Dark Humor from the Socialist Hellhole of Venezuela

Back in 2015, I mocked Venezuelan socialism because it led to shortages of just about every product. Including toilet paper.

But maybe that doesn’t matter. After all, if people don’t have anything to eat, they probably don’t have much need to visit the bathroom.

The Washington Post reports that farmers are producing less and less food because of government intervention, even though the nation is filled with hungry people.

Venezuela, whose economy operates on its own special plane of dysfunction. At a time of empty supermarkets and spreading hunger, the country’s farms are producing less and less, not more, making the caloric deficit even worse. Drive around the countryside outside the capital, Caracas, and there’s everything a farmer needs: fertile land, water, sunshine and gasoline at 4 cents a gallon, cheapest in the world. Yet somehow families here are just as scrawny-looking as the city-dwelling Venezuelans waiting in bread lines or picking through garbage for scraps. …“Last year I had 200,000 hens,” said Saulo Escobar, who runs a poultry and hog farm here in the state of Aragua, an hour outside Caracas. “Now I have 70,000.” Several of his cavernous henhouses sit empty because, Escobar said, he can’t afford to buy more chicks or feed. Government price controls have made his business unprofitable…the country is facing a dietary calamity. With medicines scarce and malnutrition cases soaring, more than 11,000 babies died last year, sending the infant mortality rate up 30 percent, according to Venezuela’s Health Ministry. …Child hunger in parts of Venezuela is a “humanitarian crisis,” according to a new report by the Catholic relief organization Caritas, which found 11.4 percent of children under age 5 suffering from moderate to severe malnutrition… In a recent survey of 6,500 Venezuelan families by the country’s leading universities, three-quarters of adults said they lost weight in 2016 — an average of 19 pounds. This collective emaciation is referred to dryly here as “the Maduro diet,” but it’s a level of hunger almost unheard-of… Venezuela’s disaster is man-made, economists point out — the result of farm nationalizations, currency distortions and a government takeover of food distribution. …The price controls have become a powerful disincentive in rural Venezuela. “There are no profits, so we produce at a loss,” said one dairy farmer.

Here’s where we get to the economics lesson. When producers aren’t allowed to profit, they don’t produce.

And when we’re looking at the production of food, that means hungry people.

Even the left-wing Guardian in the U.K. has noticed.

Hunger is gnawing at Venezuela, where a government that claims to rule for the poorest has left most of its 31 million people short of food, many desperately so. …Adriana Velásquez gets ready for work, heading out into an uncertain darkness as she has done since hunger forced her into the only job she could find at 14. She was introduced to her brothel madam by a friend more than two years ago after her mother, a single parent, was fired and the two ran out of food. “It was really hard, but we were going to bed without eating,” said the teenager, whose name has been changed to protect her. …Venezuela’s crisis has deepened, the number of women working at the brothel has doubled, and their ages have dropped. “I was the youngest when I started. Now there are girls who are 12 or 13. Almost all of us are there because of the crisis, because of hunger.” She earns 400,000 bolivares a month, around four times the minimum wage, but at a time of hyperinflation that is now worth about $30, barely enough to feed herself, her mother and a new baby brother.

This is truly sad.

Our leftist friends like to concoct far-fetched theories of how prostitution is enabled by everything from low taxes to global warming.

In the real world, however, socialism drives teenage girls (or even younger) to work in brothels.

That’s such a depressing thought that let’s shift the topic back to hunger and toilet paper.

Especially since Venezuela’s dictator is bragging that the nation’s toilet paper shortage has been solved!

This is definitely a dark version of satire.

But Venezuela is such a mess that it’s hard to know where to draw the line between mockery and reality.

For instance, here’s another “benefit” of limited food. If you don’t eat, it’s not as necessary to brush your teeth.

And is the socialist paradise of Venezuela, that makes a virtue out of necessity since – surprise – there’s a shortage of toothpaste.

The Washington Post has the grim details.

Ana Margarita Rangel…spends everything she earns to fend off hunger. Her shoes are tattered and torn, but she cannot afford new ones. A tube of toothpaste costs half a week’s wages. “I’ve always loved brushing my teeth before going to sleep. I mean, that’s the rule, right?” said Rangel, …“Now I have to choose,” she said. “So I do it only in the mornings.” …The government sets price caps on some basic food items, such as pasta, rice and flour. …those items can usually be obtained only by standing in lines for hours or by signing up to receive a subsidized monthly grocery box from the government… Since 2014, the proportion of Venezuelan families in poverty has soared from 48 percent to 82 percent… Fifty-two percent of families live in extreme poverty, according to the survey, and about 31 percent survive on two meals per day at most.

