Today, we’re going to expand on this list with the “most laughable” tweet of 2022. But this tweet from the Republican National Committee is a case of accidental humor rather than deliberate humor.
As you might expect, the RNC did not bother trying to prove its statement.
That’s because the Republican party generally does a terrible job. Donald Trump expanded government. George W. Bush expanded government. And George H.W. Bush expanded government.
You have to go all the way back to Ronald Reagan to find a Republican who actually was on the side of taxpayers (and before him, you have to go all the way back to Coolidge).
And that’s not because of the defense budget. Even when looking at just domestic spending, Republicans (other than Reagan) have a worse track record.
I have to wonder whether the folks at the RNC were doing hallucinogenic drugs when they sent out that tweet? Or was it a naive intern who heard a few speeches and was tricked into thinking the GOP actually cared about shrinking government.
The latter possibility is a good excuse to share this cartoon.
But let’s also look at some serious analysis.
Here are some excerpts from a column in the Wall Street Journal by Kimberley Strassel. She was motivated by a pork-filled handout to the tech industry this past summer, but then proceeded to list many other sins.
The GOP that is assisting in this quarter-trillion-dollar spendathon is the same GOP that last year provided the votes for a $1 trillion infrastructure boondoggle. The same GOP that in 2020 signed on to not one, not two, three or four, but five Covid “relief” bills, to the tune of some $3.5 trillion. The same GOP that…blew through discretionary spending caps. The same GOP that has unofficially re-embraced earmarks. The party occasionally takes a breather—say to gripe about the Democrats’ $1.9 trillion Covid bill in 2021—but then it’s right back to the spending grindstone. When was the last time anyone heard a Republican talk about the need to reform Social Security or Medicare? That disappeared with the election of Donald Trump (opposed to both)… Instead, a growing faction of the party sees a future in buying the votes of working- and middle-class voters with costly new entitlement proposals of their own, such as expanded child tax credits.
I don’t know whether to laugh or cry.
But since laughing is more fun, here’s a cartoon about earmarks (which recently were endorsed by Republican lawmakers).
I’ll close with a tiny bit of optimism.
I’ve dealt with hundreds of politicians over the years, most of whom were Republicans.
By and large, they usually understand that big government is bad for prosperity. But there are two things that have an impact on their voting behavior.
They are afraid of being rejected by voters who want freebies (especially the ones they already are receiving).
But they might be willing to cast courageous votes if there is a real chance of a long-run change in policy.
To elaborate on the second point, there have been three periods of spending restraint in my lifetime: 1) the Reagan years, 2) the Clinton years, and 3) the Tea Party years.
In all three cases, there was a critical mass of lawmakers who were willing to do the right thing in spite of the usual incentives in Washington to do the wrong thing.
Is there a 4th period in our future? That depends on whether the GOP returns to Reaganism.
To be sure, it is not a good idea to have too much debt-financed spending. But it’s also not a good idea to have too much tax-financed spending. Or too much spending financed by printing money.
Other people, however, do fixate on budget deficits. And I get drawn into those debates.
For instance, I wrote back in July that Biden was spouting nonsense when he claimed credit for a lower 2022 deficit. But some people may have been skeptical since I cited numbers from Brian Riedl and he works at the right-of-Center Manhattan Institute.
So let’s revisit this issue by citing some data from the middle-of-the-road Committee for a Responsible Federal Budget (CRFB). They crunched the numbers and estimated the impact, between 2021 and 2031, of policies that Biden has implemented since becoming president.
The net result: $4.8 trillion of additional debt.
By the way, this is in addition to all the debt that will be incurred because of policies that already existed when Biden took office.
If you want to keep score, the Congressional Budget Office projects additional debt of more than $15 trillion over the 2021-2031 period, so Biden is approximately responsible for about 30 percent of the additional red ink.
Some readers may be wondering how Biden’s 10-year numbers are so bad when the deficit actually declined in 2022.
But we need to look at the impact of policies that already existed at the end of 2021 compared to policies that Biden implemented in 2022.
As I explained back in May, the 2022 deficit was dropping simply because of all the temporary pandemic spending. To be more specific, Trump and Biden used the coronavirus as an excuse to add several trillion dollars of spending in 2020 and 2021.
That one-time orgy of spending largely ended in 2021, so that makes the 2022 numbers seem good by comparison.
Sort of like an alcoholic looking responsible for “only” doing 7 shots of vodka on Monday after doing 15 shots of vodka every day over the weekend.
If that’s not your favorite type of analogy, here’s another chart from the CRFB showing the real reason for the lower 2022 deficit.
I’ll close by reminding everyone that the real problem is not the additional $4.8 trillion of debt Biden has created.
P.S. If you want to watch videos that address the growth-maximizing size of government, click here, here, here, here, and here.
P.P.S. Surprisingly, the case for smaller government is bolstered by research from generally left-leaning international bureaucracies such as the OECD, World Bank, ECB, and IMF.
Today, we’re going to look at some “most depressing” information about the United States. Here’s a tweet from Yale Professor Alice Evans about labor force participation for working-age men in developed nations.
It is definitely bad news when labor force participation declines over time.
It is even worse news when it declines for men in their prime working years.
And it is utterly depressing when the United States falls behind other nations.
David Bahnsen has a new article in National Review on the topic of declining labor force participation. Here are a few excerpts. starting with some straight-forward economic analysis.
The labor-force participation rate (those working combined with those actively looking for work as a percentage of the non-institutionalized, working-age population) was steady and reliably around 66 or 67 percent for years before the financial crisis. The number dropped to between 62 and 63 percent after that and only started to trend higher after the deregulation and tax reform of 2017–18. That, of course, was upended by Covid and the 2020 shutdowns. …That problem is the failure of the labor-force participation rate to return to normal. At approximately 62 percent, we sit 1.5 percentage points below pre-Covid levels… While 1.5 percentage points may seem like a small number, with a working-age population of about 260 million people, it means we are about 4 million people below the trend-line… And paradoxically, this comes with more job openings than we have people looking for jobs.
