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Who benefits most from the death tax?

There are two obvious answers.

First, politicians presumably benefit since they get more money to spend. Yes, it’s true that the tax discourages capital formation and may actually lose revenue in the long run, but politicians aren’t exactly famous for thinking past the next election cycle.

Second, there are some statists who are motivated by envy and resentment. These are the folks who make class-warfare arguments about the death tax being necessary to prevent the “rich” from accumulating more wealth, even though evidence shows large family fortunes dissipate over time.

Both of those answers are correct, but they don’t fully explain why this pernicious levy still exists.

Tim Carney of the Washington Examiner has a must-read piece for the American Enterprise Institute. He reveals the groups that actually are spending time and money to defend this odious version of double taxation.

…about two-thirds of Americans tell pollsters that they oppose the death tax. …But some segments of the population feel differently — most notably, the estate-planning industry. A survey by an industry magazine in 2011 found that 63 percent of estate-planning attorneys opposed repeal of the estate tax. That’s fitting. The death tax forces people to engage in complex and expensive estate planning. Lobbying disclosure forms show that the insurance industry is lobbying on the issue these days. The Association for Advanced Life Underwriting, which represents companies that sell estate-planning products, lobbied on the issue last year, as it has for years. Last decade, AALU funded a group called the Coalition for America’s Priorities, which attacked estate tax repeal as a tax break for Paris Hilton. …When the estate tax was last before Congress, the life insurance industry revved up the troops, spending $10 million a month on lobbying in the first half of 2010. In that stretch, only three industries spent more, according to data from the Center for Responsive Politics.

I concur with Tim.

Indeed, I remember giving a speech back in the 1990s to a group of estate-planning professionals. In my youthful naiveté, I expected that these folks would very much appreciate my arguments against the death tax.

Instead, the reception was somewhat frosty.

Though not nearly as hostile, I must confess, as the treatment I got when speaking about the flat tax to a group of tax lobbyists for big corporations.

In both cases, I was surprised because I mistakenly assumed that my audiences actually cared about the best interests of their clients or employers.

In reality, they cared about what made them rich instead (economists and other social scientists call this the principal-agent problem).

But I’m digressing. Let’s look at more of Tim’s article. He cites the Clintons to make a key point about rich people being able to avoid the tax so long as they cough up enough money to the estate-planning industry.

Those same techniques, however, often are not available to farmers, small business owners, and others who are victimized by the levy.

The Clintons may be stupid-rich, but they aren’t stupid — they’re using estate-planning techniques to avoid the estate tax. Bloomberg News reported in 2014 that the Clinton family home has been divided, for tax purposes, into two shares, and those shares have been placed in a special trust that will shield Chelsea from having to pay the estate tax on the full value of the home when she inherits it. Also, the Clintons have created a life insurance trust — a common tool wealthy people use to provide liquidity for heirs to pay the estate tax. The Clintons’ games, and the estate-planning industry’s interest in the tax, highlights how the tax fails at its stated aims of preventing the inheritance of wealth and privilege. Instead, the estate tax forces the wealthy to play games in order to pass on their wealth. These games don’t add anything to the economy, they just enrich the estate-planning industry. Those whose wealth is tied up in a small or medium-sized business, on the other hand, aren’t always capable of playing the estate planning games. They’re the victims.

The bottom line is that the tax should be abolished for reasons of growth.

But it also should be repealed because it’s unfair to newly successful entrepreneurs, investors, and business owners, all of whom generally lack access to the clever tax-planning tools of those with established wealth.

And it should be repealed simply because it would be morally satisfying to reduce the income of those who benefit from – and lobby for – bad government policy.

P.S. The U.S. death tax is more punitive than the ones imposed by even France and Venezuela.

P.P.S. It’s particularly hypocritical for the Clintons to support the death tax on others while taking steps to make sure it doesn’t apply to them.

P.P.P.S. In a truly repugnant development, there are efforts in the U.K. to apply the death tax while people are still alive.

P.P.P.P.S. On a more positive note, a gay “adoption” in Pennsylvania helped one couple reduce exposure to that state’s death tax.

P.P.P.P.P.S. If you live in New Jersey, by contrast, the best choice is to move before you die.

I’ve sometimes asserted, only half-jokingly, that statists believe all of our income belongs to the government and that we should be grateful if we’re allowed to keep any slice of what we earn.

This is, at least in part, the mentality behind the “tax expenditure” concept, which creates a false equivalence between spending programs and provisions of the tax code that allow people to keep greater amounts of their own income.

