Great Moments in British Government

While much of my analysis focuses on the mess created by Washington, I periodically show my ecumenical nature by sharing “Great Moments in State Government” and “Great Moments in Local Government.”

And in keeping with the title of this page, I even occasionally share “Great Moments in Foreign Government.”

Today, though we’re going to get very specific and look at Great Moments in British Government. I did the same thing back in February and there’s so much new material that it’s time for an encore.

We’ll start with this story from the Daily Mail about an elderly man who was arrested for defending his home.

A 78-year-old homeowner has been arrested by murder detectives after a suspected burglar he fought with in his own kitchen died of a stab wound. …The homeowner was initially detained on suspicion of causing grievous bodily harm but was later arrested on suspicion of murder. The case has been compared to that of Tony Martin, who was jailed for killing an intruder at his home in 1999. The break-in comes amid a surge in violence in the capital, with 49 people already having died in crimes in London in 2018. …The homeowner suffered bruising to his arms but police said his injuries are not life threatening.  He remains in custody at a south London police station.

Wow, this might be even more outrageous than the story about the woman who got arrested for merely brandishing a knife in her own home.

But Americans shouldn’t laugh too much about these stories since cops on this side of the Atlantic have arrested citizens for injuring burglars.

Next is a story from the Evening Standard about so-called political correctness run amok.

Mansfield College was forced to cancel a “420 themed” bop scheduled for this Friday – April 4 – after students complained. In an email sent to students…, organisers explained that the party would be a celebration of the “internationally recognised day of protest for the legalisation of Marijuana” on April 20. It invited undergraduates to “dress up as their favourite stoner.” …It also warned: “If you’re white, don’t try to go as Snoop Dogg or Bob Marley. Blackface isn’t cool.” …The invite sparked backlash from some students who said they felt the event encouraged “cultural appropriation.” One undergraduate said the college’s elected welfare representatives were worried that the event could be exclusionary. “Anyone who might have negative experiences of drugs or addiction might be affected by it,”… Within hours the entertainment team sent round an email cancelling the event and apologising for anyone they offended. They said: “We understand that this was met with offence and we want to apologise dearly to those who were offended,” they said.

I don’t know what’s more depressing, the fact that people complained or the fact that organizers cravenly apologized.

But maybe I’m not thinking about this the right way. I had a “negative experience” that “affected” me when Alabama beat Georgia for the national championship back in January. Maybe I should demand to remove the Yellowhammer State from all maps so I don’t get “triggered”.

Our final story might belong in a column about “Great Moments in Government-Run Healthcare“, but it seems to fit well with today’s collection.

A humanist will lead a team of priests as the first atheist head chaplain in the history of the NHS. …Lindsay van Dijk is one of the youngest chaplains in the NHS and will lead three priests from the Church of England, Baptist and evangelical denominations… As a humanist, Ms van Dijk believes life is giving meaning by seeking happiness and helping others find happiness too. Humanists do not believe in God or an afterlife. …Ms van Dijk told the Times at Stoke Mandeville Hospital: ‘Anyone within the chaplaincy team goes to patients to lend a listening ear, to provide spiritual and emotional support, and doesn’t specifically say “I’m from this faith” as it’s not important. …She added that in her new role she has experienced ‘mostly curiousity’ rather than objections. …The chief executive of Christian Concern Andrea Williams said: …’Putting a humanist in charge of the chaplaincy team shows how far we have come from the Christian roots of the NHS.’

I never realized that there were “Christian roots” to government-run healthcare (if so, God must like needless death and terrible suffering).

But let’s set that aside and focus on the main story. I assume that NHS chaplains are actually government bureaucrats rather than local volunteers, so part of me is thinking this is a waste of money.

But I also am a bit perplexed by the notion of having an atheist chaplain. Isn’t that a contradiction in terms? Why not hire the woman as “head grief counselor” or something like that?

Maybe it’s time to resuscitate my “U.S. vs U.K. inane-government-policy contest“.

P.S. The U.K. might have the lead in that contest because it actually has proven that a government can be so incompetent that it can’t even give away money.

Genuine Free Markets Easily Out-Perform “State-Led Capitalism”

The good news is that some honest leftists have thrown in the towel and now openly admit that capitalism generates more prosperity.

