Latin America and Fiscal Suicide

The economic policy lessons from Latin America are very clear.

There’s one unambiguous success story (at least until the past couple of years), one semi-decent success story, and then a bunch of utter failures.

What’s interesting (and tragic) is that the failures teach different lessons.

• We learn about long-run socialist suffering from Cuba.
• We learn about rapid socialist collapse from Venezuela.
• We learn about gradual socialist collapse from Argentina.

And if we pay attention to the region, we can expect more collapse.

Why? Because left-wing governments are now in charge and sensible people are moving their money where it can’t be confiscated.

In an article for Bloomberg, Ezra Fieser and Andrea Jaramillo report on people taking their money out of Latin America.

As every major country in Latin America shifts to the left…, capital is flying out of the region. Wealthy and, increasingly, middle-class investors are looking for a Plan B… People and corporations in the region’s five largest economies pulled roughly $137 billion out of their countries in 2022. That number—preliminary data from the Institute of International Finance, a group of banking institutions—is 41% higher than the 2021 figure and the most since 2010. …popular destinations include the Dominican Republic, Panama, Spain and the US. …Each time a leftist gets elected, money pours into South Florida, says Raul Henriquez, chairman of Insigneo Financial Group LLC, a wealth manager in Miami. …Often called a “pink tide,” this shift toward socialism dates to 2018, when Andrés Manuel López Obrador swept into power in Mexico. Leftists prevailed in Argentina in 2019, Chile and Peru in 2021, and Brazil and Colombia last year. “This is a historic event we’ve never before seen—the entire region has gone pink on us,” says Talbert Navia… Mauricio Cárdenas, a former Colombian finance minister, says capital flight is playing a role and could make it difficult to enact socialist policies.

If you want to know why people and/or their money are escaping, read this article from Americas Quarterly by José Antonio Ocampo, who is now Colombia’s Finance Minister.

Latin America can return, of course, to the path of growth, employment, and improvement in social conditions. But this implies a significant increase of fiscal resources… A key barrier is the generally weak level of tax revenue obtained by Latin American countries. In 2018, the average tax revenues in the region were 23.1% of GDP… One of the problems is the lack of income tax regimes with significant redistributive effects… supports the proposal for the introduction of a global minimum effective corporate tax rate of 25%. …countries should…adopt effective progressive wealth taxes on their residents.

By the way, Senor Ocampo used to be at the United Nations, where he enjoyed a tax-free salary while urging higher tax burdens on everyone else.

Also, I can’t resist pointing out that tax burdens in Latin America are already far too high. Ocampo wants a “path to growth,” but he apparently does not understand that today’s rich nations all became rich when the burden of government was very small.

Last but not least, the tax-free bureaucrats at the Organization for Economic Cooperation and Development in Paris continue to push for bad policies.

Here is some of the nonsense included in the bureaucracy’s latest Economic Outlook for the region.

…a fiscal sustainability framework focused on strengthening public revenues will be required… In the medium term, the region will have to focus on generating more progressive and greener fiscal pacts, with the aim of increasing tax collection and strengthening direct income and property revenues. …it is essential that social protection systems have funding sources that will ensure their financial sustainability. This can be achieved, in part, by increasing tax revenues… Innovative income support policies could be worth exploring to increase progressivity… A set of tax policy options are available in LAC that could help increase revenues… These include measures to…increase the progressivity of personal income taxes.

While the OECD should be condemned for pushing bad policy on poor nations, at least they deserve credit for consistency.

Nauseating Government Thuggery

It’s hard to pick the worst government policy since there are so many options.

• Death tax – The IRS penalizing saving and investment by grabbing money just because someone dies.
• Fannie Mae and Freddie Mac – Government entities that helped give us the 2008 financial crisis.
• OECD subsidies – American tax dollars flowing to a Paris-based bureaucracy that pushes for bigger government.
• Asset forfeiture – When bureaucrats steal money or property because they think a crime may have occurred.

Normally, I might argue that asset forfeiture is the worst policy. It is reprehensible that government officials seize property without ever convicting someone of a crime.

Of sometimes without even charging someone with a crime.

But there’s a version of asset forfeiture that represents an impossible level of government depravity.

Here’s what George Will wrote for the Washington Post about a state government’s mistreatment of an elderly woman.

“Minnesota nice…” expires when grasping government wants to steal your house. Just ask Geraldine Tyler, 94, the Black grandmother… In 2010, alarmed by neighborhood disorder, Tyler, retired and living alone, moved from her Minneapolis condominium to a senior living center. She neglected to pay taxes on her one-bedroom condominium, and by 2015 the $2,300 due in back taxes — combined with penalties, interest and fees — brought her liability to $15,000. The county seized and sold her property for $40,000. Tyler is not challenging the propriety of the seizure or sale, but of the county’s home equity theft. Instead of returning $25,000 to her, the government, in a common act of legalized self-dealing, kept $25,000… Such predatory forfeiture is done by a dozen states and the District of Columbia, which took a $200,000 home from a man with dementia and a $133 tax debt.

Fortunately, the Supreme Court has an opportunity to end this odious practice.

Billy Binion of Reason shared some thoughts about the legal case.

The Supreme Court…heard arguments in a consequential case. The query before the justices: Was it unconstitutional when the government seized a woman’s home over an unpaid tax bill, sold it for more than the amount of the debt, and then kept the profit? …Multiple federal courts ruled against Tyler, who is now 94 years old, prior to her case’s ascension to the Supreme Court… Christina M. Martin, a senior attorney at the Pacific Legal Foundation…said…”the county should have taken the property, sold it, paid the debts from the proceeds, and refunded the remainder to Ms. Tyler. Instead, the county took everything.” It’s a line of thinking the Court appeared receptive to.

Let’s keep our fingers crossed that the Supreme Court rules against the Minnesota bureaucrats who are trying to steal money from an old woman.

I know Clarence Thomas is skeptical of this abusive practice. Let’s hope all of the other Justices join him in voting to return Ms. Tyler’s money.

And, in a just world, hopefully they will issue a broad ruling ending all versions of “policing for profit.”

Blue-to-Red Migration, Part I

I realize it’s not nice to take pleasure in the misfortune of others, but that rule does not apply when bad things happen to greedy politicians.

As such, I greatly enjoy reading about when taxpayers “vote with their feet” by moving from high-tax jurisdictions to low-tax jurisdictions.

I enjoy when there is tax-motivated migration between nations.

And I enjoy when there is tax-motivated migration between states.

Regarding the latter version, there’s a must-read editorial in the Wall Street Journal about the ongoing exodus from fiscal hellholes such as Illinois, New York, and California.

The IRS each spring publishes data on the movement of adjusted gross income (AGI) and taxpayers across state lines from year to year. …the IRS data shows blue states are losing taxpayers and income at an increasing clip. …a net 105,000 people left Illinois in 2021, taking with them some $10.9 billion in AGI. That’s up from $8.5 billion in 2020 and $6 billion in 2019. New York’s income loss increased to $24.5 billion in 2021 from $19.5 billion in 2020 and $9 billion in 2019. California lost $29.1 billion in 2021, more than triple what it did in 2019. By contrast, the lowest tax states added some $100 billion of income during the pandemic. Zero-income-tax Florida gained $39.2 billion—up from $23.7 billion in 2020 and $17.7 billion in 2019. About $9.8 billion of the total arrived from New York, $3.9 billion from Illinois, $3.7 billion from New Jersey and $3.5 billion from California. Texas was another winner, attracting a net $10.9 billion in 2021, which follows a gain of $6.3 billion in 2020 and $4 billion in 2019. Californians represented more than half of Texas’s income gain in 2021.

Congratulations to Texas and Florida. Having no income tax is definitely a smart step.

Here is a chart that accompanied the editorial.

By the way, migration is the headline event, but it is also important to pay attention to who is migrating.

The WSJ‘s editorial notes that the people leaving high-tax states tend to be economically successful.

The IRS data shows that the taxpayers leaving Illinois and New York typically made about $30,000 to $40,000 more than those arriving. Of Illinois’s total out-migration, 28% of the leavers made between $100,000 to $200,000 and 23% made $200,000 or more. By contrast, the average return of a Florida newcomer in 2021 was about $150,000—more than double that of taxpayers who left. High earners spend more, which yields higher sales tax revenue. This helped Florida post a record $22 billion budget surplus last year. California is forecasting a $29.5 billion deficit.

In other words, the geese with the golden eggs are flying away.

The Negative Economic Effects of State Death Taxes

I’ve written many times about the harmful consequences of the federal death tax. Simply stated, it is both immoral and foolish for the IRS to grab as much as 40 percent of someone’s assets simply because they die.

That drains private capital from the economy and is a de facto heavy tax on those who save and invest (triple or quadruple taxation!).

That’s the bad news.

The worse news is that some states augment the damage with their own death taxes. Here’s a map from the Tax Foundation showing which states shoot themselves in the foot.

For those curious, the estate tax is imposed on the dead person’s assets and an inheritance tax is imposed on the the people who inherit the dead person’s assets.

In both cases, it’s bad news.

How bad?

There’s some new research from a couple of scholars examining this topic. Enrico Moretti of Berkeley and Daniel J. Wilson of the San Francisco Federal Reserve have a study published by the American Economic Journal that quantifies the impact of state death taxes on location choices.

