman LLP who works with professional athletes. “Now, it’s worse.” …a free agent considering a California team compared to a team in Texas or Florida would need to make 10 percent to 12 percent more to compensate for his state tax bill, said NFL agent Joe Linta… the Raiders — who will eventually move to Las Vegas in no-tax Nevada — have often made the case that unequal tax rates create an uneven playing field. Quarterback Jimmy Garoppolo’s five-year $137.5 million contract with the San Francisco 49ers will mean an additional $3 million tax bill under the new tax law… Garoppolo would have saved $2 million in taxes under the new code had he instead signed with the Denver Broncos in lower-tax Colorado.

By the way, other scholars have reached similar conclusions, so Professor Petutschnig’s research should be viewed as yet another addition to the powerful body of evidence about the harmful effect of punitive tax policy.

P.S. I think nations have the right to tax income earned inside their borders, so I’m not theoretically opposed to the U.K. taxing athletes who earn income on British soil. But I don’t favor punitive rates. And I don’t think the IRS should add injury to injury by then taxing the same income. That lesson even applies to royalty.

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