They still don’t want free markets, of course. For ideological reasons, they continue to push for a big welfare state. But at least they admit their redistributionist policies lead to weaker economic performance. Perversely, they are willing to reduce living standards for poor people so long as rich people suffer even bigger drops in their income (in other words, Thatcher was right).

Many statists, though, realize that this is not a compelling agenda.

So they try to claim – notwithstanding reams of evidence – that bigger government somehow enables more growth.

And they’re crafty. Most of them are clever enough that they don’t embrace full-scale socialism. Instead, they push for an ad hoc approach based on subsidies, bailouts, social engineering, price controls, and other forms of intervention.

If you want to get technical, they’re actually pushing a variant of fascism, with nominal private ownership but government direction and control.

But let’s avoid that loaded term and simply call it cronyism.

In a column for the Washington Post, Nicholas Borroz observes that this approach exists all over the world.

China’s consolidation of its state-owned enterprises (SOEs), Russia’s oligarch-led economy, the proliferation of sovereign wealth funds (SWFs) and growing government intervention in the West are clear indicators of state-led capitalism… Controlling market activity gives governments obvious advantages when it comes to advancing political agendas at home and foreign policy abroad. …SWFs are an important feature of today’s global economic landscape; governments also use them as agents of statecraft. …State-led capitalism is even finding support in the West. …President Trump has bragged that he personally influences firms’ decisions about where to place their factories. …we have entered an era when state-led capitalism is firmly entrenched.

Unfortunately, I think Mr. Borroz is correct.

Though “state-led capitalism” an oxymoronic phrase.

Borroz also notes that the shift to cronyism reverses some of the progress that occurred at the end of the 20th century.

This is a dramatic reversal of the trend from two decades ago. In the 1990s, there was a rush around the world to liberalize economies. Capitalism’s defeat of communism made it seem that unfettered market activity was the key to success.

If you look at the data from Economic Freedom of the World, the period of liberalization actually began in the 1980s, but I’m being a nit-picker.

So let’s shift to parts of his column where I have substantive disagreements.

First, my jaw hit the proverbial floor when I read the part about the International Monetary Fund supposedly being a beacon of free-market reform.

Developing countries signed up with the International Monetary Fund’s structural adjustment programs (SAPs), gaining access to loans in exchange for adopting neoliberal economic prescriptions.

Since I’ve referred to the IMF as the “dumpster fire” or “Dr. Kevorkian” of the global economy, I obviously have a different perspective.

Though, to be fair, the bureaucrats at the IMF generally do advocate for deregulation and free trade. But they are bad news on fiscal policy and oftentimes misguided on monetary policy as well.

But here’s the part of the column that is even more galling. Borroz defends cronyism because free markets allegedly failed.

…a number of factors led to skepticism about free markets. One was the underwhelming developmental effect of SAPs and liberalization. …A further blow to the neoliberal model was a series of financial disasters caused by unrestricted flows of capital, notably the 1997 Asian financial crisis and the 2008 global financial crisis. Perhaps the factor that has most undermined neoliberalism’s attractiveness, though, is…countries with state-led economies, such as China and Russia…remain relevant not despite state intervention but because of it.

This is remarkably wrong. Three big mistakes in a handful of sentences.

1. When IMF structural adjustment programs fail, that’s an unsurprising consequence of big tax increases, not the fault of capitalism.
2. Government monetary policy deserves the bulk of the blame for financial crises with Fannie and Freddie also playing a role in the case of America.
3. China and Russia are relevant from a geopolitical perspective, but their economies could be far more prosperous if government played a smaller role.

Heck, per-capita output in both China and Russia is far below U.S. levels, so the notion that they are role models is amazingly oblivious to reality.

Now let’s review some evidence about the downside of “state-led” economic policy.

The Economist notes that cronyism does not have a very successful track record.

Some argue it makes no sense for a government to place VC bets, directly or otherwise. …Massimo Colombo, an academic who studies government VC in Europe at the Polytechnic University of Milan, …admits that, when results are measured by jobs created or productivity boosted, the private sector is far better at deploying capital. Studying 25,000 government VC investments in 28 countries, between 2000 and 2014, he and colleagues concluded that they worked only when they did not compete directly with the private sector.

And research from three economists at Italy’s central bank specifically measured the loss of economic efficiency when governments operate and control businesses.