In this paper, we contribute to the literature on the effect of state taxes on the locational choices of wealthy individuals by studying how estate taxes affect the state of residence of the American ultra-rich and the implications for tax policy. …Specifically, we estimate the effects of state-level estate taxes on the geographical location of the Forbes 400 richest Americans between 1981 and 2017. We then use the estimated tax mobility elasticity to quantify the revenue costs and benefits for each state of having an estate tax. We find that billionaires’ geographical location is highly sensitive to state estate taxes. Billionaires tend to leave states with an estate tax, especially as they get old. …On average, estate tax states lose 2.35 Forbes 400 individuals relative to non–estate tax states. …—21.4 percent of individuals who originally were in an estate tax state had moved to a non–estate tax state, while only 1.2 percent of individuals who originally were in a non–estate tax state had moved to an estate tax state. The difference is significantly more pronounced for individuals 65 or older… Overall, we conclude that billionaires’ geographical location is highly sensitive to state estate taxes. …We estimate that tax-induced mobility resulted in 23.6 fewer Forbes 400 billionaires and $80.7 billion less in Forbes 400 wealth exposed to state estate taxes.

What makes the study especially persuasive is that state death taxes suddenly no longer could be offset against federal death taxes because of a policy change in 2001.

That meant post-2001 data should look different. And that’s exactly what the authors found, as illustrated in Figure 6 of the study.

Here are some final excerpts from the conclusion.

The 2001 federal tax reform introduced stark cross-state variation in estate tax liabilities for wealthy taxpayers. Our findings indicate that the ultra-wealthy are keenly sensitive to this variation. Specifically, we find that billionaires responded strongly to geographical differences in estate taxes by increasingly moving to states without estate taxes, especially as they grew older. Our estimated elasticity implies that $80.7 billion of 2001 Forbes 400 wealth escaped estate taxation in the subsequent years due to billionaires moving away from estate tax states.

By the way, the study said that most states still wind up collecting net revenue because of death taxes.

In other words, the death tax revenue from remaining rich people is generally greater than the foregone income tax revenue because of those who left.

But I wonder if those findings would be true if the authors had been able to measure the secondary effects such as lost sales tax revenue, lost property tax revenues, and (perhaps most important) lost income tax revenue from people who did business with escaping rich people.

But, regardless of the findings, it is always immoral and wrong for politicians to impose taxes simply because someone dies.

P.S. In Australia, people changed when they died because of the death tax.

P.P.S. In France, people changed who they were because of the death tax.

P.P.P.S. In Ireland, people pretended to change their sexual orientation because of the death tax.

Spending Caps are the Fiscal Gold Standard

Earlier this month, I wrote separate columns about the spending cap in Switzerland (the “debt brake“) and the spending cap in Colorado (“TABOR“).

In this clip from my appearance on Let People Prosper, I explain those spending caps are the gold standard for fiscal rules.

It should go without saying that spending caps are good only if they actually constrain the size of government, just as speed limits in school zones are good only if they protect children from reckless drivers.

Which is why I favor spending caps that comply with my Golden Rule.

As you might suspect, politicians generally don’t want any constraint their ability to spend money (and buy votes).

But sometimes they do the right thing. Or at least propose the right thing.

In an article for the Hill, Aris Folley and Mychael Schnell explain that Republicans are offering to give Biden more borrowing authority if Biden agrees to spending caps for the “discretionary” part of the budget.

Here are the relevant excerpts.

House Republicans on Wednesday passed a bill to raise the borrowing limit and implement sweeping spending cuts… The bill would raise the debt ceiling by $1.5 trillion or through the end of next March, whichever happens first, in exchange for a wide range of Republican proposals to decrease government spending that, according to the Congressional Budget Office (CBO), amount to $4.8 trillion. The bill would cap federal funding hashed during the annual appropriations process at fiscal 2022 levels, while also limiting spending growth to 1 percent every year over the next decade.

The good news is that Republicans are talking about spending caps. This is a welcome change of pace after the profligacy of the Trump years.

The bad news is that the GOP plan presumably has very little likelihood of getting approved.

And even if Biden and Senate Democrats somehow agree to the spending cap, it only applies to discretionary spending. That’s better than nothing, but entitlements are America’s big fiscal problem.

Moreover, keep in mind that Republicans got spending caps on discretionary spending back in 2011, but those caps were then abandoned after some early success.

In other words, I’m not brimming with optimism. But let’s not make the perfect the enemy of the good. Politicians are talking about spending caps today, so maybe there’s a chance of getting real results at some point in the not-too-distant future.

The European Union Threatens Global Prosperity with Carbon Protectionism

Recent years have been very depressing for supporters of free trade.

Trump pushed protectionist policies.

Now Biden is pushing protectionist policies.

And the European Union is pushing protectionist policies using global warming as an excuse.

More specifically, EU politicians and bureaucrats in Brussels have rammed through a so-called Carbon Border Adjustment Mechanism (CBAM), which is euro-speak for a new protectionist tax on imports that are not sufficiently green.

The Wall Street Journal‘s editorial summarizes some of the problems.

The European Parliament this week pulled the trigger on the opening shot in a new climate trade war. …Foreign companies that haven’t paid for carbon emissions at home will have to pay a tariff when exporting goods to Europe. …Climate coercion advocates say a tariff is needed to avoid “carbon leakage,” which is their term for the flight of manufacturing to countries with less onerous emissions restrictions. This is a tacit admission that Europe’s climate policies are failing. …European consumers won’t pay higher prices for greener goods unless the Brussels tax man forces them to. …Foreign companies and governments have raised concerns about the European carbon border tax, which imposes complex and costly compliance burdens and then imposes steep default tariffs on companies that don’t play along. China and India are in the crosshairs of this border tax, although companies from any country that doesn’t impose emissions taxes will have to pay. That includes U.S. firms. …Consumers will be the big losers, first in Europe and then elsewhere.

In his Bloomberg column, Professor Tyler Cowen pointed out some practical problems with the EU’s scheme.

There is a right and a wrong way to encourage the world to use greener energy. Unfortunately, the European Union’s move toward a carbon tax on imports — essentially a tariff on products made using too much dirty energy — is the latter. …Economic changes take place at the margin, and currently the EU is engaged in substitution toward coal, a very dirty energy source. …The tariffs will lead to more coal use and a dirtier energy supply. Be suspicious of green energy policies which at first make the problem worse. …So, despite about as strong an incentive as possible — a war — the EU made the harmful rather than the beneficial adjustment. Now it is expecting that much poorer nations, often with worse governance structures, to do better. Not only is this naïve, but it is also protectionist….it’s easy to imagine China and India not improving their energy policies as a result of EU tariffs. They, like the EU, have domestic pressure groups… In general, Western attempts to shape those nations have failed more than they have succeeded. So again the negative short-term results of the policy — more European coal use — could outweigh any longer-run benefits. Even the positive long-run effects are up for grabs. …the tariff hike…makes the exporting nations poorer than they otherwise would be. Poorer nations tend to be less interested in improving their environments… And extreme poverty worsens other global problems… Should EU policy make it more difficult for Africa to industrialize? …Once protectionist measures are in place, they are hard to reverse. The EU would be reaping tariff revenue, and domestic EU industries would be receiving trade protection. Any reclassification of the imports as fundamentally “greener” would require an investigation across borders and clearance through multiple levels of bureaucracy. Such changes will not be easy to accomplish, especially in an era increasingly enamored of trade restrictions. …the most likely scenario will play itself out: The EU will spin its wheels, indulging in protectionism and feeling good about itself — all at the expense of our planet’s future.

The part about “reclassification of imports” is especially worrisome. For all intents and purposes, the EU will have a corruption-enabling process where industries on all sides will have incentives to hire lots of lobbyists.

That will line the pockets of bureaucrats who “retire” and become facilitators, but it won’t be good for anyone else.

Last but not least, Tori Smith explained for American Action Forum that the EU’s protectionist approach is a violation of trade commitments.

International trade law and WTO experts such as Joel Trachtman of Tufts University and Jennifer Hillman of the Council on Foreign Relations have examined at length the areas where a CBAM might trigger a WTO violation… there do seem to be three principles to follow to have a “reduced risk of violating WTO law” when considering a CBAM: (1) the carbon tax must apply to domestic goods and imports; (2) imports from all WTO members must be treated the same; and (3) rebates for exports cannot exceed the carbon tax. …The EU’s CBAM could run afoul of these commitments because it gives special treatment to countries that already have a carbon price. … Compliance with WTO commitments should be a top priority when considering any new tariff or tax.

Sadly, the World Trade Organization already has been weakened, so I won’t be surprised if officials somehow decide to give a green light to the EU’s protectionism.

Which will be a shame since the WTO for many years actually did a good job.

P.S. You won’t be surprised to learn that the Biden Administration also is interested in carbon protectionism. Indeed, there was plenty of green protectionism is his misnamed Inflation Reduction Act.

The Federal Reserve and “Fiscal Dominance”

Appearing on Vance Ginn’s Let People Prosper, I discussed spending caps, entitlement reform, past fiscal victories, and potential future defeats.

For today, I want to highlight what I said about monetary policy.

The above segment is less than three minutes, and I tried to make two points.

First, as I’ve previously explained, the Federal Reserve goofed by dramatically expanding its balance sheet (i.e., buying Treasury bonds and thus creating new money) in 2020 and 2021. That’s what produced the big uptick in consumer prices last year.

And it’s now why the Fed is raising interest rates. Part of the boom-bust cycle that you get with bad monetary policy.

Second, I speculate on why we got bad monetary policy.

I’ve always assumed that the Fed goofs because it wants to stimulate the economy (based on Keynesian monetary theory).