Here’s how I characterized this moral blindness when criticizing a Washington Post columnist back in 2013.

Hiatt presumably thinks that the government’s decision not to impose double taxation is somehow akin to a giveaway. But that only makes sense if you assume that government has a preemptive claim to all private income. …Hiatt wants us the think that there’s no moral, ethical, or economic difference between giving person A $5,000 of other people’s money and person B being allowed to keep $5,000 of his or her own money.

Today, I have a particularly absurd real-world illustration of this statist mindset.

Two writers for the Wonkblog section of the Washington Post recently wrote an article entitled, “The rich get government handouts just like the poor. Here are 10 of them.”

Did their list of 10 “handouts” include the Export-Import Bank, which lines the pockets of big corporations? Nope.

Did it include agriculture subsidies, which provide unearned goodies for big agribusiness firms? Nope.

Did it the TARP bailout, which shielded Wall Street fatcats from capitalism? Nope.

And how about subsidized terrorism insurance, ethanol goodies, and green energy subsidies? Nope, nope, and nope.

Or the handouts in Obamacare for major pharmaceutical companies and big insurance companies? Nope and nope.

Instead, every single “handout” that the rich “get” from government is nothing more than a provision of the tax code that lets people keep more of their own money.

I’m not joking. Here’s the list, followed by my two cents.

1. The mortgage interest deduction for big houses and second homes.

As I’ve previously explained, I don’t think the tax code should be tilted in favor of residential real estate. But a handout is when the government takes money from Person A and gives it to Person B.

2. The yacht tax deduction.

There actually isn’t a yacht tax deduction, but if you can live in something, it can be eligible for a mortgage interest deduction. I don’t think that’s wise tax policy, but it’s not an example of government taking from Person A and giving to Person B.

3. Rental property.

The authors appear to be upset that people running a business get to subtract costs from gross income when calculating net income. But that’s exactly how businesses are supposed to be taxed. And even if one thought, for some odd reason, that gross income was the right tax base, this still isn’t an example of government taking from Person A to give to Person B.

4. Fancy business meals.

As just noted, businesses should be taxed on profits rather than gross receipts. Well, profits are the difference between total income and total costs, including the cost of business-related meals. And even if one thinks that folks in business are lying and mischaracterizing personal meals, they’re not spending other people’s money. No funds are being taken from Person A and being given to Person B.

5. The capital gains tax rate.

In a good tax system, there’s no double taxation of income that is saved and invested, so the capital gains tax should be abolished. As such, the “preferential” rate in the current system is more accurately characterized as a mitigation of a penalty. But even if one believes that saving and investment should be double taxed, a lower capital gains tax rate doesn’t take money from Person A to give to Person B.

6. The estate tax.

The death tax is triple taxation, so it also should be abolished. Regardless, letting a family hold onto its own money is not the same as taking from Person A to give to Person B.

7. Gambling loss deductions.

The government taxes gamblers on their net winnings (if any), which is the proper approach. And even if the government gave a deduction for net losses (which isn’t the case), this wouldn’t be an example of taking from Person A and giving to Person B.

8. The Social Security earnings limit.

The Social Security system is supposed to be social insurance, and one of the implications of this approach is that there’s a limit on the benefits one can receive and the payments one has to make. As such, it’s silly to assert that the “wage base cap” is somehow improper. But even if one believed in turning Social Security into a pure redistribution scheme, the existing earnings limit simply means a cap on what the government takes. There’s no coerced handout from Person A to Person B.

9. Retirement plans.

The bad news is that we have pervasive double taxation in the internal revenue code. The good news is that some forms of retirement savings, such as IRAs and 401(k)s, are protected from double taxation. That protection does not require any money being taken from Person A and given to Person B.

10. Tax prep.

I’m not a fan of companies like H&R Block that benefit from an unfair and convoluted tax code. Under a simple and fair system like the flat tax, they would go out of business. But a deduction for tax preparation costs simply allows a taxpayer to keep more of his or her income. There’s no handout from Person A to Person B.

In case you didn’t notice, there’s a strong moral component to my argument. The leftists think you’re getting a handout if you get to keep more of your own money.

I think that’s absurd.

And it’s also economically illiterate when applied to provisions of the tax code that make sense, such as companies getting to subtract expenses when calculating taxable income.

Or individuals not being subjected to double taxation.

P.S. Here’s some pro-Second Amendment humor, which cleverly uses the left’s “undocumented” terminology for illegal aliens and applies it in a much better fashion.