In OECD countries public services, especially at local level, are often provided by public enterprises (Saussier and Klien, 2014). Therefore, the efficiency of LPEs is important for the overall efficiency of the economy and the sustainability of public finances. …we are able to build a very detailed dataset that allows us to compare firms that are observationally equivalent, apart from the ownership indicator, thus making possible the definition of the appropriate set of comparison firms. …Although we focus on Italy, which represents a particularly interesting case to analyze for several reasons, the approach we have followed in this paper may be easily adapted to other countries. We find that the performance of Italian LPEs, measured in terms of total factor productivity, is on average lower than that of private enterprises by about 8%… our results show that the ownership structure is more important than the market structure in explaining the performance of LPEs with respect to their private sector counterparts. …Our results imply that policy measures aimed at privatizing LPEs (totally or, at least, partially) can improve their performance, by reducing the level of public control and promoting cost-benefit analysis for investments.

In other words, the type of statism doesn’t really matter.

The inevitable result is less growth and prosperity.

Which is why I advocate “separation of business and state.”

Simply stated, I want to reverse the data in this chart because I understand the data in this video and this chart.

P.S. If my statist friends disagree, accept my challenge and please show me a cronyist nation that is outperforming a market-oriented nation.

Kentucky Adopts a Flat Tax

The best policy for a state (assuming it wants growth and competitiveness) is to have no income tax. Along with a modest burden of government spending, of course.

The next-best approach is for a state to have a flat tax. If nothing else, a flat tax inevitably will have a reasonable rate since it’s politically difficult to pillage everyone (though Illinois is trying very hard to be an exception to that rule).

Moreover, a flat tax also sends a signal that politicians in the state don’t (or can’t) play the divide-and-conquer game of periodically raising taxes on different income groups.

Today, we have some good news. Kentucky has ditched its so-called progressive income tax and joined the flat tax club. The Tax Foundation has the details (including the changes in the state’s ranking).

…legislators in Kentucky overrode Governor Matt Bevin’s veto to pass HB 366, a tax reform package, in the last few days of the session. Ultimately, HB 366…increases Kentucky’s ranking on the State Business Tax Climate Index from 33rd to 18th. …Here’s how HB 366 changes Kentucky’s tax code: Replacing the current six-bracket individual income tax, which has a top rate of 6.0 percent, with a 5 percent single rate individual income tax; …Replacing the current three-bracket corporate income tax, with its top rate of 6.0 percent, with a 5 percent flat rate; …Expanding the sales tax base to include select services…; and Raising the cigarette tax from 60 cents to $1.10 per pack. …the changes in this tax reform package dramatically improve the state’s tax climate. By broadening bases while lowering rates, starting to correct the inequities in the sales tax base, and taking steps to make the state more friendly to investment, policymakers in the state took a responsible approach to comprehensive tax reform.

Kentucky will have a better tax system, but there is a dark lining to the silver cloud of reform.

The legislation is a net tax increase, meaning state politicians will have more money to spend (which is a variable that is not included in the Tax Foundation’s Business Tax Climate Index).

As a big fan of the no-tax-hike pledge, that makes me sympathetic to some of those who opposed the legislation.

But I confess that I’m nonetheless happy that there’s now another state with a flat tax.

Which motivated me to create a five-column ranking for states with regards to the issue of personal income tax.

The best states are in the first column, since they don’t impose any income tax. The second-best option is a flat tax, and then I have three options for so-called progressive tax regimes. A “low-rate” state means the top bracket is less than 5 percent and a “class-warfare” state means the top bracket is higher than 8 percent (with other states in a middle group).

Kentucky has moved from the fourth column to the second column, which is a nice step. Very similar to what North Carolina did a few years ago.

Kansas, by contrast, recently went from the fourth column to the third column and then back to the fourth column.

And I may have to create a special sixth column for states such as California.

The Looming Fiscal Nightmare of Extravagant Unfunded Pensions for State and Local Bureaucrats

Back in 2013, I shared a poll to see who people would pick as their “favorite political cartoonist.” Michael Ramirez currently has the lead, which doesn’t surprise me when you look at options (here, here, here, and here) I provided.

But if there was a prize for the most depressingly accurate political cartoon, he also would win the prize for his depiction of what happens when state and local politicians “negotiate” compensation packages for bureaucrats.

Simply stated, politicians have a giant incentive to provide lavish benefits to interest groups that then recycle some of the loot back to elected officials in the form of campaign contributions.

But the real key to the scam is that the bill gets imposed on future generations.