But I’m increasingly open to the idea that the Fed may be engaging in bad monetary policy in order to prop up bad fiscal policy.

To be more specific, what if the central bank is buying government bonds because of concerns that there otherwise won’t be enough buyers (which is the main reason why there’s bad monetary policy in places such as Argentina and Venezuela).

In the academic literature, this is part of the discussion about “fiscal dominance.” As shown in this visual, fiscal dominance exists when central banks decide (or are forced) to create money to finance government spending.

The visual is from a report by Eric Leeper for the Mercatus Center. Here’s some of what he wrote.

…a critical implication of fiscal dominance: it is a threat to central bank success. In each example, the central bank was free to choose not to react to the fiscal disturbance—central banks are operationally independent of fiscal policy. But that choice comes at the cost of not pursuing a central bank legislated mandate: financial stability or inflation control. Central banks are not economically independent of fiscal policy, a fact that makes fiscal dominance a recurring threat to the mission of central banks and to macroeconomic outcomes. …why does fiscal dominance strike fear in the hearts of economists and financial markets? Perhaps it does so because we can all point to extreme examples where fiscal policy runs the show and monetary policy is subjugated to fiscal needs. Outcomes are not pleasant. Germany’s hyperinflation in the early 1920s may leap to mind first. …The point of creating independent central banks tasked with controlling inflation…was to take money creation out of the hands of elected officials who may be tempted to use it for political gain instead of social wellbeing.

A working paper from the St. Louis Federal Reserve Bank, authored by Fernando Martin, also discusses fiscal dominance.

In recent decades, central banks around the world have gained independence from fiscal and political institutions. The proposition is that a disciplined monetary policy can put an effective brake on the excesses of political expediency. This is frequently achieved by endowing central banks with clear and simple goals (e.g., an inflation mandate or target), as well as sufficient control over specific policy instruments… Despite these institutional advances, the resolve of central banks is chronically put to the test. … the possibility of fiscal dominance arises only when the fiscal authority sets the debt level.

The bottom line is that budget deficits don’t necessarily lead to inflation. But if a government is untrustworthy, then it will have trouble issuing debt to private investors.

And that’s when politicians will have incentives to use the central bank as a printing press.

P.S. Pay attention to Italy. The European Central Bank has been subsidizing its debt. That bad policy supposedly is coming to an end and things could get interesting.

TABOR’s Track Record: $8.2 Billion in Taxpayer Savings

The Center for Freedom and Prosperity has a video on spending caps that focuses on international evidence, such as Switzerland’s debt brake.

Here’s a video from the American Legislative Exchange Council that that looks at a successful domestic spending cap – Colorado’s Taxpayer Bill of Rights.

Here’s the short and simple explanation of how the Taxpayer Bill of Rights (TABOR) constrains spending.

Under the constitutional provision, state tax revenue cannot grow faster than population plus inflation. Any revenues above that amount have to be returned to taxpayers.

And since the state has a requirement for a balanced budget, that means that spending also can only grow as fast as population plus inflation.

Has TABOR been successful?

Colorado has out-performed other states, as measured by the growth of personal income, which presumably is a key variable.

Another key variable is the amount of money that TABOR has returned to taxpayers. Here are some excerpts from a new study, authored by Professor Barry Paulson and published by the American Legislative Exchange Council.

This year, the Colorado General Assembly announced a taxpayer rebate of $3.6 billion in surplus revenue. …These rebates are mandated by TABOR, a fiscal rule that limits the growth of revenue and spending at all levels of government and requires that surplus revenue be rebated to taxpayers. …It is important to understand why TABOR has been successful and resilient. TABOR is designed to limit the rate of growth in state revenue and spending to the sum of inflation plus the rate of growth in population while allowing a majority of voters to increase the revenue and spending limit when needed. This prevents many new taxes increases. If the state government collects more tax dollars than TABOR allows, the money is returned to taxpayers as a TABOR refund. …As a result, the state has not incurred deficits or accumulated debt as much as other states, like California. …tax rebates…totaling $8.2 billion since TABOR passed in 1992, has strengthened Colorado citizens confidence in the TABOR Amendment over the years.

The last sentence is key. TABOR has resulted in $8.2 billion in tax rebates. More important, it has prevented Colorado politicians from spending $8.2 billion.

Taxpayers seem to understand that TABOR is a very important protection against over-taxing and over-spending.

Here are some excerpts from a column by Ben Murrey of Colorado’s Independence Institute.

Every time voters speak on key issues related to TABOR, they send the same unambiguous message: “Leave TABOR alone and let us keep our money!” …In 2019 after voters gave Democrats unified control over state government, legislators thanked them by sending Proposition CC–which would have permanently ended TABOR refunds–to the November ballot, where Coloradans soundly rejected it. …In 2020, voters had the choice between two competing citizen-led ballot initiatives. One would have raised taxes and repealed TABOR’s requirement that Colorado maintains the same income tax rate for all taxpayers. The other, put on the ballot by my organization, Independence Institute, reduced the state’s income tax rate from 4.63 to 4.55 percent. The latter passed with a wide margin. The former failed even to gather enough signatures to appear on the ballot. …Fast forward to 2022. …Initiative 63 would have taken TABOR refunds from taxpayers and given the money back to the state to spend on public education. Like the tax increase measure from 2020, the initiative failed even to make the ballot. Conversely, Independence Institute worked to put Proposition 121 on the ballot. The measure won with more than a 30-point margin and lowered the state income tax rate from 4.55 to 4.4 percent, saving taxpayers over $400 million per year.

Colorado voters don’t always reject tax increases. At the local level, such measures often are approved.

But Murrey’s article shows that voters want to preserve TABOR and don’t want to give state politicians a blank check for more taxes and more spending.

Needless to say, a TABOR-style spending cap would be very helpful in other states. And at the national level as well.

P.S. The ALEC study looked at 30 years of evidence. There’s also a study that looked at the first 20 years of evidence.

Is Switzerland the World’s Best Nation?

In the past, I’ve referred to Switzerland as the world’s most sensible nation.

Does that make it also the world’s best nation?

I actually won’t try to answer that question, but we can say that Switzerland is the world’s most libertarian nation and a role model for others.

At least according to the Human Freedom Index, which ranks nations based on both economic and personal liberty.

Here are the 25 jurisdictions that lead the rankings.

For what it’s worth, Switzerland also was in first place the previous year.

New Zealand, which had been in first place in earlier years, still ranks very high. Estonia is in third place and several other European nations round out the top 10.

The United States, meanwhile, fell to #23, which is disappointing but predictable given the subpar politicians that have governed the nation this century.

But Hong Kong has suffered an even bigger fall. It’s now ranked #34, which is not good for a jurisdiction that used to lead the rankings as recently as 2016.

For those interested, here’s a description of how the Human Freedom Index is calculated, along with some of the grim findings.

The Human Freedom Index (HFI) presents a broad measure of human freedom, understood as the absence of coercive constraint. This eighth annual index uses 83 distinct indicators of personal and economic freedom… Human freedom deteriorated severely in the wake of the coronavirus pandemic. Most areas of freedom fell, including significant declines in the rule of law; freedom of movement, expression, association and assembly; and freedom to trade. On a scale of 0 to 10, where 10 represents more freedom, the average human freedom rating for 165 jurisdictions fell from 7.03 in 2019 to 6.81 in 2020. On the basis of that coverage, 94.3 percent of the world’s population saw a fall in human freedom from 2019 to 2020, with many more jurisdictions decreasing (148) than increasing (16) their ratings and 1 remaining unchanged. The sharp decline in freedom in 2020 comes after years of slow descent following a high point in 2007.

Here’s some additional analysis, most of it depressing.

The rating for France fell from 8.65 in 2007 to 7.8 in 2020, Brazil’s rating decreased from 7.61 to 6.86, the United States’ score dropped from 8.92 to 8.23, and Mexico’s rating fell from 7.27 to 6.6. … some countries that ranked high on personal freedom ranked significantly lower in economic freedom. For example, Sweden ranked 1st in personal freedom but fell to 33rd place in economic freedom, and Argentina ranked 29th in personal freedom but 161st in economic freedom. Similarly, some countries that ranked high in economic freedom found themselves significantly lower in personal freedom. For example, Singapore ranked 2nd in economic freedom while ranking 81st in personal freedom.

I’ll close by observing that Syria is the lowest-ranked nation, followed by Yemen, Venezuela, Iran, and Egypt.

P.S. Here are five more reasons to admire Switzerland.

Biden’s Messed-Up Housing Gambit

Perverse housing subsidies from two corrupt government-created entities, Fannie Mae and Freddie Mac, played a huge role in causing the 2008 financial meltdown.

Yes, bad monetary policy from the Federal Reserve provided the fuel, but Fannie Mae and Freddie Mac ensured that munch of the excess liquidity would flow into the housing sector.

The ideal response would have been to get rid of Fannie Mae and Freddie Mac, but politicians very rarely do the right thing.

So we got bailouts (Bush’s awful TARP scheme), which was bad enough, but every subsequent president has tried to make a bad situation worse.

Obama tried to expand intervention in the housing sector. Then Trump tried to expand intervention in the housing sector. And now Biden is trying to do the same thing.

The Wall Street Journal opined on a crazy proposal from Biden’s team a few days ago. Here are some excerpts.