This is an economic problem, but it should raise alarm bells for other reasons as well.
Simply stated, the decline in labor force participation may be a sign of eroding societal capital.
The American ethos values the dignity of work and sees purpose, meaning, and hope in productive activity. Not only does our economy desperately need the full weight of American ingenuity, innovation, and productivity, but our souls do as well. In a time of increased alienation, isolation, and desperation, a larger labor force would mean a greater number of people engaged in meaningful activity with attendant duties and responsibilities. It would allow for less substance abuse, less emotional angst, and more pursuits of passions. …Our goal must be not only maximum employment of those looking for work, but also that more people who are able to participate in the labor force actually do so. …A labor-force participation rate equal to our pre-2008 levels is attainable, but not without a resurgence of values focused on productivity. The end result would be far more meaningful than what we find in a GDP calculation.
He’s right, in my not-so-humble opinion.
Which raises the question of why the U.S. numbers are bad and what can be done to reverse the decline?
At the risk of admitting uncertainty, I’m not sure we have easy answers. For instance, I’m tempted to say the numbers will improve if we address some of the ways (subsidized unemployment, lax disability rules, licensing laws, etc).
But presumably those problems exist in the other nations in the chart. Indeed, most of those countries presumably have policies that are worse (such as bigger welfare states) than what we have in the United States.
Which means societal capital may be the problem (even though conventional measures suggest the U.S. ranks highly by world standards).
Yesterday, I provided another example of anti-convergence by comparing Australia, Switzerland, and the United Kingdom.
Today, let’s look at Poland and China. This tweet from Professor Noah Smith shows that Poland was richer than China 30 years ago and – contrary to convergence theory – has become even richer over time.
I closely follow international economics, but I confess that this data came as a surprise.
It’s not that I have had an overly optimistic view of China (see here, here, here, and here).
But I obviously have overlooked Poland’s progress (even though I wrote about that nation’s relative success in both 2014 and 2017).
And why is Poland also enjoying relative success when compared with China? The answer, at least in part, is that Poland enjoys more economic freedom.
By the way, Poland is not a role model. Many of its neighbors (the Baltic nations, Germany, and the Czech Republic) have significantly higher levels of economic liberty.
That being said, the comparison between Poland and China shows that sometimes you win a race because you are fast and sometimes you win because the other contestant is slow.
P.S. To continue that metaphor, China may be even slower than what we see in the official data (though still not as slow as basket cases such as Argentina, Cuba, and Venezuela).
I’m a big believer in looking at long-run trends, particularly whether countries are experiencing convergence of divergence with regards to per-capita economic output.
Poor nations normally should grow faster than rich nations, so we can learn a lot when we see exceptions to this rule based on several decades of data.
I think the answer to these questions is obvious, for what it’s worth.
Today, let’s consider another example. Mike Bird of the U.K.-based Economist tweeted about how the United Kingdom is diverging from Australia.
Since Australia and the United Kingdom have similar levels of economic liberty, some people speculate the divergence we’re seeing has a lot to do with regional economic performance.
That makes some sense. Many of Australia’s trading partners are fast-growing nations in East Asia. More specifically, those countries have been buying a lot of of natural resources from Australian producers.
The United Kingdom, by contrast, has a lot of trade with Europe’s slow-growing nations.
The above chart is based on household disposable income.
So I decided to also check the Maddison database to see whether there were similar changes to per-capita GDP.
The charts don’t match exactly, but the trends are similar (I added the Czech Republic since it was mentioned in the tweet).
So is this the end of the story?
Not exactly. My next step was to add Switzerland to see whether trade with Europe dooms a nation to divergence.
Lo and behold, it is diverging with Australia, but in a positive way. It’s getting comparatively richer over time, just the opposite of what we see in the United Kingdom.
So maybe the real lesson is that there’s more prosperity – and the right kind of divergence – in nations with greater levels of economic liberty.
I’ll close with a couple of caveats. The level of economic liberty is important, but it does not tell us everything. Likewise, the level of growth in neighboring nations is important, but it does not tell us everything. Moreover, I normally like looking at four or five decades of data rather than just 20 years.
The Babylon Bee has a gift guide to help left-wing parents pick the best presents for their kids. Here are my favorites.
1) Brand new gender: New genders are so hot right now. We would urge you to grab one before they run out, but honestly, there will always be more genders.
2) Allowance increase followed by tax increase: This valuable life lesson will impart to your youngling the wisdom found in pretending to give while actually taking.
3) Battery-powered police car to flip over and set on fire: Progressive children love acting out violently in the name love. This flammable gift is perfect if your child was too young to burn actual police cars back in 2020.
4) Crowbar and a ride to Nordstrom: Unique experiences are the most precious gifts you can give your child. This gift offers a hands-on understanding of where progressive policies have led.
8) Coal: This will prevent conservatives from burning it in power plants and destroying the planet!
9) Chairman Mao pop-up book: Let your child’s imagination be filled with stories of the beloved revolutionary who called for equality and fairness for everyone besides the 80 million who died under his rule.
Don’t forget to add “Kronies,” though they are now collectors’ items.
And very few of the gifts have anything to do with libertarian philosophy, but there is a bit of commentary mixed in for a few of the gifts.
And that means some of them are worth sharing.
Meater+ connects via Bluetooth to any smartphone or tablet, providing real-time updates on the ambient air temperature and the internal temperature of whatever is on the grill. …Even though it comes pre-loaded with the Food and Drug Administration’s recommended temperatures for each type and cut of meat, Meater+ lets you freely ignore the food bureaucrats’ often ridiculous edicts.