The American Legislative Exchange Council has a must-read report on the giant funding gaps that this has produced in the pension plans for state and local government bureaucrats.

If net pension assets are determined using more realistic investment return assumptions, pension funding gaps are much wider than even the large sums reported in state financial documents. Unfunded liabilities (using a risk-free rate of return assumption) of state-administered pension plans now exceed $6 trillion—an increase of $433 billion since our 2016 report. The national average funding ratio is a mere 33.7 percent, amounting to $18,676 dollars of unfunded liabilities for every resident of the United States. …the personal share of liability for every resident in each state, an indicator of the severity of the taxes to be borne now or in the future by each taxpayer for promises made but not funded. In Alaska, each resident is on the hook for a staggering $45,689, the highest in the nation. Connecticut, Ohio, Illinois, and New Mexico follow for the five highest per person unfunded pension liabilities.

This map is the most important takeaway from the report. It shows which states have the highest per-capita unfunded liabilities.

I’m not surprised to see Alaska, Illinois, Connecticut, and New Jersey near the bottom of the rankings. All of them were choices in my poll on which state was “most likely to collapse.”

But perhaps New Mexico, Hawaii, and Ohio should have been on that list as well.

For further background on the issue, here are some passages from a pension primer published by Forbes.

Years ago, as an actuarial student, …I remember…first, the eye-popping idea that state constitutions promised state and local employees that they could keep their existing benefits, not just for past service accruals, but for all future years of employment; and, second, the notion that it was generally accepted for public plans to be un- or underfunded… this is the story that’s repeated over and over again.  Pensions are made more generous — with high accrual rates, low retirement eligibility ages, generous cost of living provisions — as a means of providing more generous compensation to state and local employees, without actually needing to pay anything from the current year’s budget.  Costs are deferred until well after current legislators have themselves retired. …pension debt is even worse than ordinary state debts, for instance, bond issues for building up infrastructure.  Pension debt is nothing other than borrowing to pay for present-day employee salaries.

In other words, bureaucrat pensions are a scam, an opportunity for politicians to buy off a powerful voting bloc today while imposing the bill on the future.

Bureaucrats are making out like bandits, as the New York Times recently reported.

A public university president in Oregon gives new meaning to the idea of a pensioner. Joseph Robertson, …who retired as head of the Oregon Health & Science University last fall, receives the state’s largest government pension. It is $76,111. Per month. That is considerably more than the average Oregon family earns in a year. Oregon — like many other states and cities, including New Jersey, Kentucky and Connecticut — is caught in a fiscal squeeze of its own making. Its economy is growing, but the cost of its state-run pension system is growing faster. More government workers are retiring, including more than 2,000, like Dr. Robertson, who get pensions exceeding $100,000 a year. The state is not the most profligate pension payer in America… “It’s an affront to everybody who pays taxes,” said Bruce Dennis, a retired carpenter from outside Portland who earned a $54,000-a-year pension by swinging a hammer for 45 years. No one gives him extra money.

But there’s a problem with this scam.

As Margaret Thatcher famously noted, sooner or later you run out of other people’s money.

And we’re getting to that point, as illustrated by this article for the Wall Street Journal. It cites what’s happening on the state level in Connecticut.

Connecticut has just 31.7% of what it needs to pay its employees’ future retirement benefits, according to state financial reports. A fund for teachers has 52.3%. Together, that adds up to more than $37 billion in unfunded pension liabilities, or about $10,300 per Connecticut resident. Connecticut’s unfunded pension liabilities resulted from nearly 40 years of politicians making promises about benefits without adequately funding them, according to a 2015 study by the Center for Retirement Research at Boston College.

And it gives an example of trouble at the local level from a city in Michigan.

East Lansing, home of Michigan State University…is struggling with almost $125 million in unfunded pension and retiree health-care liabilities, has been cutting services… East Lansing asked MSU to pony up $100 million over 20 years to help shore up the city’s underfunded pension plan. The alternative, the city said, was asking voters to approve a 1% income tax that would hit university employees and working students. After negotiations went nowhere, the city brought the income-tax proposal before voters in a referendum last November. …On Nov. 7, East Lansing residents shot down the income-tax referendum, forcing the city to debate what services to cut to save money for the pension obligations. …The city hopes to shed another 17 police and fire positions over the next two years… Altmann suggested a long list of potential cuts to make more room in the budget for increased pension payments: closing the fire station on MSU’s campus, shuttering the city’s pool, aquatic center, dog park and soccer complex, suspending bulk leaf pickup and plowing of public sidewalks and ending annual jazz, folk, film and art festivals.