Isn’t socialism wonderful! You have the luxury of choosing between two meals a day, or one meal a day plus toothpaste!

By the way, the central planners have a plan.

Though it won’t make Bugs Bunny happy.

Rabbit is now on the menu! Here are some excerpts from a CNN report.

Let them eat rabbits. That was basically the message from President Nicolas Maduro to Venezuelans starving and struggling through severe food shortages… The Venezuelan leaders…recommend that people raise rabbits at home as a source of food. …The agriculture minister argued that rabbits easily reproduce and are a source of protein. He also recommended citizens consider raising and growing other animals and vegetables at home. It’s just the latest attempt to try and solve the food shortage problem. The government forces citizens to pick up groceries on certain days of the week depending on social security numbers.

Gee, isn’t this wonderful. The government cripples markets so they can’t function and then advocates people live like medieval peasants.

Maybe there should be price controls on clothing, along with having the government in charge of distribution. That will wreck that market as well, so people can make their own clothes out of rabbit pelts.

I wonder whether a certain American lawmaker is rethinking his praise of Venezuelan economic policy?

Based on what he said as recently as last year, the answer is no.

Civil Asset Forfeiture: A Slice of Venezuelan-Style Thuggery in America

I periodically list people who have suffered horrible abuse because of despicable actions by government. At some point, I’ll have to create a special page to memorialize these victims. Something like the Bureaucrat Hall of Fame or Moocher Hall of Fame, though I haven’t figured out a good name (“Victims of Government Thuggery Hall of Fame” is too wordy).

Anyhow, many of these unfortunate people (the Dehko family, Carole Hinders, Joseph Rivers, and Thomas Williams) have something in common. They are victims of theft. But they can’t call law enforcement because their money and property was stolen by the government.

Such theft is enabled by “civil asset forfeiture” and we can now add Gerardo Serrano to the list of victims. The Washington Post has the disgusting story of what happened.

On Sept. 21, 2015, Gerardo Serrano was driving from his home in Kentucky to Piedras Negras, Mexico, when his truck was searched by U.S. Customs and Border Protection agents at Texas’s Eagle Pass border crossing. After finding a small ammunition clip, the agents took Serrano’s truck from him. Two years later, Customs hasn’t charged Serrano with a crime, and they haven’t given his truck back either.

The bureaucrats could take his truck because Civil asset forfeiture basically gives bureaucrats a license to steal. I’m not joking, though I wish I was.

Customs seized the truck under the laws of civil asset forfeiture, which allow authorities to take cash and property from citizens upon suspicion of criminal wrongdoing. Because it happens under civil law, no criminal conviction — or even criminal charge — is necessary for authorities to take property they believe is connected to a crime.

That’s bad enough. But it gets even worse when you read about what happened to Serrano.

In September 2015, Serrano drove his new Ford F-250 pickup from his home in Kentucky to the Mexico border. He was going to visit a cousin he hadn’t seen in many years. He snapped a few photos with his phone as he drove through the checkpoint, planning to upload them to Facebook, just as he says he had been doing throughout his whole trip, to share the experience with friends and family back home. That’s when the trouble started. One of Serrano’s photos shows two Customs agents looking in his direction, hands held up. According to his lawsuit, the agents objected to his taking photos.

Are these bureaucrats members of some primitive jungle tribe that believes a photograph steals their souls?

That would at least be a semi-rational explanation.

But if you read the rest of the story, they’re apparently petulant jerks (I had other words in mind, but this is a family-friendly site).

Those agents waved him over to the side of the road, on the U.S. side of the border, and demanded he hand over his phone. Serrano said “no.” Customs declined to say whether there’s a prohibition on photography at border crossings. …one of the agents unlocked Serrano’s door, unbuckled his seat belt, and yanked him out of the car. “I know I didn’t do anything wrong,” Serrano told The Post. “So I say ‘listen, you can’t yank me out like that, I’m an American, you can’t do that to me.’”The agent took his phone, and demanded Serrano give him the passcode. Serrano recalls he told the agent to “go get a warrant.”By this time, other agents had started searching his truck. “I said, ‘Hey listen I have rights, you’re violating my rights, you’re not supposed to do that kind of stuff,’” Serrano recounted. …“I’m sick of hearing about your rights,” the agent said, according to Serrano’s lawsuit. “You have no rights here.”Eventually, one of the agents searching the truck found an ammunition clip containing five .380-caliber bullets and yelled “we got him!,” according to the lawsuit. …Serrano had planned to take his pistol on the trip, but he left it home at the strong urging of his cousin, who explained the potential consequences of bringing it to Mexico. But he didn’t realize the extra ammunition clip, containing five .380 caliber rounds, was still in the center console of his truck.