The “Come Back With A Warrant” doormat is a mainstay of liberty-minded home décor, and for good reason. It fulfills a utilitarian function—giving guests a place to wipe their feet—while also making your legal knowledge known to any state actors who might come a-knocking. …This holiday season, give the new home or apartment owner a gift that will both spiff up their doorway and remind guests—and government employees—that you are not to be trifled with.
…there’s the Lego City Roadwork Truck, which gives you another holiday excuse to teach a liberty-minded little one that government coercion isn’t necessary for successful public infrastructure projects. At a minimum, a firm foundation in road work terminology comes in handy when the future free thinker finds herself dorm room jousting with a “you didn’t build that”-kind of collectivist.
No libertarian bunker is complete without a decent soldering iron. Enter the Hakko FX600. …For those who get good at it, fixing stuff will become a hedge against instability. …it doesn’t take a doomsday scenario for some basic wiring skills to come in handy.
Throw away that five-gallon jug because gravity bongs just got a major upgrade. Stündenglass combines physics, airflow, and clean design to create a contactless smoke delivery system. With a 360-degree rotatable activation, it’s easy to keep herbs burning with no re-light needed.
But I warned that saying no to additional tax increases was a necessary but not sufficient condition.
…the “good news” from New York is that politicians want to freeze the current (very bad) policy in place. That’s better than galloping faster in the wrong direction, of course, but a far cry from what’s needed.
Here’s some evidence for my assertion, courtesy of some new data from the Census Bureau. Like we saw last year, New York continues to lose population compared to the rest of the country.
Unsurprisingly, Illinois shows up again as a state with very high levels of out-migration as well.
John Phelan of the Center of the American Experiment put together a ranking of the states based on these annual population changes.
Obviously, people move between states for reasons other than economic policy, but it’s impossible not to notice that there’s an overall trend of red states gaining people and blue states losing people.
P.S. In the past, skeptics used to claim that state migration trends were simply a story of people moving to states with better climates. That presumably is part of the story, but notice how California (the state that arguably has the nation’s best climate) is now a net loser and routinely gets mocked for driving away jobs and people.
In the spirit of bipartisanship, I also applaud when Donald Trump does the same thing, and that part of what we’re going to discuss today.
First, some background: The ongoing battle over Donald Trump’s personal tax information has finally ended. If you’re curious, the New York Times has a detailed report on what Trump earned (or lost) in recent years.
And the NYT also tells us how much tax he paid during those years.
When I look at these numbers, my first thought is that Trump is not a very good businessman since he has a negative income most years.
My second thought is that I’m glad he paid a low tax rate of about 3 percent in 2018 and approximately 4 percent in 2019, the two years when his income was positive.
Why am I glad? Because money in private hands is far more likely to be utilized wisely than money that gets diverted to the IRS and then spent by the politicians in Washington.
That’s the first part of today’s column.
The second part of today’s column is to use Trump’s tax return to show why the tax system would be much better if we junked the internal revenue code and replaced it with a simple and fair flat tax.
A tax system based on equality also means radical simplicity. The hundreds of different tax forms in today’s tax code would get dumped in the garbage.
All that would be left is a simple tax form for households.
And a simple tax form for businesses.
What would this mean for Trump’s tax returns? I’m sure the implications would be enormous, but I want to focus on just two issues.
First, under the flat tax, business losses can not be used to lower taxes on household income (wages, salaries, and pensions). So that would probably mean a higher tax burden for Trump.
Second, the tax treatment of business changes in ways that would both help Trump and hurt Trump. The most important thing to realize is that the convoluted corporate income tax (as well as parts of the personal income tax such as Schedule C) are replaced by a very simple cash-flow system.
Here’s how Professors Robert Hall and Alvin Rabushka describe the business portion of the flat tax.
The business tax is a giant, comprehensive withholding tax on all types of income other than wages, salaries, and pensions. It is carefully designed to tax every bit of income outside of wages, but to tax it only once. The business tax does not have deductions for interest payments, dividends, or any other type of payment to the owners of the business. As a result, all income that people receive from business activity has already been taxed. …The resulting simplification and improvement in the tax system is enormous. …Eliminating the deduction for interest paid by businesses is a central part of our general plan to tax business income at the source.
One very important implication of this approach is there there no longer would be a bias for debt. This would not be good news for people like Trump who usually rely on debt to finance their businesses.
On the other hand, the net result would be a tax code more favorable to investment and entrepreneurship. So if Trump is a good businessman, he will benefit.
The video clip is less than two minutes (taken from this longer discussion with Fergus Hodgson), but I can summarize my key point in just one very important sentence
Anybody who opposes entitlement reform is unavoidably in favor of big tax increases on lower-income and middle-class Americans.
There are three reasons for this bold (and bolded) statement.
There presumably is a limit to how much of this future spending burden can be financed by borrowing from the private sector (or with printing money by the Federal Reserve).
Many politicians claim that future spending on entitlements (as well spending on new entitlements!) can be financed with class-warfare taxes, but there are not enough rich people.
My left-leaning friends almost surely would agree with the first two points. But some of them (particularly the ones who don’t understand budget numbers) might argue with the third point.
To confirm the accuracy of the argument, let’s look at this chart from Brian Riedl’s famous Chartbook.
As you can see, even confiscatory 100-percent taxes on the rich (which obviously would cripple the economy) would not be nearly enough to eliminate America’s medium-term fiscal gap.
Heck, even if we look at just the next 10 years and include every possible tax hike, it’s obvious that a class-warfare agenda (which also would have negative economic effects) would not be enough to finance all the spending that is currently in the pipeline.
Here’s another Riedl chart (which even includes some proposals that would hit the middle class).
I’ll conclude with two further observations.
First, there are plenty of honest leftists (the ones who understand budget numbers, including Paul Krugman) who openly admit that big tax increases will be needed if the burden of government spending is allowed to increase.
Second, there are plenty of disingenuous (or perhaps naive) folks on the right who oppose entitlement reform while not admitting that their approach means massive tax increases on lower-income and middle-class taxpayers.