Income redistribution is an abiding value of the Biden Administration, and now it wants to spread that to mortgage lending. A new rule will raise mortgage fees for borrowers with good credit to subsidize higher-risk borrowers. Under the rule, which goes into effect May 1, home buyers with a good credit score over 680 will pay about $40 more each month on a $400,000 loan, and upward depending on the size of the loan. Those who make down payments of 20% on their homes will pay the highest fees. Those payments will then be used to subsidize higher-risk borrowers through lower fees. This is the socialization of risk, and it flies against every rational economic model, while encouraging housing market dysfunction and putting taxpayers at risk for higher default rates. …selling people houses they can’t afford has never been a good idea. See the subprime loan collapse of 2008. …the Federal Housing Administration…want[s] to punish those who have maintained good credit while rewarding those who haven’t.

The editors of National Review are similarly disgusted by the Biden Administration’s scheme.

Here are parts of their editorial.

The federal government props up the housing market in too many ways to count. The U.S. is unique among rich countries in having the national government insure mortgages, guarantee mortgage securities, and finance mortgages with government-sponsored enterprises. …When government isn’t getting the results it wanted with all of its previous involvement, it tries a little more intervention to “fix” its previous interventions. To help out homebuyers with poor credit scores, the Federal Housing Finance Agency has decided that homebuyers with good credit scores will pay a little more for their mortgages. …FHFA director Sandra Thompson said the new rules…would “increase pricing support for purchase borrowers limited by income or by wealth.” But income and wealth are and should be limiting factors in lending. It’s not good for borrowers to take on loans that may prove beyond their means to pay back. …this policy reduces the incentive to be responsible…and…has the added twist of penalizing people with high credit scores. …That’s one way to get more poor decisions and fewer good ones.

For all intents and purposes, the Biden Administration wants more redistribution.

That’s not a good idea.

But it’s an especially dumb idea when the additional redistribution is spiced with moral hazard.

P.S. Some of my left-wing friends say the 2008 crisis was caused by “Wall Street greed.” I respond by asking them whether there was greed on Wall Street in the 1980s and 1990s, or at other times. They usually have to admit that greed is always present, so I then tell them greed only becomes a big problem when mixed with upside-down government policies.

P.P.S. We should get rid of Fannie Mae and Freddie Mac and every other version of government intervention in the housing sector. Including the entire Department of Housing and Urban Development.

Global Warming Silliness

I’m a great fan of nature, but our friends on the left seem a bit extreme.

• Self-styled environmentalists assert that you’re racist if you oppose their agenda.
• Some of them don’t believe in bathing.
• Or consider the ones who produce/use hand-cranked vibrators to reduce their carbon footprint.
• There are also self-proclaimed environmentalist who claim that climate change causes AIDS.
• Or that it causes terrorism.
• And some of them put together a ranking implying that Cuba is better than the United States.
• Others even want to start wars.

Today, though, let’s analyze the the supposed environmentalists who think children are a net minus to society.

A professor of history at the University of Chicago, Peggy O’Donnell Heffington, has a column in the Washington Post about this topic. Here are some excerpts.

One of the most striking trends is the number of students who have told me they feel robbed of the ability to have children, cheated out of parenthood by decades of climate denial and inaction by baby boomers and their own Gen X parents. My students are not alone. A global survey in 2021 of 10,000 people between the ages of 16 and 25 shows…60 percent told researchers they felt “very” or “extremely” worried about climate change. …nearly 4 in 10 said they were “hesitant to have children.” …the carbon footprint of a baby born in the United States is gigantic; having one fewer child cuts emissions far more than giving up airplanes, meat or automobiles. …My students aren’t talking about the carbon footprints of babies. They’re talking about grief, about a future that has been lost.

This is not a new issue, by the way. I wrote way back in 2009 about some people getting sterilized to make sure they don’t inadvertently create a kid.

As a libertarian, it’s not my role to tell people to have kids. Or not to have kids. But I can’t resist opining that it’s bizarrely illogical to get so depressed about the possibility of a warming planet.

Even if you fully believe every apocalyptic prediction from the most hysterical environmentalist (and support their radical agenda), the net impact of a few kids presumably is akin to pouring a glass of water in a big lake.

Yes, the water level changes, but the net impact is utterly trivial.

P.S. If you want climate humor, click here and here.

Government Debt Is Falling, but for a Very Bad Reason

I rarely write about the national debt for the simple reason that it is far more important to focus on the burden of government spending.

After all, improper spending saps economic vitality, regardless of whether it is financed with taxes, borrowing, or money printing.

But I’m writing about debt today because something very interesting has happened in the past few years.

From early 2020 to late 2022, profligate politicians increased the national debt by about $3 trillion, yet government debt actually  declined when measured as a share of economic output.

Here’s a chart from the St. Louis Federal Reserve Bank, which shows that over the past couple of years that debt has dropped from nearly 135 percent of GDP down to about 120 percent of GDP.

So what happened? How can debt explode, yet the debt burden simultaneously fall?

There’s one good answer and one very bad answer.

The good answer is that the economy fell into a terrible recession when the Coronavirus pandemic first began. And since GDP was falling while deficit spending was skyrocketing, that explains why debt spiked upwards in early 2020.

But as that downturn has faded, overall economic output (GDP) has recovered. And because GDP increased during that period faster than debt increased, it means less debt as a share of GDP.

Which is partly what is shown in the chart.

But there’s also a bad reason. Irresponsible monetary policy has saddled the economy with high rates of inflation.

In the short run, as explained by Veronique de Rugy of the Mercatus Center, this has made the debt burden appear smaller.

Government debt as a share of the U.S. economy is falling. This must mean President Joe Biden’s administration and Congress are practicing fiscal responsibility, right? No, it doesn’t. The main driver behind the reduction is inflation… The missing debt is nothing to celebrate when it’s due to inflation, something especially harmful for poorer Americans who see their living standards erode. …the inflation, which came as a surprise to so many, …led to the decrease in the debt-to-GDP ratio. According to an International Monetary Fund (IMF) fiscal monitor study, in countries with debt-to-GDP over 50 percent, for every 1 percentage point of unexpected inflation, the debt ratio will be reduced by 0.6 percentage points. This perfectly explains most of the debt-ratio decline. …The Biden administration has inadvertently reduced the debt-to-GDP ratio. But it has done it in the worst possible way, refusing to heed warnings of an inflation debacle and instill some fiscal common sense. This has made the work of the Fed harder, if not impossible, and life more difficult for rich and poor Americans alike.

There’s some wonkiness in the above excerpt, but all you really need to know is that high rates of inflation can reduce the value of financial assets. Especially assets (like government bonds) that pay low rates of interest.

This is a form of financial repression.

And it only works in the short run. In the long run, inflation leads to higher interest rates (as we are now observing).

So any short-run benefits are more than offset by higher long-run costs. Sort of the monetary version of my Fourteenth Theorem of Government.

P.S. History shows us that there is a very successful recipe for reducing large debt burdens.

More Hypocritical Leftists

I shared a clever video in 2011 exposing the hypocrisy of rich leftists. They claimed to support higher taxes, but refused to put their money where their mouths were.

Now we have a new version.

One difference is that the first video asked them on the spot to pay more tax. This time, Steve Moore merely asked them to pledge to voluntarily cough up some extra cash to the IRS.

And they refused. How predictable.

Steve should have further exposed their hypocrisy by directing them to Uncle Sam’s website that exists to accept voluntary payments.

Not that it would have made a difference. These leftists are engaged in moral preening, not serious policy.

Incidentally, I have debated rich statists on TV, telling them not to make the rest of us victims of their neurotic guilt feelings.

For what it’s worth, if they feel guilty having so much money, they should send some to me.

P.S. Germany also has guilt-ridden leftists who push for higher taxes.

P.P.S. It’s not just that rich leftists don’t pay extra tax. They also go out of their way to figure out how to pay lower taxes. Just look at the Clintons. And Warren Buffett. And John Kerry along with Joe Biden. As well as Gov. J.B. Pritzker and Bill Gates. Or any of the other rich leftists who want higher taxes for you and me while engaging in very aggressive tax avoidance.

A Grim Assessment of British Fiscal Policy

I have been very pessimistic in recent years about the United Kingdom. Now, having just finished giving speeches in Bristol and London, I’m even more pessimistic.

The core problem is that the burden of government spending has expanded dramatically in recent years, in part because of the pandemic.

But there’s been no move to undo the damage. Instead, the (supposedly) conservative governments of Boris Johnson and Rishi Sunak have kept the spigots open.

So there’s a new spending baseline showing a permanent expansion in the fiscal burden.

And this does not even include all the additional spending that almost surely will get added because of demographic change.

Sadly, none of the experts I met with on my trip expressed much hope of reversing the nation’s fiscal decline.

Indeed, most of them have a a glum outlook. Including the ones I didn’t talk to. For instance, Fiona Bulmer authored some depressing analysis for CapX about the U.K.’s faux conservatives.

Now a Tory government boasts that it is spending “£407 billion on support for families, jobs and businesses”, borrowing is at its highest level since the war – and that’s only the start. …Ministers, commentators, the Bank of England…seem to believe that we have now finally created a climate in which the magic money tree can flourish. …spending discipline has been completely abandoned over the past year. …We used to believe that individuals and businesses would always be better at spending their own money than government, instead we must now celebrate that the Department of Transport is giving people £50 vouchers to get their bikes mended. The problem is that once public spending becomes celebrated as a virtue then the culture of cost constraint disappears and every part of government will adopt the Oliver Twist approach and constantly come back for more.

As you might expect, governments that spend too much also have bad tax systems.