The bureaucrats must have been trained in Venezuela.

At the crossing, the CBP agents put Serrano in handcuffs and continued to ask him to give up the passcode. “You go get that warrant,” Serrano says he told them. “I’ll wait for you in jail.” Serrano didn’t believe that any judge would grant a warrant to search a phone for taking pictures at the border. …The agents eventually placed Serrano in a locked cell without food, water or a toilet, Serrano says. Periodically someone would come in and ask for the passcode to his phone, he says. He refused every time.

The good news is that Mr. Serrano won, sort of.

Serrano says that after three hours, the agents told him he was free to go, returned his phone and said he wasn’t being arrested or charged with any crime. Serrano says he was elated.

The bad news is that the bureaucrats stole his truck.

But then, the agents handed him a document informing him that Customs was taking his truck and the ammunition clip. Those items were “subject of legally becoming the property of the Federal Government (forfeiture),” according to the document, because Serrano had failed to disclose the presence of the clip, making the truck a “conveyance of illegal exportation.” …Several weeks later he received a formal forfeiture notice from Customs, informing him that the government believed his truck was being used to transport “arms or munitions of war.” The notice gave him a number of options to pursue if he wanted his truck back.

Here’s the part that only be described as adding insult to injury.

One of the options was to make an “offer in compromise” — send Customs a check, and if they deemed the amount to be high enough, they would return his truck to him. “That’s like a shakedown,” Serrano said.

Fortunately, the great folks at the Institute for Justice are helping him challenge this horrific example of theft by government.

By the way, you may be thinking Serrano is some sort of thug, maybe a gang member from MS-13? I’ve had some defenders of civil asset forfeiture claim that the program is justifiable because it gives law enforcement leeway to go after bad guys that they can identify with their “sixth sense.” Was Serrano a bad guy who was nailed, albeit using a bad law?

Um…, not exactly.

Serrano is originally from Chicago but he’s lived on a farm in Kentucky for 20 years. A lifelong Republican, he unsuccessfully ran for a seat in Kentucky’s House of Representatives in 2014 on an explicitly pro-Second Amendment platform. He describes himself as a civil libertarian, and has a concealed carry permit for a Sig Sauer .380 pistol he carries for self-defense. “I believe in freedom,” he said in an interview with The Washington Post. “That’s what made this country great, is our freedom, our liberty.”

Serrano sounds like a great American. If he’s an immigrant, I want more just like him.

He understands what’s really doing on.

“It’s like there’s a war going on and they want to make war with my Bill of Rights,” he said. “How do they get away with this? How could this happen?”

For what it’s worth, I hope Senator Rand Paul (who is willing to fight for liberty) place a “hold” on all nominations to the Justice Department and Department of Homeland Security until and unless the government returns Serrano’s truck and compensates him for mistreatment.

Let’s close with some additional excerpts from the column that explain the injustice of civil asset forfeiture.

Many Americans haven’t heard of civil asset forfeiture, the legal provision that grants police the authority to seize cash and property from people not charged with a crime. The practice doesn’t follow the traditional American concept of “innocent until proven guilty.” If police suspect that you acquired something as a result of illegal activity, or even if it is connected to illegal activity, they can take it from you. If you want to get it back, the onus is on you to prove you got it legally. Once property is seized and forfeited, in most states and at the federal level police can either keep it for themselves or sell it at auction to raise money for the department. Critics say this creates a perverse profit motive. …said Robert Johnson, Serrano’s attorney. “That’s an open invitation to abuse.” The practice is widespread. In 2014, for instance, federal law enforcement officers alone took more than $5 billion worth of cash and property from people — more than the total amount of reported burglary losses that year. After public outcry, the Obama administration put in place a number of restrictions on forfeiture that made it harder, in some cases, for authorities to take property without a criminal conviction. But Attorney General Jeff Sessions recently reversed those restrictions.

Every sentence of the above passage is spot on. Including the last two sentences. The Obama Administration actually took a small step in the right direction, but that was reversed in a terrible move by Trump’s Attorney General.

And here are some excerpts from a column published by CapX.