P.S. In the absence of entitlement reform, politicians will first choose class warfare taxes, of course, but that simply will be a precursor to higher taxes on the rest of us.
Government redistribution programs can make joblessness more attractive than employment.
Regarding the final point, a new report from the Committee to Unleash Prosperity contains some very depressing data. Authored by Prof. Casey Mulligan of the University of Chicago and E.J. Antoni or the Heritage Foundation, it shows how Americans can be lured into unemployment.
…with existing unemployment benefits and the dramatic recent expansion of ObamaCare subsidies, a spouse would have to earn more than $80,000 a year from a 40 hour a week job to have the same after-tax income as certain families with two unemployed spouses receiving government benefits. In these states, working 40 hours a week and earning $20 an hour would mean a slight reduction in income compared to two parents receiving unemployment benefits and health care subsidies. …In 24 states, unemployment benefits and ACA subsidies for a family of four with both parents not working are the annualized equivalent of at least the national median household income. …In more than half the states, unemployment benefits and ACA subsidies exceed the value of the salary and benefits of the average firefighter, truck driver, machinist, or retail associate in those states.
For American readers, here’s a look at how some states make it very attractive to rely on government.
The big takeaway is that the numbers above reflect the impact of just two social insurance programs. The numbers would look worse if various means-tested programs were included.
"To continually attack high income earners when 51% of our taxes are paid by 2% of New Yorkers — this blows my mind when I hear people say 'so what if they leave.' No you leave! I want my high income earners right here in this city!" pic.twitter.com/iBONQoNZI4
I don’t know if the Mayor’s comments will actually translate into better policy, but it certainly seems like he has a better understanding of reality than his predecessor.
Now let’s shift to the state level.
The Wall Street Journalopines about a potential outbreak of rationality by the state’s governor.
’Tis the season for epiphanies, and what do you know? It’s finally dawning on some New York Democrats that the state’s steep income tax rates are driving away top earners who fund essential public services. …miracles of miracles, Gov. Kathy Hochul last week ruled out tax increases and said she planned to hold the line on spending next year. “I don’t believe that raising taxes…makes sense,” she said. …A New York City Independent Budget Office report this month showed that the number of taxpayers who earned between $1 million and $5 million plunged 11% in 2020 from the prior year. …The culprits are high taxes and Covid lockdowns. According to IRS data, New York County lost $14.5 billion in adjusted gross income from out-migration between 2019 and 2020. And this was before Democrats in Albany last spring raised income taxes on individuals making more than $1 million, jacking up the combined state and New York City top rate to 14.8% from 12.7%. Even New York Comptroller Thomas DiNapoli, who is no moderate, told Bloomberg News last week that the exodus of taxpayers at the upper end “should be a concern for everybody.” He added that “we might be getting near that tipping point where we do make it economically unsustainable for enough of those folks to stay here.”
For what it’s worth, I think New York already passed the tipping point. Thousand and thousands of well-to-do taxpayers have already escaped and moved to zero-income-tax Florida.
That means New York’s parasitical politicians have lost billions and billions of tax revenue. And I suspect that’s why we are seeing some semi-sensible comments from the Mayor and the Governor.
Let’s close with a depressing observation. The reason the comments from the Mayor and Governor are “semi-sensible” is that they are only saying there should be no more tax increases.
In other words, the “good news” from New York is that politicians want to freeze the current (very bad) policy in place. That’s better than galloping faster in the wrong direction, of course, but a far cry from what’s needed.
Are bad people naturally drawn to the corruption of politics?
Or, do good people get corrupted after getting into politics?
I don’t pretend to know the answer, though I suspect it’s a combination of both.
What I do know is that we always have lots of options when deciding who deserves to be named the “Politician of the Year.”
I already wrote last October about Eric Adams, the Mayor of New York City.
Today, we have two more options.
The New York Times has a fascinating look at how a freshman Republican apparently created a fictional life story during his successful campaign for Congress.
Here are some excerpts from the story, authored by Grace Ashford and Michael Gold.
By his account, he catapulted himself from a New York City public college to become a “seasoned Wall Street financier and investor” with a family-owned real estate portfolio of 13 properties and an animal rescue charity that saved more than 2,500 dogs and cats. But a New York Times review of public documents and court filings from the United States and Brazil, as well as various attempts to verify claims that Mr. Santos, 34, made on the campaign trail, calls into question key parts of the résumé that he sold to voters. Citigroup and Goldman Sachs, the marquee Wall Street firms on Mr. Santos’s campaign biography, told The Times they had no record of his ever working there. Officials at Baruch College, which Mr. Santos has said he graduated from in 2010, could find no record of anyone matching his name and date of birth graduating that year.There was also little evidence that his animal rescue group, Friends of Pets United, was, as Mr. Santos claimed, a tax-exempt organization: The Internal Revenue Service could locate no record of a registered charity with that name.
Seems like Santos has a good head start on other newcomers to Congress. Does he deserve to be “Politician of the Year”?
Perhaps, but there’s another contestant to consider.
As reported by Thomas Catenacci of Fox News, the Secretary of Transportation is a big believer that global warming is a major problem.
But that does not stop him from using taxpayer-funded private jets to advance his political ambitions.
Transportation Secretary Pete Buttigieg, an advocate of increased government action to curb carbon emissions, has taken at least 18 flights using taxpayer-funded private jets since taking office, Fox News Digital has learned. Buttigieg has traveled across the country — visiting Florida, Ohio and New Hampshire, among other states — and out of the country using a private jet fleet managed by the Federal Aviation Administration (FAA), according to flight tracking data… APT executive director Caitlin Sutherland told Fox News Digital… “for someone so holier-than-thou on reducing emissions, Buttigieg sure doesn’t seem to mind the pollution caused by his literal jet-setting,” she continued. “This is hypocrisy at its finest, and these troubling expenses to taxpayers must come under immediate scrutiny.” …The states Buttigieg visited have largely been considered swing states in recent federal elections.