That certainly is true in the United Kingdom. But, as reported by the Economist, the U.K. seemingly tries to make taxes as punitive as possible.

People in England, Wales and Northern Ireland pay a basic rate of income tax of 20% on annual earnings over £12,570 ($15,612)… Britons must also pay national-insurance contributions (NICs) of 12% of weekly earnings over £242… Recent university graduates with student debt must pay an additional 9% on anything they earn over £27,295. A 40% income-tax rate kicks in at slightly over £50,000, which is when parents also begin to be taxed on a welfare payment known as child benefit. The result can be a 60% marginal tax rate for those with two children and a 70% rate for those with three. For every £1 earned above £100,000, you lose 50p of the £12,570 tax-free allowance; the allowance falls to zero if your income is £125,140 or more. That means at least a 60% marginal tax rate for high-earning taxpayers—rising to over 100% for parents who start losing tax-free child-care benefits as well. …Value-added tax…is levied at a 20% rate on most final purchases by consumers. …Britain has some of the highest taxes on property of any country in the OECD.

Is there any hope of fixing this mess?

That is unlikely, given the profligacy of today’s Tory politicians.

But there is a solution if any of them eventually decide to be on the side of taxpayers. Writing for CapX, Gavin Rice opines that it is time to reform the welfare state and limit spending growth.

Despite Thatcher’s revolutionary attempt to shift responsibility back onto individuals and families, …the welfare state has grown and grown. Since 1948, welfare spending has risen from £11bn to well over £200bn, in today’s money – that’s 18 times more spent on social security than under Clement Attlee’s supposedly socialist Labour government. …spending…has also risen as a proportion of national income from around 4% in 1947 to over 10% by 2019, and is projected to rise to over 12% by 2065. …to sustain even pre-Covid spending habits over the medium term, the Office for Budget Responsibility has estimated that taxes would need to rise by one third in order to stabilise debt… Britain has an ‘inverse pyramid’ society with a minority of working adults sustaining a majority of economically inactive citizens. …when public spending requirements outstrip that growth, there’s a problem.

Since it reflects my Golden Rule, I particularly appreciate the last sentence in the above excerpt.

But I don’t appreciate how recent British Prime Ministers have violated that rule.

Makes me wonder whether Boris Johnson and Rishi Sunak are doing more damage to good fiscal policy in the U.K. than George Bush and Donald Trump did to good fiscal policy in the U.S.?

A Libertarian Quandary in Canada

There’s much to admire about public policy in Canada, including good policies today (private air traffic control and no department of education) and good policies in the past (rigorous spending restraint in the 1990s).

But there are also mistakes. Like the fiscal policies of the current Prime Minister.

Today, we’re going to look at a controversy in the province of Ontario. Here’s a tweet from David Frum about education policy in his homeland.

As the Toronto Star reports, the provincial government (akin to a state government) is imposing controls on local school boards.

The Ontario government — citing concerns in areas such as writing and math where student achievement is lagging — wants more power over school boards’ academic priorities and better training for senior leaders. …Legislation tabled Monday by Education Minister Stephen Lecce would…give the government the authority to set the direction for student achievement — given the varying results across the province — especially in the basics of reading, writing and math, and to ensure all 72 publicly funded boards provide information on that progress to parents in a transparent and timely manner… The new legislation, which will go out for consultation this spring, comes after the province had to step in to supervise and reform the Peel public school board amid allegations of systemic racism.  …The province’s focus on the basics may be in response to parent concerns that boards are fixating too much on non-academic issues. …EQAO test results in math have been an ongoing concern, as have those in literacy, where roughly two-thirds of students in Grade 3 aren’t meeting the writing standard, which is equivalent to a B grade.

This story raises a quandary for libertarians.

Is it better the let the local school boards have more authority, even when they make bad decisions? Or is it better to have more sensible governance choices by the provincial government, even if it diminishes local authority?

The right answer, of course, it to ignore those two questions and instead embrace school choice. Especially since five Canadian provinces already have that sensible approach.

That way, parents who want crummy government schools can keep their kids in the current system and and parents who want quality education could choose a private school.

But if school choice is not an option, we’re back to a difficult fork in the road. Is it worth accepting more centralization to limit trendy nonsense by local school boards?

Definitely worth adding to our collection of libertarian quandaries.

Taliban Tax Tyranny

When I write about taxation, it’s normally to address core economic issues such as marginal tax rates and double taxation.

Or sometimes very wonky topics such as depreciation, carry forwards, and worldwide taxation.

But I confess my favorite tax-related columns involve bizarre example of taxation from around the globe.

For instance, I wrote back in 2015 about how the barbarians from the Islamic State (ISIS) discovered the Laffer Curve when they tried to grab too much money from the unfortunate people in the territory they controlled.

I wonder if the Taliban in Afghanistan will soon learn the same lesson.

Here are some excerpts from a Wall Street Journal report by Saeed Shah.

…most businesses in Kabul’s busy Mandawi market got by without paying their taxes. That changed when the Taliban swept to power. …The Taliban has managed to squeeze more tax revenue out of the country than the previous U.S.-backed governments, even as the economy collapses and most Afghans are struggling to afford food. …“We are creating a culture of tax paying, in spite of all our problems,” said Nooruddin Azizi, the Taliban commerce minister. …it isn’t an easy pitch to make to a country that has plunged deeper into poverty since the Taliban took over in 2021… The Taliban has restricted women from parts of the workforce, depriving many families of livelihoods. The World Food Program says that 92% of households are straining to meet their basic food needs, including millions on the verge of famine. …The owner of a grocery store, near the hat shop, said that business was down 50% but now he has to pay his taxes, which cost twice as much. …“If we don’t pay the taxes, I’m afraid of a beating or being put in jail.” …Taxes collected from small businesses have tripled.

Taxes have tripled? I imagine Joe Biden, Crazy Bernie, and Elizabeth Warren are very jealous.

But my guess is that the Taliban thugs will soon learn there are limits to how much tax people can or will pay.

P.S. Here are some comparatively benign examples of quirky tax policies in other nations.

• Bizarrely foolish tax policies, such as the German tax on online coffee sales that loses money for government.
• Heartening protests against government greed, such as Irish taxpayers refusing to pay a housing levy.
• Quirky examples of tax avoidance in Ukraine, Finland, Scotland, and Catalonia.
• Inexplicable taxation rules, such as porn being taxed at lower rates than high culture in Spain.
• Strange forms of tax enforcement, such as transgender tax collectors in Pakistan.
• Governments get very creative, such as a German plan to tax prostitutes with parking meters.
• Clever forms of tax avoidance, such as the Spanish theatre that gave free passes to patrons who bought lightly taxed carrots.
• X-rated tax protests, such as the brothel owner in Austria who provided free “services” to lower his tax bill.
• Two straight men getting married in Ireland to escape the nation’s death tax.

Another Honest Leftist Admits that Middle-Class Taxpayers Are in the Crosshairs

I have repeatedly pointed out that opponents of entitlement reform support big tax increases. And, as I explain in this segment from a recent presentation, they specifically support tax increases on lower-income and middle-class households.

Why do I assert that they support higher taxes on ordinary people? For the simple reason that there are not enough rich people to finance big government.

So this means, inevitably, that they support higher taxes on the rest of us (they probably support lots of debt-financed spending and central bank-financed spending as well).

Depending on where and how I make this argument, some people accuse me of being anti-Trump. Or anti-Biden.

Actually, I’m pro-math.

And there are some folks on the left who also understand this reality.

I’ve disagreed with many of her columns in the Washington Post, but Catherine Rampell deserves credit for honesty because her most-recent piece tells the truth about who will pay higher taxes as the burden of government increases. Here are some excerpts.

Democrats…wish to expand the social safety net, however, which requires — you guessed it! — more tax revenue. Democrats…claim…that all those safety-net expansions can be paid for solely by soaking “the rich.” …Alas, there’s not remotely enough money on those would-be money trees to pay for all the things that Democrats want. Or even the things that past Congresses have already committed to: Recall that the United States already has large fiscal deficits in the years ahead, even without creating new programs. …By all means, raise taxes on the ultrawealthy. …But if we really want a more robust welfare state, or even to sustain the welfare state we’ve already promised, that probably requires higher taxes from most of the rest of us, too.

At this point, I normally would state that Ms. Rampell deserves membership in my club of honest liberals. But she already is a member, thanks to a column she wrote two years ago.

I’ll close with the should-be-obvious point that any tax increases would be a bad idea, whether imposed on upper-income households or anybody else.

Which is why sensible people should resuscitate support for genuine entitlement reform.

Tax Day Humor

I shared IRS-themed humor during tax season in 2021 and 2022, so let’s make that a new annual tradition. In honor of this year’s tax-filing season, let’s start with a Reason video from Remy.

To help deal with IRS non-responsiveness, Joe Biden has pushed through a law to dramatically expand the IRS.

Here’s a look at some of the new bureaucrats at their induction ceremony.

You may be wondering how those agents we’re selected.

Thanks to the Babylon Bee, we now know the 17 qualifications.

I though eight of them were particularly amusing.

What will all these new IRS agents do?

I doubt they’ll be answering the phone. Instead, I think we’re more likely to see small businesses being harassed.

Here’s one example.

Lest anyone think all these bureaucrats are going to make our lives less pleasant, our final item reminds you that tax tax code isn’t oppressive because you can simply emigrate.

Though keep in mind that you can’t simply leave. Successful Americans can get hit by Soviet-style exit taxes if these choose to leave the country. And plenty of politicians want to make that system even worse.