And if you like pro-gun humor, you can find lots of good links by clicking here.

P.P.S. Since I mentioned immigration, here’s a fascinating graphic that shows immigration trends over the past two centuries.

There’s no policy lesson of philosophical point. I just think this graphic is very informative and well designed.

But if you want my two cents, I like immigration but want to make sure we attract people who want to work and assimilate rather than scroungers (and worse) who want welfare and handouts.

I don’t know whether to be impressed or horrified by Paul Krugman.

I’m impressed that he’s always “on message.” No matter what’s happening in America or around the world, he always has some sort of story about why events show the need for bigger government.

But I’m horrified that he’s so sloppy with numbers.

My all-time favorite example of his fact-challenged approach deals with Estonia. In an attempt to condemn market-based fiscal policy, he blamed that nation’s 2008 recession on spending cuts that took place in 2009.

Wow. That’s like saying that a rooster’s crowing causes yesterday’s sunrise. Amazing.

Let’s look at a new example. This is some of what he recently wrote while trying to explain why the U.S. has out-performed Europe.

America has yet to achieve a full recovery from the effects of the 2008 financial crisis. Still, it seems fair to say that we’ve made up much, though by no means all, of the lost ground. But you can’t say the same about the eurozone, where real G.D.P. per capita is still lower than it was in 2007, and 10 percent or more below where it was supposed to be by now. This is worse than Europe’s track record during the 1930s. Why has Europe done so badly?

Krugman answers his own question by saying that the United States has been more loyal to Keynesian economics.

…what stands out from around 2010 onward is the huge divergence in thinking that emerged between the United States and Europe. In America, the White House and the Federal Reserve mainly stayed faithful to standard Keynesian economics. The Obama administration wasted a lot of time and effort pursuing a so-called Grand Bargain on the budget, but it continued to believe in the textbook proposition that deficit spending is actually a good thing in a depressed economy.

I have to confess that alarm bells went off in my head when I read this passage.

If Krugman was talking about the two years between 2008 and 2010, he would be right about “staying faithful to standard Keynesian economics.”

But 2010 was actually the turning point when fiscal policy in America moved very much in an anti-Keynesian direction.

Here’s the remarkable set of charts showing this reversal. First, there was zero spending growth in Washington after 2009.

Second, this modest bit of fiscal restraint meant a big reduction in the burden of government spending relative to economic output.

Wow, if this is Keynesian economics, then I’m changing my name to John Maynard Mitchell!

So is Krugman hallucinating? Why is he claiming that U.S. policy was Keynesian?

Let’s bend over backwards to be fair and try to find some rationale for his assertions. Remember, he is making a point about U.S. performance vs. European performance.

So maybe if we dig through the data and find that European nations were even more fiscally conservative starting in 2010, then there will be some way of defending Krugman’s claim.

Yet I looked at the IMF’s world economic outlook database and I crunched the numbers for government spending in the biggest EU economies (Germany, UK, France, Italy, Spain, Netherlands, Sweden, Belgium, accounting for almost 80 percent of the bloc’s GDP).

And what did I find?

Contrary to Krugman’s claims, total government spending in those nations grew slightly faster than it did in the United States between 2009 and 2014.

So on what basis can Krugman argue that the U.S. had a more Keynesian approach?

Beats the heck out of me. I even looked at the OECD data on deficits to see whether there was some way of justifying his argument, but those numbers show the biggest reduction in red ink (presumably a bad thing according to Keynesian stimulus theory) took place in the United States.

But I will close by acknowledging that Krugman’s column isn’t just focused on fiscal policy. He also argues that the Federal Reserve has been more Keynesian than European central banks. My impression is that both the Fed and the ECB have been keeping interest rates artificially low, so I’m not sure that’s an effective argument (or an effective policy!), but I’ll leave that issue to the folks who specialize in monetary policy.

P.S. If you want additional examples of Krugman’s factual errors, see here, here, here, here, here, here, here,here, here, and here.

Way back in 2010, I shared two very depressing numbers to illustrate how Obama’s policies were creating “regime uncertainty.”

I shared data on the cash reserves of companies and suggested it was bad news that those firms thought it made more sense to sit on money rather than invest it.

I also shared numbers on the excess reserves that banks were keeping at the Federal Reserve and speculated that this was because of a similarly dismal perspective about economic prospects.

At the time, I figured that those numbers eventually would get better. But I was wrong.

Companies are still sitting on the same about of cash and banks have actually increased the amount of money they have parked at the Federal Reserve.