This is not going to end well.

And the problem seems to get worse every year.

Doesn’t matter who is slicing and dicing the data. The numbers always look grim.

When the next recession hits, many of these simmering problems are going to explode.

P.S. In addition to extravagant and unfunded pensions, don’t forget that state and local bureaucrats (and their federal cousins) are overpaid.

P.P.S. And if you don’t believe that they’re overpaid, then please explain why they don’t voluntarily leave their jobs for positions in the economy’s productive sector?

P.P.P.S. Also keep in mind that there are negative macroeconomic repercussions when bureaucrats are overpaid.

A Painful Lesson for German Taxpayers

I’ve been in Prague the past few days for a meeting of the European Resource Bank. I spoke today about a relatively unknown international bureaucracy called the European Bank for Reconstruction and Development and I warned that it is going through a process of OECD-ization, which is simply my way of saying it is pursuing bad policy.

I’ll write about that issue in the near future, but today’s topic is based on a presentation from Michael Jäger of the Barvarian Taxpayers Association. He shared some depressing data on how the German government imposed a surtax for the ostensibly limited purpose of helping the finance the reunification of West Germany and East Germany.

But limited apparently means forever.

You’ll notice two things in the chart he shared..

• First, the German government has been the big winner from this new levy, collecting €214 billion euros over the past 15 years and spending less than €157 billion euros. In other words, the politicians now have a lot of extra loot to spend elsewhere.
• Second, revenues continue to rise even though the ostensible purpose of the tax is disappearing. Herr Jäger is pressuring the German government to eliminate the tax, but Frau Merkel apparently has little interest in reducing the nation’s tax burden.

To save non-German speakers from having to translate, the dark blue bars are “federal allocations to new states” and the light blue bars are “revenues from the solidarity surcharge.”

The big lesson to learn from this data is that temporary taxes are like temporary programs. They will last forever unless politicians somehow can br pressured to reduce their grip on the economy.

And that’s not easy, though I told some participants in the conference that it could be done. The United States government actually repealed a temporary telephone tax that was imposed to help finance the Spanish-American War.

That’s the good news.

The bad news is that the tax wasn’t repealed until last decade, more than 100 years after that war ended. I’m not joking.

Another painful lesson is that taxes on the rich often wind up penalizing other people. The Spanish-American War telephone tax was supposed to hit rich people since they were the ones who first utilized telephone technology.

But then the rest of us eventually got telephones as well, and we also had to pay the tax.

Just as the income tax was first imposed on just a tiny handful of very wealthy people, but it eventually morphed into a malignant tax code that now bedevils tens of millions of households with modest incomes.

Something to keep in mind when the crowd in Washington says we should have a value-added tax. Based on what’s happened in Europe, I guarantee it would just be a matter of time before that tax became more onerous to finance an ever-expanding burden of government spending.

Socialism: A Dreary Failure, Malignantly Evil, or Both?

When trying to convince someone about the downsides of socialism, I generally make a practical argument. I point out that socialism has universally failed, whether looking at totalitarian versions in places such as North Korea and Cuba or democratic versions in places such as Venezuela and Greece.

Simply stated, the particular strain of socialism doesn’t make a difference. At the end of the day, the greater the level of statism, the greater the level of economic damage.

But our friends on the left aren’t discouraged. Indeed, the support for cranks like Bernie Sanders and Jeremy Corbyn is a sign that socialist policies still have appeal to some people.

Writing for CapX, Kristian Niemietz of London’s Institute for Economic Affairs contemplates the resurgence of socialism. He starts by citing examples of pro-socialist writings.

Opinion pieces which tell us to stop obsessing over socialism’s past failures…have almost become a genre… Nathan Robinson, the editor of Current Affairs, wrote…that socialism has not “failed”. It has just never been done properly… Closer to home, Owen Jones wrote that Cuba’s current version of socialism was not “real” socialism… And Washington Post columnist Elizabeth Bruenig wrote an article with the self-explanatory title ‘It’s time to give socialism a try’.

Kristian provides three reasons why the we’ll-do-better-next-time theory of socialism is very impractical.