P.S. We can always dream about the ideal tax system. And if that never happens, at least we can hope for a second-best tax system.

The United States Out-Performs Europe

The big fiscal fight in Washington is whether the United States should become a European-style welfare state.

In part, this is automatically happening because of demographic change and poorly designed entitlement programs. But there’s also a major effort by Joe Biden to accelerate America’s fiscal decline with massive expansions of redistribution and dependency programs.

There are two reasons why it would be a bad idea for the United States to become more like Europe.

1. Since there are not nearly enough rich taxpayers to finance big government, it would mean massive tax increases on lower-income and middle-class households.
2. It would sap economic vitality and depress growth, undermining the huge advantage Americans enjoy as measured by per-capita living standards.

Regarding the second point, here’s a chart that was part of a tweet from Stefan Schubert. It shows that the United States is widening it lead over the other nations of the G-7 (Canada, France, Germany, Italy, Japan, and the United Kingdom).

The above chart is from the Economist, and here are some excerpts from an accompanying article.

America remains the world’s richest, most productive and most innovative big economy. By an impressive number of measures, it is leaving its peers ever further in the dust. …America’s dominance of the rich world is startling. Today it accounts for 58% of the g7’s gdp, compared with 40% in 1990. Adjusted for purchasing power, only those in über-rich petrostates and financial hubs enjoy a higher income per person. Average incomes have grown much faster than in western Europe or Japan. Also adjusted for purchasing power, they exceed $50,000 in Mississippi, America’s poorest state—higher than in France. …Americans work more hours on average than Europeans and the Japanese. …they are significantly more productive than both. …Another lesson is the value of dynamism. Starting a business is easy in America, as is restructuring it through bankruptcy. The flexibility of the labour market helps employment adapt to shifting patterns of demand.

The most important sentence in that excerpt was the one about America’s poorest state (Mississippi) being richer than France.

That’s something to share the next time you’re talking with a leftist who thinks America should “catch up” with Europe.

P.S. I can’t resist sharing one more excerpt from the article. As you can see, the Economist does not approve of Biden-Trump protectionism.

…more likely their politicians are to mess up the next 30 years. Although America’s openness brought prosperity for its firms and its consumers, both Mr Trump and Mr Biden have turned to protectionism.

Excellent point. Hopefully the US eventually will have someone in the White House who understands that free trade makes the country more prosperous.

Swamp-Creature Republicans

I don’t like big-government Democrats, but I’m even more hostile to big-government Republicans.

That’s because the Democrats don’t lie to me. They openly advocate higher taxes and a bigger burden of government spending.

Many Republicans, by contrast, publicly proclaim their support for fiscal restraint, but they push for bigger government when they think voters are not paying attention.

And they do it for despicable reasons. They do what they know is bad solely to get campaign contributions.

Let’s look at a couple of examples of Republicans siding with big government.

Here are some excerpts from a column in Real Clear Policy by Professor Mario Loyola.

Why are anti-establishment Republicans embracing the special interest racket of Washington, D.C.? …in order for government to be able to redistribute wealth among various groups, it has become a free-for-all of rent-seeking special interests whose general preference is for government-created cartels designed to transfer wealth from unsuspecting working families to themselves. …Curiously, however, the very Republicans who tend to most bewail ‘the swamp’ are increasingly prone to embrace the policies that created it in the first place. …the spectacle of supposedly anti-swamp Republicans shilling for every special interest racket with lobbyists in Washington. …The sugar program’s throttling of production is…effective in transferring wealth from consumers to sugar producers… The ethanol program has led to an area the size of the state of Michigan being devoted to the production of corn ethanol instead of food, producing a fuel that is terrible for cars and for the environment and raises the cost of both food and gasoline.

Not all Republicans are in favor of these bad policies.

But sugar subsidies and the ethanol scam rank as some of the worst handouts in the entire budget.

So it’s disgusting when even one Republican sides with special interests over taxpayers and consumers.

The Export-Import Bank is another example of an indefensible handout.

For purposes of today’s column, the key takeaway is that I want Republicans to be small-government Reaganites, not establishment big spenders like Bush or populist big spenders like Trump.

P.S. A few years ago, Playboy put together an amusing comparison of Republicans, Democrats, and Libertarians.

A Good Year for Milton Friedman = a Bad Year for Teacher Unions

Back in 2013, I shared some research showing how school choice produced good results. Not just in terms of student achievement, but also benefits for taxpayers as well.

Since then, I’ve shared additional research showing how school choice generates good outcomes.

It seems that some lawmakers have learned the right lessons from these studies. Over the past three years, statewide school choice has been enacted in West Virginia, Arizona, Iowa, Utah, Arkansas, and Florida.

In his Wall Street Journal column, Bill McGurn celebrates this wave of victories.

It’s been a good year for Milton Friedman. The Nobel Prize-winning economist has been dead for nearly two decades. But the moment has come for the idea that may prove his greatest legacy: Parents should decide where the public funds for educating their children go. Already this year, four states have adopted school choice for everyone—and it’s only April. …Florida is the most populous state to embrace full school choice. It follows Iowa, Utah and Arkansas, which passed their own legislation this year. These were preceded by West Virginia in 2021 and Arizona in 2022. More may be coming. Four other states—Oklahoma, Ohio, Wyoming and Texas—have legislation pending. …Corey DeAngelis, a senior fellow with the American Federation for Children, says the mood has shifted. …“I wish Milton Friedman were alive today to see his ideas finally come to fruition,” Mr. DeAngelis says. “The dominos are falling and there’s nothing Randi Weingarten and the teachers unions can do about it.”

My fingers are crossed that Texas approves school choice in the few days, but rest assured I’ll celebrate if Oklahoma, Ohio, or Wyoming is the next domino.

P.S. I’m writing today about school choice in part because I’m in Europe as part of the Free Market Road Show and one of the other speakers is Admir Čavalić, who is both an academic and a member of parliament from Bosnia and Herzegovina. Along with two other scholars, Damir Bećirović, and Amela Bešlagić, he did research on support for school choice in the Balkans. Here are some of the responses from parents.

It’s very encouraging to find Serbs, Croats, and Bosnians agreeing on an issue. Maybe their governments eventually will adopt school choice, thus joining  Sweden, Chile, Canada, and the Netherlands.

Norway’s Self-Destructive Wealth Tax

The economic argument against wealth taxation is very straightforward.

Such a levy is akin to a very high marginal tax rate on saving and investment.

Indeed, it’s quite possible that the effective tax rate would exceed 100 percent.

That definitely penalizes capital formation, which ultimately means workers will earn less money.

There’s also a practical argument against wealth taxation, which is based on the daunting challenge of revaluing assets every year.

There’s a competitiveness argument as well, and that’s our topic today.

Simply stated, rich people are not sheep, patiently waiting to be sheared. If their fiscal torture is too extreme, they will leave.

And this is not just theorizing.

In an article for the U.K.-based Telegraph, Charlotte Gifford reports on how Norway’s higher wealth tax is backfiring.

Mr Røkke, an industrial tycoon with an estimated net worth of Nkr 19.6bn (£1.5bn), is among 50 billionaires and millionaires to have left Norway over the past year as they were hit with higher rates of wealth tax. Record numbers of the country’s richest residents have fled since the Labour-centre coalition increased wealth tax rates by 0.1 percentage points, costing the government tens of millions in lost tax revenue. …It is expected that even more wealthy Norwegians will leave because of the tax raid which kicked in last November. …In 1990, 12 OECD countries, all in Europe, levied wealth taxes. However, most of them repealed these in the 1990s and 2000s due to growing fears that in a globalised world the wealthy would simply take their riches elsewhere. France was the last to scrap its wealth tax in 2017, after losing an estimated 60,000 millionaires between 2000 and 2016… Other wealthy individuals who have recently abandoned Norway include Tore Ivar Slettemoen, co-founder of battery company Feyr, and Ninja Tollefsen, daughter of property investor Ivar Tollefsen. Fredrik Haga, 31-year-old co-founder of cryptocurrency data business Dune, has also gone to Switzerland. Mr Haga, who has most of his wealth tied up in the rapidly growing company, told the Financial Times that he was worried his next tax bill would be several times his disposable income. …The OECD has warned that wealth taxes have a negative impact on long-term growth, damaging entrepreneurship and risk-taking.

I applaud these people for protecting their family assets from greedy politicians.

But let’s focus on some practical issues. There are three important takeaways from the above excerpts.

1. The higher wealth tax almost surely is losing revenue because the geese with the golden eggs are flying away.
2. It is possible to have effective tax rates of more than 100 percent on annual disposable income.
3. Even some leftists – such as French politicians and OECD bureaucrats – realize wealth taxes are foolish.

Unfortunately, it does not seems that Norwegian politicians will undo their mistake. Indeed, they are even contemplating an awful U.S.-style exit tax.

In a desperate attempt to stop high taxpayers leaving the country, Norway has said it is investigating the possibility of an “exit tax” where individuals are taxed on saved capital income the moment they move out of the country.

Norway is not a member of the European Union, but it does have agreements to mirror many E.U. policies. Hopefully the rules of freedom of movement would preclude any sort of exit tax.

P.S. Surprisingly, Switzerland has a wealth tax, though at least that bad levy is a replacement for alternate bad policies such as capital gains taxation.

P.P.S. On the other end of the spectrum, Spain is compounding the damage of wealth taxation by imposing a second wealth tax!