…asset forfeiture lets government agents seize Americans’ assets (cash, but also cars and even houses) on the mere suspicion that they were involved in a crime. Asset forfeiture is intended to deprive criminals of their ill-gotten gains, but frequently enables police to take the property of Americans who remain innocent in the eyes of the law. …Asset forfeiture primarily targets the poor. Most forfeitures are for small amounts: in 2012, the Institute for Justice, a libertarian law firm that has focused heavily on asset forfeiture, analyzed forfeiture in 10 states and found that the median value of assets seized ranged from $451 (Minnesota) to $2,048 (Utah). Given that law enforcement routinely takes everything they find in a forfeiture case, these small values suggest the relative poverty of the victims. The procedural hurdles for challenging asset forfeiture also mean that poor people are less able to get their money back. The average forfeiture challenge requires four weekdays in court; missing four days of work can be a prohibitive expense for Americans living paycheck to paycheck. …Asset forfeiture is especially dangerous for the unbanked, because police and federal agents consider high amounts of cash to be suspect. …Asset forfeiture functions as a regressive tax, which reduces low-income Americans’ economic mobility. A family that sees their savings wiped out has to start again from the bottom. A person whose cash rent payment is seized may turn to payday loans or the black market, or simply be evicted—none of which are conducive to upward mobility.

Civil asset forfeiture is reprehensible.

The fact that poor people are disproportionately harmed is awful (and pervasive in parts of the criminal justice system).

P.S. To their credit, the first two administrators of the federal government’s civil asset forfeiture program now recognize that it’s become an abusive monster and want it repealed.

P.P.S. It’s possible that the border bureaucrats were acting because of bias, of perhaps profiling Serrano because of his Latino heritage. But I never hurl that accusation without some real evidence. Unlike some people.

Unsurprisingly, “Free” Healthcare from Government Is Very Expensive

In a strange way, I admire Bernie Sanders. He openly embraces big government. Back during the 2016 campaign, I frequently observed that the difference between the Vermont Senator and Hillary Clinton is that he wanted America to become Greece at a much faster rate.

Well, he just installed a turbo-charged engine and stepped on the accelerator. He’s proposed a single-payer healthcare scheme that is being called “Medicare for all.”

According to Sanders and other advocates, the government’s health system is a good role model: People pay a tax while working and they get health care when they’re old. But there’s a not-so-slight problem with that approach. For every dollar that Medicare recipients paid to the program, taxpayers are financing three dollars of spending.

That approach is workable (though only in the short run) for Medicare. But it won’t work if government is paying for everyone’s health care.

So even Bernie admits that a tax increase will be necessary. And not just any tax hike. He’s proposing the biggest tax hike in the history of the United States. Heck, it’s the biggest tax hike in world history. Here are some of the frightening details, as reported by the Washington Post.

The Medicare for All legislation backed by Sen. Bernie Sanders (I-Vt.) and 16 Senate Democrats does not include details on how it might be paid for. …Sanders’s Senate office released a white paper on possible ways to pay for the legislation.

He starts with a giant payroll tax of 11.5 percent (on top of the 15.3 percent payroll tax that already exists).

The taxes themselves would fall on both employers and employees. Sanders floats the idea of a 7.5 percent tax on employers… Another tax, of 4 percent, would hit individuals.

To understand what this means, just contemplate the disastrous impact of Obamacare on the job market.

Sanders also has a big class-warfare tax hike.

The next big slice of funding: higher tax rates on the very wealthy. Income…$250,000…higher…would be hit harder, on an upward sliding scale, ending at a 52 percent tax on income over $10 million.

By the way, imposing a tax is the easy part. Collecting revenue will be a much harder task, especially since Sanders wants to take the very successful experiment of the 1980s and run it in reverse. He also wants a big levy on banks (foreign financial institutions are probably praying for that outcome), an extra layer of tax on American companies competing in world markets (foreign corporations are cheering for that one), along with a huge boost in the death tax and the imposition of a wealth tax (lawyers and accountants doubtlessly are licking their chops).

Sanders imagines a tax on financial institutions worth more than $50 billion, a one-time tax on offshore profits (an idea that is continually floated then sunk in tax reform negotiations), a higher estate tax (topping out at 55 percent), and a 1 percent wealth tax on the richest 0.1 percent of households.

That’s all the tax hikes listed in the Washington Post story, but Sanders also has some additional material on his office website.

A huge increase in the double taxation of dividends and capital gains (particularly when you consider that personal tax rates will be much higher.

…end the special tax break for capital gains and dividends on household income above $250,000, treating this income the same as income earned from working.

A restriction on itemized deductions.