I have an entire page dedicated to “Honest Leftists,” but maybe I also need a page for “Hypocritical Leftists.” Buttigieg definitely qualifies.
Though the real scandal isn’t his use of private jets rather than commercial flights. It’s the fact that he’s the head of a department that shouldn’t even exist.
As such, they think that it is a “subsidy” if we are allowed to keep any of our earnings.
If you think I’m exaggerating, let’s look at some excerpts from a column in the New York Times by Ron Lieber. He starts by equating Biden’s student loan bailout with a provision in the tax code.
For months now, we’ve been in a nationwide debate over whether we should cancel up to $20,000 in student loan debt for tens of millions of people. …But hiding in plain sight is another federal program — 529 college savings plans — that offers the biggest benefits to wealthy families. …With some careful planning, no taxes will come due for most people as long as future generations use the money to pay for college…, graduate school…and any other related educational costs.
Mr. Lieber wants people to think these two policies (the student loan bailout and the tax provision) are both ways of giving benefits to people.
Student loans take money from taxpayers and gives the funds to other people (the real beneficiaries are college administrators rather than students, but that a topic for another day).
By contrast, Section 529 accounts allow people to keep their own money.
Here are some further excerpts from the column.
In 2015, President Obama proposed taxing future earnings in 529 accounts. The blowback from the upper middle class was so severe — and from Democrats and Republicans alike — that he rescinded the plan in the same month that he introduced it. …we did not, as a nation, feel the need to call on The Supremes to weigh in on the legality of maintaining tax-favored savings for millions of people who could afford many college educations anyway. We just canceled the cancellation of their sweet, juicy subsidy without a vote in Congress or a trial. …it is the wealthy who have the best opportunity to extract the largest breaks from the federal government when it comes to saving and paying for college.
I’m not surprised Obama was on the wrong side, but let’s ignore that and instead focus on Lieber’s assertion that Section 529 accounts are a “sweet, juicy subsidy.”
As already noted, I don’t think it’s right to say it’s a subsidy when people get to keep their own money. That’s reminiscent of the offensive “tax expenditure” term used by some of the people in Washington.
However, Section 529 accounts are not loopholes. They are simply ways for people to save and invest without being subject to double taxation. Very similar to IRAs and 401(k)s.
Assuming courts are doing their job, it doesn’t matter if 90 percent of voters support restrictions on free speech.
Assuming courts are doing their job, it doesn’t matter if 90 percent of voters support gun confiscation.
Assuming courts are doing their job, it doesn’t matter if 90 percent of voters support warrantless searches.
That being said, a constitutional republic is a democratic form of government. And if government is staying within proper boundaries, political decisions should be based on majority rule, as expressed through elections.
In some cases, that will lead to decisions I don’t like. For instance, the (tragic) 16th Amendment gives the federal government the authority to impose an income tax and voters repeatedly have elected politicians who have opted to exercise that authority.
Needless to say, I will continue my efforts to educate voters and lawmakers in hopes that eventually there will be majorities that choose a different approach. That’s how things should work in a properly functioning democracy.
But not everyone agrees.
A report in the New York Times, authored by Elizabeth Harris and Alexandra Alter, discusses the controversy over which books should be in the libraries of government schools.
The Keller Independent School District, just outside of Dallas, passed a new rule in November: It banned books from its libraries that include the concept of gender fluidity. …recently, the issue has been supercharged by a rapidly growing and increasingly influential constellation of conservative groups. The organizations frequently describe themselves as defending parental rights. …“This is not about banning books, it’s about protecting the innocence of our children,” said Keith Flaugh, one of the founders of Florida Citizens Alliance, a conservative group focused on education… The restrictions, said Emerson Sykes, a First Amendment litigator for the American Civil Liberties Union, infringe on students’ “right to access a broad range of material without political censorship.” …In Florida, parents who oppose book banning formed the Freedom to Read Project.
As indicated by the excerpt, some people are very sloppy with language.
If a school decides not to buy a certain book for its library, that is not a “book ban.” Censorship only exists when the government uses coercion to prevent people from buying books with their own money.
As I wrote earlier this year, “The fight is not over which books to ban. It’s about which books to buy.”
And this brings us back to the issue of democracy.
School libraries obviously don’t have the space or funds to stock every book ever published, so somebody has to make choices. And voters have the ultimate power to make those choices since they elect school boards.
I’ll close by noting that democracy does not please everyone. Left-leaning parents in Alabama probably don’t always like the decisions of their school boards, just like right-leaning parents in Vermont presumably don’t always like the decisions of their school boards.
And the same thing happens with other contentious issues, such as teaching critical race theory.
Which is why school choice is the best outcome. Then, regardless of ideology, parents can choose schools that have the curriculum (and books) that they think will be best for their children.
P.S. If you want to peruse a genuine example of censorship, click here.
I’ll preemptively note that the United States in the 1800s is not a good example. The U.S. economy did well during that century, but it was because of policies such as no income tax and no welfare state.
What’s especially galling is when budget increases are used to hire more bureaucrats, yet taxpayers get nothing of value in exchanges.
That’s certainly the case in the United States, where education bureaucracies (and education spending) have dramatically increased, yet there has been no concomitant increase in educational outcomes.
Another examples come from the United Kingdom where the government-run National Health Service gets more money and more bureaucrats every year, as explained in CapX by Fiona Bulmer, yet there’s never an improvement in health outcomes.
Indeed, these five sentences are a perfect example of government bureaucracies in action.
…the NHS in England employs the full time equivalent of 1.2 million people, nearly 200,000 more than they did in 2012.
…in 2021, the NHS was around 16% less productive than before the pandemic.
…one of the managers lamented to me that he could schedule a maximum of four knee operations a day but in the private sector they manage eight a day.
…7m people on NHS waiting lists.