Thatcher, Lawson, and Pro-Growth Tax Policy

As documented in Commanding Heights: The Battle of Ideas, Margaret Thatcher and Ronald Reagan saved their nations from economic malaise and decline.

Today, let’s focus on what happened in the United Kingdom.

Economic liberty greatly increased during the Thatcher years.

She deserves the lion’s share of the credit for the U.K.’s economic rebirth and renaissance, but she also had the wisdom to appoint some very principled and very capable people to her cabinet.

Such as Nigel Lawson, who served as her Chancellor of the Exchequer (akin to a combined Treasury Secretary/OMB Director in the U.S.).

Lawson died last week, leading to many tributes to his role is resuscitating the U.K. economy.

The Wall Street Journal‘s editorial summarized his achievements.

…our problems are solvable, as they were a half century ago. One of those crucial problem solvers was British politician Nigel Lawson, who died this week at age 91. …the 1970s…was even more miserable in the United Kingdom than it was in the U.S. By the time Margaret Thatcher led the Tories into office in May 1979, inflation was raging and the country had been wracked by strikes in its “winter of discontent”… Lawson entered Thatcher’s administration… He made his historic mark as Chancellor of the Exchequer starting in 1983. He’s best known for his tax reforms, which reduced the top personal income-tax rate to 40% from 60% and brought the top corporate rate to 35% from a 1970s high of 52%. He also was a steward of the Thatcher administration’s privatizations of large state-owned firms and the “Big Bang” financial reforms that would transform London into a global financial center.

In a column for CapX, Madsen Pirie examines Lawson’s work.

Nigel Lawson left a huge legacy. Under his stewardship Britain went from being the sick man of Europe into becoming an economic powerhouse and one of the world’s leading economies. He is regarded by many as the finest Chancellor of the 20th century… Lord Lawson held the firm conviction that lower taxes created space for enterprise and opportunity, and made it his policy that in every Budget he would lower the burden of taxation and abolish at least one tax. …During his tenure, Britain was transformed from being an economy in which most major businesses and services were owned and run by the state, into one in which they became private businesses, paying taxes instead of receiving taxpayer subsidies. Failing and outdated state enterprises became modern, successful private ones. …His 1988 Budget…announced that all taxes above 40% would be abolished, and that the basic rate would be cut to 25%, its lowest for 50 years… Within a very short time, more money was coming into the Treasury from the lower rates than it had been taking in from the higher ones. It was a vindication of the Laffer Curve. …The top 10% of earners had been paying 35% of the total income tax take. Under Lawson’s lower rate that went up to 48%. In rough terms this meant that the top 10% went from paying just over a third to just under a half of total income taxes.

In other words, the lower tax rates in the U.K. had the same positive impact as the lower tax rates in the U.S., both in terms of encouraging growth and confirming the Laffer Curve.

But let’s not forget that there also was spending restraint during the Thatcher years, particularly when Lawson was Chancellor of the Exchequer.

Just like we got spending restraint during the Reagan years.

The moral of the story is that it’s great to have good leaders, and it’s great when those leaders appoint good people.

P.S. If you want the U.S. equivalent of Nigel Lawson, the best historical example would be Andrew Mellon.

More AOC Humor

It’s time to phase out mockery of Crazy Bernie and focus more on mocking AOC.

We’ll start with this video, which is based on her assertion that anyone who criticizes her policies actually is lusting for her.

I will grant that Alexandria Ocasio-Cortez is attractive, by the way, so maybe my criticisms of her awful ideas also are caused by unrequited affection.

Or, maybe not.

For our second item, we know the so-called War on Poverty has been a failure, and I suspect AOC’s new idea will be similarly ineffective (though fortunately not as expensive).

Next we have AOC thinking that socialism works because professional socialists wind up lining their own pockets.

Our fourth item mixes left-wing economics with left-wing crime policy.

Last but definitely not least, here’s a different version of AOC’s infamous “tax the rich” dress.

Only this one focuses on her willingness to selectively lower tax burdens (green tax credits, state and local tax deduction, etc) for some rich people and businesses.

P.S. If you want other examples of AOC humor, click here, here, and here.

German Government Endorses European-Wide Spending Caps

My “Golden Rule” of fiscal policy, first unveiled in 2011, is based on two principles.

• To enable more prosperity, the primary goal of fiscal policy should be to reduce the burden of government spending.
• To achieve good fiscal policy, cap government spending so that it grows slower than the economy’s productive sector.

When people ask whether a balanced budget should be primary goal, I explain that fiscal balance is good.

But I then point out that spending limits are the only effective way to achieve that goal.

If they don’t believe me, I direct them to pro-spending-cap studies from left-leaning bureaucracies such as the International Monetary Fund (here and here) and the Organization for Economic Cooperation and Development (here and here).

There are also similar studies from the European Central Bank (here and here).

And maybe in the future I can direct them to a proposal prepared for the European Commission by the German government.

In an article for the International Business Times, Jan Strupczewski explains the proposal to have nations abide by my Golden Rule.

…a German paper prepared for discussions on the rules to be held in the coming months…called for the use of the expenditure benchmark as a way to steer public spending, keeping increases in net primary expenditure below increases in potential growth rate of the economy. …The bigger a country’s debt, the bigger the gap between increases in spending and potential growth would have to be, leading to a overall decline in the government deficit and therefore also debt, the paper said.

Here are some additional details, as reported by the EU Observer.

Berlin proposes “common quantitative benchmarks”… The paper states that highly-indebted countries’ GDP growth should always exceed the growth of expenditure, a function described as the “convergence margin.” …If a country’s output is expected to be 1.5 percent, its spending is limited to 0.5 percent of GDP. …Limiting government spending to one percent beneath projected growth.

This is remarkable. Germany, governed by a Social Democrat, is proposing a spending cap that is even better than Switzerland’s debt brake.

P.S. There already are fiscal rules in the European Commission, but they are ineffective since they focus on red ink rather than government spending.

The War Against Cash, Part VII

There are many strains of libertarianism, everything from Randians to liberaltarians, from minarchists to anarcho-capitalists.

I’m guessing the one thing they all have in common is a distrust of politicians and government.

Simply stated, we libertarians have noticed that slippery slopes are…well…slippery. When government gets a bit more power, they eventually wind up with a lot more power.

And that power then gets misused. Public Choice 101.

And this is why there is reflexive hostility to proposals for the Federal Reserve to adopt a digital currency.

Some of our friends on the left think such suspicion is absurd, or even downright crazy.

In her Washington Post column, Catherine Rampell accuses Florida Gov. Ron DeSantis of being “looney” and “paranoid” because he recently spoke against the idea.

DeSantis can’t help but pivot from tangible, kitchen-table economic issues to bizarre culture-war concerns. And that’s where we get into looney-tunes territory. In a speech this past weekend in Pennsylvania, DeSantis suggested that the real reason to fear the Fed is that central bankers…”want the Fed to control a digital dollar,” he said. “Guess what’ll happen? They’re going to try to impose an ESG agenda through that. You go and use too much gas, they’re going to stop it. They’re not going to honor the transaction because you’ve already bought more than what they think. You wanna go buy a rifle, they’re going to say no, you have too many, too many of those, you can’t do it.” …DeSantis…appears to be invoking conspiracy theories that the left wants to eliminate physical cash… The Fed would then use that surveillance to control everyone’s lives, specifically to undermine the Second Amendment. …this is all so paranoid and untethered to reality that it’s almost like financial fan fiction.

It appears, however, that Ms. Rampell is the one untethered to reality.

She’s apparently unaware that many prominent voices on the left explicitly argue in favor of eliminating cash.

She’s also apparently unaware that politicians on the left already have tried to use the financial system to restrict the buying and selling of firearms.

Maybe I’m a bit old-fashioned, but it seems like bad journalism to accuse DeSantis of conspiracy-mongering when five minutes of basic research would show he was addressing a very real issue.

P.S. What happened in Canada also was not “financial fan fiction.”

Part II: The Libertarian Paradise of…South Africa?

Governments oftentimes are spectacularly incompetent. And when that happens, it creates an opening for the private sector to step up in rather unexpected ways.

I’ve even created a semi-serious, semi-satirical series to commemorate these examples.

• The libertarian paradise of Mexico
• The libertarian paradise of Nigeria
• The libertarian paradise of Somalia
• The libertarian paradise of Germany
• The libertarian paradise of Argentina
• The libertarian paradise of South Africa

None of these places are libertarian, of course, but each of them illustrate how markets can provide surprising benefits. In most of the examples, markets are even providing so-called public goods.

Today, we’re going to revisit South Africa because of a remarkable report in the Wall Street Journal.

Written by Alexandra Wexler, it shows how the private sector is providing road repair, fire protection, and traffic control.

South African insurers are joining other private companies in taking over public services, such as security, healthcare, education and mail delivery… Insurance companies…have decided that it is cheaper for them to fill in where the state has fallen short. …Discovery Ltd., a $5.5 billion financial-services company, says its Pothole Patrol—made up of eight repair vehicles and 40 staff—has filled in 150,000 potholes in South Africa’s economic capital of Johannesburg… Discovery in June 2022 also joined with a private fire service, Fire Ops SA, to launch its Fire Force service. …Discovery says the blue firetruck responded to 172 building fires between Fire Force’s launch through the end of January. …On Feb. 20, the blue Discovery-branded truck was dispatched to a fire in Johannesburg’s leafy Highlands North suburb, where Fire Ops’ Captain Wade Hugo said his team had the blaze under control about 15 minutes before the city’s fire services arrived at the scene. …OUTsurance Group Ltd., a $3 billion financial services company, first started deploying men and women on motorbikes, known as pointsmen, in 2005. They direct traffic in four municipalities, including Johannesburg and South Africa’s wine capital, Stellenbosch, when traffic lights break down and roads are congested.