…itemized deductions would be capped at 28 percent for households making over $250,000. In other words, for every dollar in tax deduction a high-income household could save at most 28 cents.

For what it’s worth, I don’t like the state and local tax deduction and the charitable deduction, and I also don’t like preferences for housing.

But I want to eliminate such distortions only if the revenue is used to finance lower tax rates, not to finance bigger government.

That being said, let’s get back to our list. Sanders has a special tax targeting small business.

…ensure that all business income of high-income people would be subject to the existing 3.8 percent tax to fund Medicare, either through the net investment income tax or the additional Medicare tax on earned income.

Last but not least, he wants to skim $112 billion over 10 years from corporations by manipulating accounting rules.

…eliminate the “last-in, first-out” (LIFO) accounting method.

The bottom line is that Sanders, in one fell swoop, would saddle America with a European-sized government. And that would mean European-level taxes. The only thing that’s missing is he didn’t propose a value-added tax.

Though I’m sure that would get added to the mix since the huge increase in the government’s fiscal burden would retard growth. And since that would mean sluggish revenue, politicians would seek another way to extract more money from the economy’s productive sector.

P.S. I’m a policy wonk rather than a political tactician, but my guess is that Bernie is misreading the mood of the American people. Yes, “free” healthcare sounds nice, but people get understandably scared when they get a price tag. This is why single-payer was repealed in Bernie’s home state. And it’s why Colorado voters rejected a similar scheme by a landslide margin.

Private Sector vs Government: The Humor Version

I’ve made very serious (and hopefully substantive) arguments about why small government and free markets are the recipe for prosperity.

Simply stated, profit and loss is a powerful feedback mechanism, and entrepreneurs and business owners who want to make money face constant pressure to attract consumers by offering better products at affordable prices.

These forces are so powerful that the private sector even does a good job in some areas that most people assume are reserved for government, such as criminal justice, roads, and airport security.

But let’s examine this issue today from a whimsical perspective. I found a couple of clever images on Reddit‘s libertarian page.

Here’s the first example, which will make instantaneous sense for anyone who’s ever walked into a McDonald’s and a DMV on the same day.

The second example is more elaborate, but makes a similar point. Those of us with gray hair have seen the amazing developments produced by the private sector in this collage.

But can anyone think of something that has improved in the public sector?

For what it’s worth, the two cars in the column for the private sector don’t look that different. But, once again, those with gray hair will probably remember how often they used to break down in the past. The computerized engines have greatly improved operations and maintenance. Not to mention map programs, built-in TVs for the kids in the back seat, and other positive changes.

Let’s close with a serious point. Yes, business owners are greedy. They’re looking out for their own self interest. They would love to charge us high prices.

But a system of free enterprise means that they can only earn money if they cater to our needs and wants. And so long as politicians aren’t showering them with bailouts, subsidies, protection, or handouts, that means they compete to provide us ever-better goods and services at ever-more-affordable prices.

In other words, Adam Smith was right.

Government Run Amok at the Bureau of Alcohol, Tobacco, and Firearms

The Bureau of Alcohol, Tobacco, and Firearms (BATF) must be anxious to get on my list of government bureaucracies that shouldn’t exist.

The bureaucrats have engaged in some really silly and petty behavior (such as confiscating Airsoft toy guns because they might be machine guns), and they’ve engaged in some behavior that is criminally stupid and dangerous (running guns to Mexican drug gangs as part of the “Fast and Furious” fiasco).

Now we have another example. Though it’s so bizarre that I’m not sure how to classify it. Basically, the bureaucrats created an illegal slush fund, and then used the money illegally.

The New York Times has been on top of this story. Here are excerpts from the latest report.

For seven years, agents at the Bureau of Alcohol, Tobacco, Firearms and Explosives followed an unwritten policy: If you needed to buy something for one of your cases, do not bother asking Washington. Talk to agents in Bristol, Va., who controlled a multimillion-dollar account unrestricted by Congress or the bureaucracy. …thousands of pages of newly unsealed records reveal a widespread scheme — a highly unorthodox merger of an undercover law enforcement operation and a legitimate business. What began as a way to catch black-market cigarette dealers quickly transformed into a nearly untraceable A.T.F. slush fund that agents from around the country could tap. …One agent steered hundreds of thousands of dollars in real estate, electronics and money to his church and his children’s sports teams, records show. …At least tens of millions of dollars moved through the account before it was shut down in 2013, but no one can say for sure how much. The government never tracked it.

Oh, by the way, the BATF was breaking the law.