Now let’s look at some more data that doesn’t reflect well on Obamanomics.

The Federal Reserve Bank of Cleveland has some very discouraging analysis about worker compensation.

…real wages have barely risen—real compensation per hour has risen only by 0.5 percent, much less than at this point in past recoveries. The lack of strong wage growth has been one factor that has held down the growth of income, consumer spending, and the recovery. …Some longer-term changes in the economy have likely played a larger role in depressing real wage growth. …Productivity growth in the nonfarm business sector has averaged only 1.46 percent since 2004 and 0.85 percent since 2010. As the growth of labor productivity is a key determinant of real wage growth in the long run, the slowdown of productivity has probably helped to depress wage growth.

And here’s a chart from the article.

The brown line at the bottom is what’s been happening under Obamanomics. As you can see, compensation has basically been unchanged for the past five years. In other words, living standards have stagnated.

The Cleveland Fed data shows dismal earnings and productivity data for all Americans. And it’s important to understand how those numbers are related.

Some folks in Washington think that companies should act like charities and give workers lots of money simply because that’s a nice way to behave.

In the real world, though, workers get paid on the basis of how much they produce. So when productivity numbers are weak, as the Cleveland Fed points out, you also get weak data for worker compensation.

But now let’s dig even deeper and ask what determines productivity numbers. There are many factors, of course, but saving and investment are very important. In other words, capital formation. Simply stated, you need people to set aside some of today’s income to finance tomorrow’s growth.

And growth, as measured by inflation-adjusted changes in output, is entirely a function of population growth and productivity growth.

So the bottom line is that workers will only earn more if they produce more. But they’ll only produce more if there’s more saving and investment.

And this is why Obama’s policies are so poisonous. His tax policy is very anti-saving and anti-investment. And the increases in the regulatory burden also make it less attractive for investors and entrepreneurs to put money at risk.

Obama thinks he’s punishing the “rich,” but the rest of us are paying the price.

Now let’s look specifically at American blacks.

Deroy Murdock explains in National Review that they should feel especially angry at the gap between Obama’s rhetoric and performance.

Republicans should ask black Americans for their votes from now through November 2016. They should do so by challenging blacks to ask themselves an honest question: “What, exactly, have you gained by handing Obama 95 percent of your votes in 2008 and 93 percent in 2012?”

Deroy then lists a bunch of depressing statistics on what’s happened since 2009.

Here are the numbers that I think are most persuasive.

U.S. labor force participation has declined during that same period, from 65.7 to 62.7 percent. For blacks in general, …dipping from 63.2 to 61.0 percent of available employees in the work pool. For black teenagers, however, this number deteriorated — from 29.6 to 25.7 percent. The percentage of Americans below the poverty line inched up, the latest available Census Bureau data found, from 14.3 to 14.5 percent overall — between 2009 and 2013. For black Americans, that climb was steeper: The 25.8 percent in poverty rose to 27.2 percent. Real median household incomes across America retreated across those years, from $54,059 to $51,939. …such finances also reversed for black Americans, from $35,387 to $34,598. …Home ownership slipped from 67.3 percent of Americans in the first quarter of 2009 to 64.0 in the fourth quarter of 2014. For blacks, that figure slid from 46.1 to 42.1 percent.

Here’s Deroy’s bottom line.

Obama has betrayed blacks as a community, failed Americans as a people, and enfeebled the United States as a nation.

To be sure, it’s not as if Obama wanted to hurt blacks. He just doesn’t understand or doesn’t care that statist policies undermine economic performance.

And when you hurt economic growth, the folks at the bottom rungs of the economic ladder generally suffer the most, and that’s why there are so many grim statistics about the economic health of black America.

The good news is that we know how to solve the problem. The bad news is that Obama is in the White House until January 2017.

What’s America’s main fiscal policy challenge, particularly in the long run?

Most sensible people will agree that our greatest threat is the rising burden of entitlement spending.

More specifically, demographic changes and ill-designed programs will combine to dramatically expand the size of the public sector over the next few decades.

So it’s really amazing that some politicians, led by the clownish Elizabeth Warren, want to dig the hole deeper.

Here are some excerpts from a recent article in the Washington Examiner.

Elizabeth Warren is pushing Democrats to expand Social Security rather than cut it, a move that could pressure presumed party frontrunner Hillary Clinton to move left. …”What Elizabeth Warren has done on pushing the ball forward on Social Security is another example of why she’s a bold progressive hero,” said T.J. Helmstetter, a representative for the Progressive Change Campaign Committee, an outside group that pushes for progressive causes. …In March, almost all Democratic senators voted for a symbolic budget amendment to express support for expanding Social Security. …The messaging amendment approved by most Senate Democrats also did not specify how benefits were to be expanded.