The NHS, like all organisations where users have no choice defaults to accommodating the providers not the consumers.
I’m left with two conclusions after reading those depressing numbers.
For the first 50-plus years of my life, free trade was in the ascendancy.
Policy makers had learned a big lesson from the Great Depression about how protectionism was economic poison, and various trade agreements after World War IIhelped reduce trade taxes and other barriers to cross-border commerce.
It also helped that there was a “Washington Consensus” in the late 1900s that supported pro-market reforms in the developing world.
Unfortunately, trade liberalization has ground to a halt. In part, this is the fault of the United States, thanks to the protectionism of both Trump and Biden.
But let’s also make sure the European Union gets a a share of the blame as well. For instance, the one good thing about the EU (free trade among members) also happens to be one of the many bad things about the EU (protectionism against the rest of the world).
But being a protectionist bloc is a trivial problem compared to what is on the horizon. As reported yesterday by the Wall Street Journal, the EU has unveiled a scheme to use climate as an excuse to increase global trade barriers.
The European Union reached an agreement to impose a tax on imports based on the greenhouse gases emitted to make them, inserting climate-change regulation for the first time into the rules of global trade. …The EU is expected to adopt it in the coming weeks as part of a sweeping package of legislation… The plan…has rattled supply chains around the globe and angered the EU’s trading partners, particularly in the developing world… It has also unsettled manufacturers in the U.S. who are concerned the measure would create a new web of red tape to export to Europe. …Europe’s carbon border tax aims to protect European manufacturers from competitors in countries that haven’t regulated carbon-dioxide emissions. …The legislation would require importers to register with authorities and seek authorization to import goods covered by the tax.
Today, the editorial page of the WSJ weighed in on the proposal.
Christmas came early to Europe’s tax accountants this week, although companies might think the occasion feels more like April Fool’s Day. …Europe is…pushing ahead with a carbon border adjustment mechanism, or CBAM, to tax imports on their carbon intensity. Europeans say this border tax is necessary to “level the playing field” for manufacturers that must pay for carbon emissions credits under the Emissions Trading System (ETS). The ETS already makes it less economical for some industries to operate in Europe, leading green activists to note a rise in imports from countries that don’t impose the complex tax. Imagine that. The CBAM would apply to imports from countries that don’t tax carbon emissions. …The biggest losers will be beleaguered European consumers. …carbon tariffs show how climate policy has become an anti-growth project. A better U.S. Administration would fight this, but the Biden White House and Treasury are fellow travelers.
I explained last year why this was a bad idea, noting that it was bad economics and also that it would advance cronyism and be a windfall for lobbyists (especially once the EU tries to calculate the about of untaxed carbon in every product).
But I also wondered if the Biden White House would be on the right side. After all, the US (thankfully) does not have a carbon tax, so you would think that American officials would be fighting against this EU proposal.
Unfortunately, I was being naive. As noted in the WSJ’s editorial, Biden and his team are fellow travelers. Indeed, the nightmare scenario (perhaps even worse the the nightmare scenario of the Trump years) is that Biden will unilaterally impose a version of climate protectionism on the US economy.
P.S. Is anyone surprised that the French were early advocates of this approach?
P.P.S. I’m a fan of the World Trade Organization, but I doubt that the WTO has the will or the ability to save the global economy from climate protectionism.
And what happened in Eastern Europe is our topic for today.
A new study by Brian Wheaton, a professor at UCLA who examined what happened after those nations adopted flat tax systems after the breakup of the Soviet Empire.
Here’s a map from the study, showing the nations that adopted the flat tax.
What were the economic results?
Here are some excerpts from Prof. Wheaton’s study.
Would a flat income tax substantially improve…incentives? To answer these questions, I study the experience of twenty post-Communist countries, which introduced flat taxation on income. I find that the flat tax reforms increase annual per-capita GDP growth by 1.38 percentage points for a transitionary period of approximately one decade. …Further, I find that the growth effect primarily operates through increases in investment and, to a lesser extent, labor supply. It is driven by the reductions in progressivity resulting from the reforms rather than merely the reductions in the average marginal tax rate.
And here’s a chart showing the pro-growth impact.
I wrote a column about this study yesterday for Townhall.
Here’s some of my analysis.
Starting about 30 years ago, there was serious interest in replacing the internal revenue code with a simple and fair flat tax. What motivated the desire to adopt a system based on one low rate, no double taxation of saving and investment, and no special loopholes? In part, it may have been because lawmakers at the time had a decent understanding of fiscal policy, having spent much of the 1980s lowering tax rates and seeing how that led to better economic performance. …With Bill Clinton in the White House, however, it was not possible to turn enthusiasm into reality. And in the following few decades, tax reform has fallen off the radar. …That’s unfortunate. America’s tax system has punitive features that reduce incentives for productive behavior. ..it would be a very good idea to resuscitate tax reform.
I explain that Professor Wheaton’s growth estimates are very important.
By the way, 1.38 percentage points of additional annual growth may not sound like much to some people, but the net effect is that flat tax nations wound up with about 15 percent more economic output after a decade. And that’s in addition to whatever growth they would have experienced without tax reform. A similar boost in growth in the United States would means several thousand dollars of additional economic output for every man, woman, and child.
And I close with a political observation.
It will be interesting to see whether some of the potential 2024 presidential hopefuls decide to battle these people and make tax reform part of their campaigns. Combined with other good ideas such as spending caps and federalism, there might be a winning message for the right candidate.
By the way, I’m not the only person to write about resuscitating tax reform.
Here are some excerpts from a column earlier this year by Cal Thomas for Jewish World Review.