Federal law prohibits mixing government and private money. The A.T.F. now acknowledges it can point to no legal justification for the scheme.

But you won’t be surprised to learn that there have been no consequences.

…no one was ever prosecuted, Congress was only recently notified, and the Justice Department tried for years to keep the records secret.

And it’s also worth noting that this is also a tax issue. As I’ve noted before, high tax rates encourage illegality.

Though cigarettes are available at any corner store, they are extraordinarily profitable to smuggle. That’s because taxes are high and every state sets its own rates. Virginia charges $3 per carton. New York charges $43.50. The simplest scheme — buying cigarettes in Virginia and selling them tax-free in New York — can generate tens of thousands of dollars in illicit cash. By some estimates, more than half of New York’s cigarettes come from the black market.

By the way, I can help but wonder why the federal government is engaging in all sorts of dodgy behavior to help enforce bad state tax laws. Yes, I realize the cigarettes are crossing state lines, but so what? The illegal (but not immoral) behavior occurs when an untaxed cigarette is sold inside the borders of, say, New York. Why should Washington get involved?

In other words, I like the fact that borders limit the power of government. It’s why I don’t like global schemes to undermine tax competition (why should Swiss banks be required to enforce bad U.S. tax law?), and it’s why I don’t like the so-called Marketplace Fairness Act (why should merchants in one state be required to enforce the sales taxes of other states?).

But I’m digressing.

Let’s get back to the Bureau’s misbehavior. Here’s some additional reporting from the U.K.-based Times.

A US government crime-fighting agency ran a secret bank account that its employees used to buy luxury cars, property and trips to casinos. Officers for the Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF), charged with investigating smuggling and gun crimes, built up a slush fund worth tens of millions of dollars through illicit cigarette sales, ostensibly as part of an operation to catch traffickers. The scandal is the latest controversy to hit the agency, which has been criticised in recent years for lack of accountability and allowing the flow of guns and drugs to go unchecked. …Cash from the slush fund generated at an ATF field office in Bristol, Virginia, …funded activities such as a trip to Las Vegas, donations to agents’ children and the booking of a $21,000 suite at a Nascar race.

And what about the overall BATF bureaucracy? Well, it’s getting some unfavorable attention. Keep in mind that this scandal is on top of the “Fast and Furious” scandal of the Obama years.

The ATF has said that it has “implemented substantial enhancements to its policies, and has markedly improved leadership, training, communication, accountability and operational oversight”. Under the previous administration, it was widely derided for a botched weapons operation known as “Fast and Furious”. The agency allowed licensed firearms dealers to sell weapons to illegal buyers, hoping to track the guns to Mexican drug cartel kingpins. But out of the 2,000 firearms sold, only a fraction have been traced. The secret account scandal has renewed calls from across the political spectrum for the department of about 2,000 agents to be reformed or shut down.

Last but not least, I think we have a new member of the Bureaucrat Hall of Fame.

Thomas Lesnak, a senior ATF investigator, began the scheme. …Mr Lesnak retired with his pension and was not reprimanded.

Just like Lois Lerner and the IRS, engaging in corrupt and crooked behavior and then escaping any punishment.

Maybe the two of them should hook up? They’d make a great couple. I’m sure they could even figure out a way to make taxpayers finance their wedding and honeymoon.

P.S. The “Fast and Furious” scheme was just one of scandals that occurred during the Obama years, but it may have been the most foolish. Didn’t anybody at the BATF realize that it wasn’t a good idea to funnel weapons to Mexican drug gangs?!?

P.P.S. The silver lining to that dark cloud is that we got a couple of good one-liners about the Obama Administration’s gun-running scandal from Jay Leno and Jimmy Fallon.

Income Trends, the Middle Class, and American Prosperity

Let’s consider some good news about America.

Some folks on the left like to claim that the middle class is shrinking and that therefore we need bigger government and more redistribution to protect these Americans from falling into poverty.

Well, the first half of that statement is true. The middle class is becoming smaller. But here’s the good news. As I noted in 2015 when sharing some data from Pew, the middle class is shrinking because more and more households are earning six-figure incomes.

Now we have more confirmation. Courtesy of Mark Perry of the American Enterprise Institute, here’s a nice chart based on data from the Census Bureau’s new report on income and poverty in the United States.

Want to feel even better?

In a column for CNBC, Professor Daniel Smith of Troy University explains that government data understates the improvements in living standards. He points out that total compensation has increased much faster than wages.