…articles in this genre share a number of common flaws. First, as much as the authors insist that previous examples of socialism were not “really” socialist, none of them can tell us what exactly they would do differently. …Secondly, the authors do not seem to realise that there is nothing remotely new about the lofty aspirations they talk about, and the buzzphrases they use. Giving “the people” democratic control over economic life has always been the aspiration, and the promise, of socialism. …Thirdly, contemporary socialists completely fail to address the deficiencies of socialism in the economic sphere. They talk a lot about how their version of socialism would be democratic, participatory, non-authoritarian, nice and cuddly. Suppose they could…magically make that work. What then? They would then be able to avoid the Gulags, the show trials and the secret police… But we would still be left with a dysfunctional economy.

Amen to the last point.

I wrote last year that Marxist socialism is disgusting and brutal compared to liberal socialism, but both versions lead to economic malaise.

Which leads to the conclusion of Kristian’s column.

Ultimately, the contemporary argument for socialism boils down to: “next time will be different, because we say so.” After more than two dozen failed attempts, that is just not good enough.

Of course, some people instinctively knew that socialism was a pre-determined recipe for failure. Here’s the great Winston Churchill speaking about statism shortly after World War II.

Spot on. You can’t control an economy without controlling people.

And here’s another voice from the past, courtesy of Reddit‘s libertarian page.

And here’s Mr. Rogers imagining a fantasy world where socialism might work.

Last but not least, let’s close with this gem from Reddit‘s Libertarian Meme page.

Though when you think about people starving to death in places like Venezuela and North Korea, I suppose we shouldn’t laugh too much.

P.S. Other examples of socialism humor can be enjoyed here, here, and here.

The “Buffett Rule” and the Taxation of Labor and Capital

Politicians routinely assert that they want more economic growth. That’s a laudable sentiment, although I doubt their sincerity for the simple reason that these are the same people who frequently impose policies that discourage productive economic activity.

Growth occurs when there’s an increase in the quantity and/or quality of labor and capital. These so-called factors of production determine how efficiently we produce and how much we produce.

Which is why there should be low taxes on labor and capital.

And it’s also a good idea for these factors of production to be taxed at the same rate so government policy isn’t tilting the playing field.

Unfortunately, we don’t have low taxes and we also don’t have neutral taxes.

Indeed, Timothy Egan argues in the New York Times that these two factors of production are not taxed equally. I agree.

Except Egan completely bungles the analysis and preposterously claims that labor is taxed at a higher rate.

Dear Government: Enclosed please find my 2017 tax form, and a check for the amount I owe, just ahead of the deadline. …you’re still punishing me for working — taxing wages and business income at a much higher rate than the money I make doing nothing, like holding stocks. Plus, you’re still taxing Warren Buffett at a lower rate than his secretary, despite his plea for fairness.

Wow, he manages to cram a lot of inaccuracy into a couple of sentences.

In reality, the current tax code is very biased against saving and investment.

Here’s some of what I wrote when I debunked Warren Buffett’s deeply flawed claim about relative tax burdens back in 2011.

…dividends and capital gains are both forms of double taxation. …if he wants honest effective tax rate numbers, he needs to show the…corporate tax rate. …Moreover, …Buffett completely ignores the impact of the death tax

For years, I’ve been recycling a chart showing how the American tax code mistreats saving and investment. But that chart became outdated by the fiscal cliff deal, then became even more inaccurate because of Obamacare tax hikes, and most recently became even more inaccurate thanks to the Trump tax plan.

So here’s an up-to-date version.

And for purposes of today’s issue, the top side and left side of the flowchart combine to show how labor income is taxed and the top side and right side of the flowchart combine to show how capital is taxed.

The problem with Egan’s analysis is that he compares taxes on labor income (as high as 37 percent) with the 23.8 percent rate on dividends and/or capital gains. Yet that’s either incredibly sloppy or grievously dishonest because that income also gets hit by the corporate income tax.

And it’s worth pointing out that stocks and other financial assets are purchased with after-tax dollars (captured by the top portion of the chart).

P.S. Adding payroll taxes to the flowchart doesn’t change anything. There would be an additional levy at the top of the chart, leading to a lower level of after-tax earning. So the net result is simply that people have less money to either spend or invest.

P.P.S. Warren Buffett periodically – and inaccurately – asserts that his tax rate in higher than his secretary’s tax rate. Yet his theoretical support for higher tax burdens crashes into the reality of his professional tax-minimization behavior.