Sounds to me like South Africa’s local governments should be abolished and replaced by the private sector.

David Friedman and Bryan Caplan certainly would agree.

P.S. There’s been a big decline in economic liberty in South Africa over the past two decades, thanks to eroding property rights, higher taxes, and other bad policies. Smart South Africans of all races should probably think about moving to Botswana.

Sweden, Coronavirus, and Lessons for the Next Pandemic

When I write about Sweden, it is usually to point out the nation’s schizophrenic approach to public policy – very bad on fiscal issues but very good in other areas like trade, regulation, and monetary policy.

Though there are even some good Swedish fiscal policies, such as personal retirement accounts and no death tax.

Heck, Sweden even became a poster child for my Golden Rule back in the 1990s.

Today, though, we’re going to focus on Sweden’s libertarian-ish approach to the coronavirus pandemic. And we’ll start with this chart showing that Sweden had fewer excess deaths than any other developed nation.

The chart comes from a story in the U.K.-based Spectator, authored by Michael Simmons. Here’s some of what he wrote.

Pandemics kill people in two ways, …directly and indirectly, via disruption. …The only real way of counting this would be to look at ‘excess deaths’, i.e. how many more people die every month (or year) compared to normal. That data is now coming through.  Using the most common methodology, Sweden is at the bottom – below Australia and New Zealand, which had plenty of lockdowns but very few Covid deaths. …Like other studies (including one commissioned by Swedish newspaper Svenska Dagbladet from a statistician at the country’s equivalent of the ONS) this puts Sweden at the bottom, with just 3.3 per cent more deaths than were expected. Another way of doing this is to express excess deaths not as a percentage of the previous baseline but as a share of population. So the below chart using OECD data show it per 100,000 population: Sweden is again at the bottom.

Here’s the chart mentioned in the final sentence. Once again, Sweden looks very good.

Brad Polumbo approves. Here are some excerpts from his column in the Washington Examiner.

…more data just vindicated the Scandinavian nation’s approach, which kept schools open and largely rejected government lockdowns of the economy. …Sweden comes out looking fantastic. …Sweden still took COVID-19 seriously and encouraged people to behave responsibly. Officials encouraged adults, and especially the elderly, to take the COVID-19 vaccine and saw very high rates of uptake, yet it did not push it on young children, except those with unique risk factors. The country did have some government interventions, such as travel restrictions, in place, but by and large, it took a much more restrained approach. And as a result, its citizens were left freer yet saw fewer deaths overall.

Interestingly, even the New York Times gave the Swedes some semi-favorable coverage.

Here are some excerpts from a column by David Wallace-Wells.

…the country followed a radical, contrarian public health path. Its hands-off approach to Covid-19 mitigation — no stay-at-home orders to begin with, and no mask mandates later on — was one that many on the pandemic left quickly derided as sadistic public policy…those who believe the pandemic response went overboard have been excitedly sharing charts purporting to show that Sweden “won” the pandemic — in theory, a vindication for public health libertarianism. …The Swedish national government leaned heavily into its quasi-libertarian messaging, emphasizing the individual responsibility of its citizens and avoiding national stay-at-home orders and most other forms of intrusive mandates. …But there wasn’t an absence of guidance, just an absence of mandates. …In the end, “what the ‘Swedish model’ really suggests is that pandemic mitigation measures can be effectively deployed in a respectful, largely noncoercive way,” Francois Balloux wrote recently.

By the way, the article suggests that Sweden’s excess mortality numbers are not as good as reported by the Spectator, so it certainly should not be interpreted as an endorsement.

But, at the very least, Sweden was better than most peer nations.

And Swedes also got good results in terms of education, at least based on some early research.

The most high-profile Swedish study examining pandemic learning loss suggests that students in the country did not suffer at all compared to their prepandemic counterparts — a striking finding, and one that does seem to set the country apart.

Now let’s look at some of Fraser Nelson’s column in the U.K.-based Telegraph.

Anders Tegnell, Sweden’s state epidemiologist,…didn’t claim to be right. It would take years, he’d argue, to see who had jumped the right way. His calculation was that, on a whole-society basis, the collateral damage of lockdowns would outweigh what good they do. …Sweden…emerged with one of Europe’s lower Covid death tolls: the rate is 1,614 per million people, just over half the amount of Britain (2,335). …unlike Brits, they had a government that trusted them. …the lack of rules allowed for people to use their judgement while minimising economic and social damage. Sweden’s GDP fell by 2.9 per cent in 2020, while Britain’s collapsed by 9.4 per cent. The cost of the various Covid measures is best summed up by the debt mountain: an extra £8,400 per head in Britain, and £3,000 in Sweden. …there is no talk in Sweden about educational devastation.

So what’s the bottom line?

The honest answer is that we don’t know the ideal pandemic policy. There will be studies 10 years from now and 20 years from now that will give us a better understanding of the costs and benefits of different approaches.

For now, though, there seems to be good data that Sweden did a very good job minimizing overall excess deaths and an okay job of limiting deaths from the virus.

And they did that while minimizing the costs to childhood learning and getting better-than-average economic and fiscal outcomes. And don’t forget that they also gave people the freedom to choose, which is appealing for libertarians who believe freedom is a good outcome.

P.S. There’s another lesson to be learned, though it’s not about Sweden. In the United States, we learned that the FDA and CDC were ineffective and incompetent. Internationally, we learned the same thing about the WHO.

Another European Fiscal Crisis?

Why did many European nations, most notably Greece, suffer fiscal crises about a dozen years ago?

Because the burden of government spending, which already was excessive, increased even further.

And with taxes already very onerous in those countries, much of that new spending was financed with borrowing.

Investors then realized it was very risky to finance the various spending sprees. And when they stopped buying bonds from these governments (or started demanding higher interest rates to compensate for risk), that triggered the crises.

One would think that the nations most affected – Portugal, Italy, Greece, and Spain (the PIGS) – would have learned a lesson.

Nope.

As you can see from this IMF data, those governments did not use the post-crisis recovery as an opportunity to get debt under control. Instead, every nation has more debt today than it did when the crisis occurred.

And why do these nations have higher debt levels?

For the simple (and predictable) reason that they have not reduced the burden of government spending.

Instead, as you can see from this next chart, governments are now consuming even greater shares of national economic output. Which means a greater chance of more crises.

To make a bad situation even worse, the European Central Bank cranked up the figurative printing press starting in 2020 by massively expanding its balance sheet.

Dumping all that money into the system quite predictably caused prices to soar. And now that the ECB is belatedly trying to undo its mistake.

That puts the PIGS under more pressure, as Desmond Lachman explained for National Review.

Christine Lagarde, the president of the European Central Bank (ECB)…has to raise interest rates at a time when governments in the euro zone’s economic periphery are more indebted today than they were at the time of the 2010 euro zone sovereign-debt crisis. This more hawkish interest-rate policy, coupled with a shift to quantitative tightening, now risks triggering another round of the euro zone debt crisis. …One of the ECB’s problems in having to raise interest rates aggressively to contain inflation is that such a course risks exacerbating the cracks that are now emerging in the European banking system. …if current trends continue, then another round of euro zone sovereign-debt crisis, where investors lose faith in the government’s ability to repay its debt, could be just around the corner. …This is especially true for Italy, where until recently the ECB had been buying Italian government bonds equivalent to that government’s net borrowing needs.

By the way, Lachman seems to think the Fed should allow continued inflation in order to help bail out Italy and the other PIGS.

That would be a big mistake. The long-run damage of that approach would be much greater than the long-run damage (actually, long-run benefits) of letting Italy and the others go bankrupt.

P.S. The problem in Europe is too much government spending, not the euro currency.

P.P.S. Eurobonds will make things worse in the long run.

P.P.P.S. It is possible to reduce large debt burdens, so long as governments simply restrain spending.

P.P.P.P.S. From the archives, here’s some comedy (and more comedy) about Europe’s fiscal mess.

The Optimistic Case for Spending Restraint

Every president this century – Biden, Trump, Obama, and Bush – has been a big spender. But I told an audience at the Acton Institute that there are still reasons for optimism.

All that is necessary is a modest amount of spending restraint.

More specifically, we can make progress so long as politicians follow my golden rule, which merely requires that the burden of government spending not grow faster than the private sector.

And I gave examples of that happening.

For instance, we had a five-year de facto spending freeze under Obama (including a sequester), thanks to the “Tea Party” spirit that temporarily animated Republicans on Capitol Hill.

I also mentioned the spending restraint that occurred during the Clinton years, which actually led to a budget surplus.

Reagan, of course, had the best track record.

As shown in this chart, the overall burden of domestic spending fell by 2.5 percentage points of economic output during his tenure.

We now know that good things happened in the past.

Let’s close by contemplating whether good things might happen in the future.

I am normally a pessimist, but I pointed out in the video that Republicans on Capitol Hill actually pushed for genuine entitlement reform during the aforementioned Tea Party era early last decade.

That zeal for good policy largely evaporated during the big-government Trump years, but I think it could return if a Reagan-style Republican won the nomination and was elected in 2024.

The bottom line is that we either control spending – including entitlement reform, or we surrender to European-style big government – including massive tax increases on ordinary people.

Those are the only two choices.