Complaints that the rich are getting richer while the majority have hit a brick wall in wage growth have led to calls to impose regulations and taxes aimed at creating a “fair” economy. This mantra, however, is wrought with holes and erroneous interpretation of the data… Over the last few decades, employees have been receiving an increasingly larger portion of their overall compensation in the form of benefits such as health care, paid vacation time, hour flexibility, improved work environments and even daycare. …Total compensation, which adds these benefits to wages and salaries, shows that earnings have actually increased more than 45 percent since 1964.

And he notes that income gains are understated if measured against the PCE index rather than the consumer price index.

Furthermore, “purchasing power,” the amount of stuff people can buy with each dollar, has changed dramatically… CPI is notorious for overstating inflation, and thus understating the growth of real wages received by workers. Adjusting the data with the more appropriate Personal Consumption Expenditure index brings the growth in average hourly wages from 5.58 percent to more than 35 percent and the growth in total compensation of employees from more than 45 percent to more than 87 percent.

The bottom line is we’re able to buy more and better for less work.

But even that index fails to grasp the drastic increase in what workers get for their wages. …100.5 hours of work was required to purchase a washing machine in 1959 compared to just 23.3 hours of work (for the average worker) in 2013. Purchasing a TV demanded an astounding 127.8 hours of work in 1959, whereas a worker in 2013 could purchase one with only 20.7 hours of work. Moreover, the improved quality of these goods over the past few decades is staggering. …Today’s iPhones and other smart-phone models seem like a different species from their predecessors… We’ve seen the same progress in knee-replacement surgeries, computers, the Internet, vacuum cleaners, and other technologies we’ve come to rely on.

Professor Smith wrote this piece back in 2014, but these arguments apply just as well today as they did back then.

Though I don’t want to be a Pollyanna. There are very worrisome trends in our economy, especially increased dependency and reduced labor force participation.

So if you prefer to look at the glass as being half empty, Nicholas Eberstadt of the American University authored an article that is very pessimistic assessment about recent trends.

It turns out that the year 2000 marks a grim historical milestone of sorts for our nation. For whatever reasons, the Great American Escalator, which had lifted successive generations of Americans to ever higher standards of living and levels of social well-being, broke down around then—and broke down very badly. …it should be painfully obvious that the U.S. economy has been in the grip of deep dysfunction since the dawn of the new century. …It took America six and a half years—until mid-2014—to get back to its late 2007 per capita production levels. And in late 2016, per capita output was just 4 percent higher than in late 2007—nine years earlier. By this reckoning, the American economy looks to have suffered something close to a lost decade. …Between 2000 and 2016, per capita growth in America has averaged less than 1 percent a year. To state it plainly: With postwar, pre-21st-century rates for the years 2000–2016, per capita GDP in America would be more than 20 percent higher than it is today. …If 21st-century America’s GDP trends have been disappointing, labor-force trends have been utterly dismal. Work rates have fallen off a cliff since the year 2000 and are at their lowest levels in decades.

I don’t disagree with any of this. Growth has been weak this century.

Which is hardly a surprise since we’ve seen an erosion of economic liberty (thanks Bush and Obama!).

But I also want to keep things in perspective. Weak growth is better than no growth. Our living standards are increasing, even if they could – and should – be rising at a faster clip.

So let me swing back to the Pollyanna side by sharing a chart which ostensibly is bad news because it shows rising inequality. But I view it as good news because it shows that all of us are at least 40 percent richer – in real terms – than we were back around 1980.

By the way, Thomas Sowell has pointed out that higher-income households tend to do better because they have more people working, while lower-income households feature lots of dependency. Moreover, if Professor Smith and others are right, the increase in living standards is far greater than what this chart shows anyhow. But even if you accept this data at face value, we are all getting richer over time.

Yes, growth rates should be faster and incomes should be climbing more rapidly. Especially at the bottom. Whether you look at global data or country-specific data, that’s an argument for free markets and small government.

As I wrote last year, we don’t need perfect policy to get more prosperity. Just give the private sector some breathing room.

Good Tax Reform Requires Loophole Closing, not Just lower Tax Rates and Less Double Taxation

If tax policy was a religion, the Holy Trinity of reform would be very straightforward.

• Lower tax rates in order to encourage more productive behavior.
• Get rid of double taxation in order to enable saving and investment.
• End distorting preferences in order to reduce economically irrational decisions.

But if tax policy was a meal, the first two items would be the dessert and the last item would be the vegetable. Simply stated, politicians like lowering tax rates and reducing double taxation because that makes most people happy (at least the ones who actually pay tax).