I discussed this topic in a recent interview.

Though I’m surprised that my head didn’t explode while discussing such a reckless idea.

I closed the interview by expressing a modest bit of optimism.

Surely (at least I hope) politicians won’t dig the hole deeper when we can see right before our eyes the fiscal chaos and economic disarray in Greece, right?!?

I’m surprised demagogues such as Elizabeth Warren haven’t rallied behind a plan to simply add a bunch of zeroes to the IOUs already sitting in the so-called Social Security Trust Fund.

Fortunately, not all politicians think it’s smart to accelerate as you’re driving toward a cliff.

Writing in the Washington Post, Charles Lane explains Governor Christie’s proposal.

New Jersey Gov. Chris Christie…wants to campaign on a sweeping proposal to rein in federal entitlement spending on the elderly. …he urged a phaseout of Social Security benefits for retirees with $80,000 or more in other income and backed a gradual upward adjustment of the retirement ages for Medicare and Social Security, which is also appropriate, given increased life expectancy. …Social Security…remains a non-trivial cause of the government’s long-term fiscal imbalance. Its trust fund, admittedly an accounting fiction of sorts, is on course to run out of cash by the early 2030s. Christie’s plan would provide three-fifths of the resources necessary to guarantee Social Security’s solvency for 75 years

Kudos to Governor Christie for recognizing that you can’t repeal mathematics with politics.

And this modest bit of praise isn’t based on policy. I’m not a big fan of means testing, which has some unfortunate economic effects.

And I also think that raising the retirement age is sub-optimal since it forces people to pay longer into an inferior system that already is giving them a very low rate of return.

The right approach is to transition to a system of personal retirement accounts, but at least Christie has an adult proposal based on real-world considerations.

Though, to be fair, many leftists claim we can afford higher benefits and also “fix” the system with a giant tax increase. So they sometimes recognize that math exists, even if they want us to believe that 2 + 2 = 7.

P.S. If Hillary winds up endorsing Warren’s reckless plan, it will give us another data point for our I-can’t-believe-she-said-that collection.

P.P.S. Is Elizabeth Warren more of a faux populist or more of a faux American Indian?

P.P.P.S. You can enjoy some previous Social Security cartoons here, here, and here. And we also have a Social Security joke if you appreciate grim humor.

I realize it’s tax week and I should be condemning our convoluted tax code and oppressive IRS.

But I can’t resist getting diverted to another topic. It’s time to debunk the notion that there is rampant sexism in the private economy that causes women to by systematically underpaid.

I addressed the issue back in 2010, citing the solid work of Christina Hoff Summers. And I cited more of her work, as well as some analysis by Steve Chapman, when writing about the topic in 2012. The bottom line is that rigorous analysis finds that the so-called gender gap largely disappears once you consider factors such as occupational choice, hours worked, and education.

I’ll add my two cents to the discussion. For decades, I’ve been dealing with leftists who repeatedly tell me that business owners are consumed by greed and put profit above everything. Yet if women truly were making less money than men for doing equal work, then why aren’t these greed-filled business owners firing all their male employees and hiring women who will work for 80 percent of what it costs to employ men? Or 85 percent? Or 90 percent?

When I pose this question, my statist friends begin to mumble and stumble, but the clever ones eventually asset that business owners are not only soulless profiteers but also malign sexists. And the sexism apparently trumps the greed because they’re willing to employ men when equally competent women would work for less.

At that point, I usually ask them why entrepreneurs (presumably women and perhaps financed by rich leftists) don’t take advantage of a huge competitive opportunity by setting up rival businesses that could hire women for less money and lure customers away from the greedy sexist firms by charging lower prices.

I still haven’t received an answer to that question.

And that may explain why even one of President Obama’s top economic advisers basically admitted that equal-pay propaganda from the left is completely bogus.

Let’s dig into the data. Mark Perry of the American Enterprise Institute does a very good job of explaining why Equal Pay Day is based on nonsensical numbers.