The next time Republicans control all three branches of government they may wish to visit an old idea – the flat tax. …The Tax Code is a foreign language to many. As of 2018, it comprised 60 thousand pages in 54 volumes. According to The Tax Foundation, …the U.S. ranks 21st out of 37 nations in tax simplicity. Estonia has been first for eight straight years. Maybe we could learn from them. Look at states with no state taxes to see their prosperity. It is a major reason so many Americans are moving from high tax states to those with lower, or no state taxes. Unfortunately, one cannot escape the long arm of the IRS. A flat tax and the elimination of the IRS might help reduce the anger many people have about Washington and big spending politicians.
Since I’m a policy wonk, I mostly care about tax reform in hopes of reducing what economists refer to as “deadweight loss” in the economy.
But let’s also remember what Steve Forbes said in the video about the current system being corrupt.
One of my frustrations in life is that my friends on the left seem more interested in good intentions rather than good results.
With regards to overall public policy, I challenge them with my “never-answered question” and they are unable to respond.
With regards to specific issues such as fiscal policy, I show them my list of nations that enjoyed success with spending restraint, yet they are unable to respond when I ask for a list of nations that got good results with tax increases.
The same thing is true with industrial policy. I share lots of evidence that free enterprise is the best system for prosperity, yet they put forth zero examples for their view that we somehow will enjoy more growth if politicians and bureaucrats have power to steer the economy.
Actually, to be fair, they do offer examples. Just not good examples.
I explained last month that Japan’s experiment with industrial policy was a failure, helping to produce “lost decades” for that nation’s economy.
Today, let’s look at the other commonly cited example and explain why China is not a role model. I’ve already made this argument, but let’s put more nails in the coffin by reviewing a new working paper authored by Lee G. Branstetter (Carnegie Mellon), Guangwei Li (Shanghai Tech), and Mengjia Ren (Carnegie Mellon).
Here are some key excerpts, starting with their explanation of the key issues they addressed.
Each year, governments worldwide spend an enormous amount of money subsidizing businesses. …In this paper, we try to peek into the black box of government subsidies to businesses in the context of China. …In this paper, we…fill this gap in the literature by analyzing firm-level subsidy data for companies listed on the Chinese stock exchanges. …we explore the following questions. Which firms are likely to get higher subsidies those with higher productivity or lower productivity? Does the receipt of subsidies, especially those related to R&D and innovation or industrial and equipment upgrading, raise firms’ productivity in subsequent years?
And what did they find?
You won’t be surprised to learn that industrial policy is backfiring in China.
Our results provide little evidence to support the view that government subsidies have been given to more productive firms or that they have enhanced the productivity of the Chinese listed firms. First, at the aggregate level, subsidies seem to be allocated to less productive firms, and the relative productivity of firms’ receiving these subsidies appears to decline further after disbursement. Second, using the categorized subsidy data, we find that neither subsidies promoting R&D and innovation promotion nor subsidies promoting industrial and equipment upgrading are positively associated with firms’ subsequent productivity growth.
The first thing to understand from this study is that industrial policy meant that unproductive firms got the subsidies.
And the second thing to understand is that already low levels of productivity declined further after getting handouts.
Why? Because politicians and bureaucrats give away money on the basis of what makes political sense, not on the basis of what makes economic sense.
P.S. What’s doubly frustrating about the issue of industrial policy is that there are proponents on the right as well as on the left.
P.P.S. Some advocates assert that taxpayers should provide subsidies to American companies because there are national security reasons to reduce reliance on Chinese companies. But if that’s true, that’s simply an argument for restricting economic relations with China, not an argument for domestic cronyism (or global protectionism).
Even though mocking politicians is one of my favorite activities, I just noticed that I’ve only shared one column of anti-politician satire this year. And that’s after sharing four versions (here, here, here, and here) in 2021.
So let’s try to catch up with some new jabs at our lords and masters.
We’ll start with some eternal wisdom from Steve Harvey.
It was amusing, of course, but also made a serious point about “moral hazard,” which is what happens when government policy rewards bad behavior.
I’m in favor of risk taking, and I certainly don’t object to people earning lots of income when they make astute choices.
But it sends a terrible signal if we bail them out when they make bad choices.
That approach tells others to go overboard with speculation. After all, heads they win, tails the taxpayers lose (as illustrated by this clever cartoon).
And now we can add union pension plans to the list. Here are some excerpts from an editorial in yesterday’s Wall Street Journal.
Democrats sold their $1.9 trillion spending bill in 2021 as Covid “relief,” but it included some $86 billion to shore up more than 200 ailing union multi-employer pension plans. The $36 billion for the Teamsters’ Central States Pension Fund is the largest tranche awarded so far, but Mr. Biden assured his labor friends on Thursday that more is on the way. …Central States last year was only 17% funded and projected to collapse in a few years. …Congress in 2014 acted to prevent this death spiral by passing bipartisan legislation that let sick plans reduce benefits and make other changes to avoid insolvency. Eighteen plans took advantage of the law, but Democrats then had second thoughts and decided to ding taxpayers instead. …Last year’s union, er, Covid relief bill lets the PBGC make lump sum payments to keep some sick 200 multi-employer plans solvent through 2051 and fully restore benefits in the 18 plans that had cuts. Notably, the law prohibits the PBGC from conditioning aid on governance reforms or funding rules. But it doesn’t forbid benefit increases. So the failings that got these plans in trouble will continue and may lead to future bailouts. Government unions with under-funded pensions in New Jersey and Illinois will surely demand one too.
Back in July, Eric Boehm of Reason warned that this was going to happen and that it would be a very bad idea.
The bailout was approved last year as part of the American Rescue Plan, the $1.9 trillion emergency spending bill…the multiemployer pension plan bailout is arguably the least defensible provision in a bill that was full of indefensible spending. …Reps. Virginia Foxx (R–N.C.) and Rick Allen (R–Ga.), respectively the top Republicans on the Education and Labor Committee and the Health, Employment, Labor, and Pensions Subcommittee, in a joint statement…added, “creates perverse incentives for further mismanagement and underfunding and leaves the taxpayer holding the bag.” …this is something of a no-brainer. Biden delivered a major win to his labor union allies, put the cost on the taxpayers’ tab, and took a victory lap for doing it. …And everyone else gets to pay for it.