But when you take away loopholes, the people who benefit from those preferences are unhappy. And they get very noisy. Interest groups hire lobbyists. Trade associations spring into action. Campaign contribution get dispensed.

If tax policy was a movie, it would be Revenge of the Swamp Creatures.

In this clip from a recent interview, I talk about some of the dessert, specifically a much-needed reduction in the corporate tax rate.

Bu today I want to focus more on the vegetables of itemized deductions.

Here’s some of what Reuters reported last month about the swamp gearing up to protect its privileges.

…industry groups and other sectors of society are gearing up to fight proposed changes to the personal income tax. …proposed changes to the personal tax code have already stirred opposition from realtors, home builders, mortgage lenders and charities.

And here’s a description of what might happen and the impact.

To simplify the tax code, Republicans have proposed eliminating nearly all tax write-offs including those for state and local taxes, then doubling the standard deduction. This would eliminate the incentive to itemize and should drastically reduce the number of taxpayers who do so. Currently, many taxpayers use itemized deductions, claiming write-offs for things like charitable contributions, interest paid on a mortgage and state and local taxes. If the standard deduction becomes larger, fewer taxpayers will need to itemize, reducing the incentive to hold a mortgage or contribute to charity. …Estimates suggest more than half of taxpayers would stop itemizing under the proposed plan.

Should we hope that these reforms occurs? If people lose or forego itemized deductions, would that be a good outcome?

As a long-time fan of the flat tax, I’m obviously not a fan of these preferences. Though I always stress that I only want to get rid of loopholes if the money is used to finance lower tax rates. At the risk of stating the obvious, I don’t want the money being used to finance bigger government.

Let’s see what others have said, starting with Justin Fox’s column for Bloomberg. He’s not happy that loopholes disproportionately benefits taxpayers with above-average incomes.

Let’s talk about upper-middle-class entitlements, the subsidies that flow almost entirely to those in the upper fifth or even tenth of the income distribution. …Why do these subsidies continue…? Mainly, it seems, because they’ve been granted to a sizable, influential population who, it is feared, will fight any effort to take them away. There are other interested parties, too — the real estate industry and mortgage lenders in the case of the mortgage interest deduction… But mainly it’s the millions of upper-middle-class Americans who, like me and my family, are beneficiaries of tax subsidies.

He’s right. I’m more upset about the economic distortions these preference create, but there’s no doubt that upper-income taxpayers reap most of the benefits.

Here’s his conclusion, which I think is spot on.

…if these tax breaks had never become law, no one would really miss them. Houses might cost a bit less. College might be slightly cheaper. Income tax rates might be a little lower. The economy might run a little bit more smoothly. So … how do we get to that place from here?

By the way, Fox includes a chart showing how richer taxpayers get more benefit from the mortgage interest deduction.

That’s certainly true, and I’ve previously shared data showing how the middle class gets almost nothing from itemized deductions compared to high-income taxpayers.

Let’s focus specifically on those goodies for the rich. This chart from the Tax Foundation reveals that the state and local tax break is especially lucrative.

For what it’s worth, the state and local deduction is my least favorite, so I’d like to see this chart change.

Though the healthcare exclusion may do even more economic damage (I assume it’s not included in the above chart since it’s an exclusion rather than a deduction).

But the bottom line of today’s column is that we’re not going to get the dessert of lower tax rates unless policy makers are willing to eat some vegetables – i.e., get rid of some tax preferences. Or, to be more exact, it will be impossible, given congressional budget rules, to have any sort of meaningful permanent reforms of the tax system unless there are revenue raisers to offset the tax cuts.

P.S. In any discussion of tax preferences, it’s important to properly define a loophole. Folks on the right generally think income should be taxed only one time (technically, they favor “consumption-base” taxation). So a loophole is a provision that results in zero tax on a particular activity.

Folks on the left generally think the tax code should impose double taxation (technically, they favor “Haig-Simons” taxation). So they have a much bigger list of loopholes, mostly focused on provisions that limit the extra layers of tax imposed on income that is saved and invested. 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.

By the way, Justin Fox presumably is in the Haig-Simons camp since his column treats the capital gains tax and 401(k)s as loopholes. But he cited one of my columns, so I can’t bring myself to criticize him.

P.P.S. It (almost) goes without saying that many folks on the left want to curtail tax breaks. They openly argue that it is good to divert a larger share of income into the hands of politicians and in order to facilitate bigger government. Some of them are even honest enough (crazy enough?) to openly assert that all income belongs to the government.