…the bogus feminist holiday event known as Equal Pay Day…is a statistical fairy tale because it’s based on the false assumption that women get paid 23% less than men for doing exactly the same work in the exact same occupations and careers, working side-by-side with men on the same job for the same organization, working the same number of hours per week, traveling the same amount of time for work obligations, with the same exact work experience and education, with exactly the same level of productivity, etc. …The reality is that you can only find a 23% gender pay gap by comparing raw, aggregate, unadjusted full-time median salaries, i.e. when you control for NOTHING that would help explain gender differences in salaries… Most economic studies that control for all of those variables conclude that gender discrimination accounts for only a very small fraction of gender pay differences, and may not even be a statistically significant factor at all. …As the Department of Labor concluded in 2009, “The differences in raw wages may be almost entirely the result of the individual choices being made by both male and female workers.” They also concluded that “the raw wage gap should not be used as the basis to justify corrective action.”

By the way, all this data and research doesn’t mean sexism doesn’t exist. I’m sure it does, and it probably goes both ways.

I’m simply saying that unjustified discrimination in a competitive market economy is expensive. People who put prejudice above profits suffer. Which is why there’s so little actual evidence to support the feminist position.

Now let’s enjoy a bit of fun. It’s always amusing to expose statist hypocrisy.

The Obama White House claims to believe in so-called equal pay for equal work. But apparently that’s only a rule for us peasants.

And Hillary Clinton doubtlessly will regale us with speeches about equal pay over the next several months. Yet she didn’t practice what she preaches.

Yes, I realize we’re all shocked that politicians like Hillary prevaricate and dissemble.

P.S. Since this is tax season, I suppose I should close with a couple of relevant items.

First, we have an update to the infamous chart on the number of pages in the tax code.

Second, we have a new video from Reason TV about the “best tax code.”

Sadly, I don’t think my tax videos will ever be that entertaining.

With so many Americans currently filled with anxiety about their annual tax forms, this is the time of year that many people wistfully dream about how nice it would be to have a simple and fair flat tax.

Unfortunately, there are many obstacles to better tax policy. I’ve previously addressed some of these obstacles.

1. Politicians who prefer the status quo make appeals to envy by making class-warfare arguments about imposing higher tax rates on those who contribute more to economic output.

2. Politicians have created a revenue-estimating system based on the preposterous notion that even big changes in tax policy have no impact on economic performance, thus creating a procedural barrier to reform.

3. Politicians enormously benefit from the current corrupt and complex system since they can auction off tax loopholes for campaign cash and use the tax code to reward friends and punish enemies.

Today, we’re going to look at another obstacle to pro-growth reform.

One of the main goals of tax reform is to get a low flat rate. This is important because marginal tax rates affect people’s incentives to engage in additional productive behavior.

But it’s equally important to have a system that taxes economic activity only one time. This is a big issue because the current internal revenue code imposes a heavy bias against income that is saved and invested. It’s possible, when you consider the impact of the capital gains tax, corporate income tax, double tax on dividends, and the death tax, for a single dollar of income to be taxed as many as four times.

And what makes this system so crazy is that all economic theories – even Marxism and socialism – agree that capital formation is critical for long-run growth and rising living standards.

Yet here’s the problem. The crowd in Washington has set up a system for determining tax loopholes and that system assumes that there should be this kind of double taxation!

I’m not joking. You see this approach from the Joint Committee on Taxation. You see it from the Government Accountability Office. You see it from the Congressional Budget Office. Heck, you even see Republicans mistakenly use this benchmark.

This is why I organized a briefing for Capitol Hill staffers last week. You can watch the entire hour by clicking here, but if you don’t have a lot of time, here’s my 10-minute speech on the importance of choosing the right tax base (i.e., taxing income only one time).

Since I’m an economist, I want to highlight one particular aspect on my presentation. You’ll notice near the end that I tried to explain the destructive economic impact of double taxation with an analogy.

I shared a Powerpoint slide that compared the tax system to an apple tree. If you want to tax income, the sensible approach is to pick the apples off the tree.

But if you want to mimic the current tax system, with the pervasive double taxation and bias against capital, you harvest the apples by chopping down the tree.

Needless to say (but I’ll say it anyway), it’s utterly foolish to harvest apples by chopping down the tree since it means fewer apples in following years.

In this analogy, the apples are the income and the tree is the capital.

But as I thought about the issue further, I realized my analogy was imperfect because our current system doesn’t confiscate all existing capital.

Which is why it is very fortunate that one of the interns at Cato, Jonathan Babington-Heina, is a very good artist. And he was able to take my idea and come up with a set of cartoons that accurately – and effectively – show why discriminatory taxation of capital is so misguided.

By the way, this isn’t the first time that an intern has come to my rescue with artistic skill.

My highest-viewed post of all time is this famous set of cartoons that shows the dangerous evolution of the welfare state.

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