That same month, Howard Adler and Alex Pollock made similar points in a column for the Wall Street Journal.
Multiemployer plans often promise beneficiaries more benefits than they can afford. Many are governed by a board of trustees with equal representation from unions and employers—a recipe for increasing benefits but not funding them. …Congress and the Biden administration wrote a blank check to political supporters under the guise of Covid relief. …The most egregious aspect of the bailout is that it made no attempt at structural reform. Plans are free to continue the practices that got them into trouble in the first place. …The PBGC’s new projected insolvency date is 2055, four years after the bailout funds end. The pension scheme is set up for failure—or another bailout—in three decades. Bailouts should be conditioned on reforms. In prior bailout legislation…Congress tried to address the causes of the failures that made a bailout necessary. But with multiemployer pension plans, lawmakers made no attempt to fix anything—they merely spent taxpayer money.
What’s most upsetting about this bailout is not the money that’s being squandered today.
But future spending on additional bailouts is just part of the problem. There’s also a macro cost to the economy because the allocation of capital will be distorted.
Investors will take imprudent risks because there is a greater-than-zero chance (in some cases, probably close to 100 percent) that politicians will shift future losses on to the backs of taxpayers.
For a very recent example, Chris Griswold asserted earlier this month in Newsweek that Republicans should reduce their infatuation with economic liberty.
American workers are intensely tired of getting, well, railroaded by libertarian economic ideology that treats them as cogs in the free-market machine rather than human beings whose dignity, family lives, and communities matter. And they want an economic agenda that will do something about it. It is the task of responsible conservative leaders to articulate such an agenda. …Capitalism only works when pursuing profit results in investment in domestic production and employment. When the pursuit of profit leads instead to offshoring, reckless financial speculation, and the destructive exercise of monopoly power, it’s time for public policy to step in. …The great mistake of Republican policymakers in recent decades has been to confuse their policies for principles, as if “Tax Cuts” and “Free Trade” are the essence of conservatism and must be upheld regardless of circumstances. …Many working families are weary of economic policy that treats them as disposable. The political party that best responds to them stands to earn the support of a governing working-class majority.
I actually laughed out loud when reading the above column. How can anyone who lived through the big-spending Bush years or the big-spending Trump years think that Republicans in recent decades have been motivated by “libertarian economic ideology”?
But the bigger problem with the article is that Griswold apparently thinks that there’s an alternative to “free markets” that would produce better results for the working class.
You’ll notice he offers no evidence for that assertion. That’s because all the evidence clearly shows that you get more prosperity where government plays a smaller role.
What we should be doing, of course, is helping workers by getting government out of the way.
Scott Lincicome’s column in today’s Wall Street Journal correctly summarizes some of the best ways of making that happen.
‘Standing up for the American worker” has long been a slogan synonymous with bigger government in Washington. …this pro-worker chorus has become loud and bipartisan—trumpeting tariffs, wage subsidies, benefits mandates and stricter labor regulations. Its champions have coalesced on the assumption that “free markets” have failed the working class. …the claim that markets have failed American workers ignores the panoply of federal, state and local policies that distort markets and raise the cost of healthcare, child care, housing and other necessities; lower workers’ total compensation; inhibit their employment or personal improvement; and deny them the lives they actually want. …modest changes to existing regulations would lower child-care prices by thousands of dollars with little effect on quality. …eliminating tariffs on food, clothes, shoes and other household essentials would increase parents’ real incomes even more. …reforming housing, licensing, criminal justice, K-12 education, welfare and other harmful policies would boost workers’ mobility, bargaining power and lifetime earnings. …many in Washington think of American workers as helpless, static and in need of government protection from cradle to grave, despite their registered preferences and the documented harms that such policies as European-style labor regulations can inflict on them and the U.S. economy more broadly.
Because politicians have built-in incentives to expand the size and scope of government, it is very rare to find elected officials who actually deliver more liberty.
Some of them will offer rhetoric, of course, but very few of them produce results.
And it’s almost certainly true at the state level.
Though I found an exception, and that is the topic of today’s column.
The outgoing governor of Arizona, Doug Ducey, deserves praise from libertarians and small-government conservatives.
George Will is especially impressed with Ducey’s education reforms (and I agree).
Here are some excerpts from his Washington Post column.
With two trenchant sentences, the nation’s most successful governor of the 21st century defines the significance of his signature achievement: “Fifty years ago, politicians stood in the schoolhouse door and wouldn’t let minorities in. Today, union-backed politicians stand in the schoolhouse door and won’t let minorities out.” Hence Gov. Doug Ducey’s Empowerment Scholarship Account program, which was enacted this year to provide universal school choice in grades K-12. Every Arizona family is eligible to receive about $7,000 per student per year to pay for private school tuition, home schooling, tutoring, textbooks, online courses, programs for special-needs pupils and more. …ESA was ferociously opposed by the teachers’ unions, whose confidence in the quality of their schools can be gauged by their fear of competition. A union attempt to repeal ESA by referendum failed to get enough signatures to qualify for the ballot, partly because of a group (Decline to Sign) in which, Ducey said here last week, Black leaders were disproportionately active.
The Wall Street Journal is impressed with his tax reform (and I agree).
Arizonans who fled California for sunnier tax climes can breathe easier after a court ruling that has saved the day from a punitive 8% top state tax rate. A state judge…struck down Arizona’s Proposition 208, which placed a 3.5% surtax on incomes above $250,000, or $500,000 for joint filers. …Nixing the surtax means Arizona will soon have a flat tax of 2.5% on individual incomes, the lowest flat rate among states with an income tax. Gov. Doug Ducey slashed the previous 4.5% top rate in his 2022 budget… Tax competition has helped Arizona draw residents and businesses from neighbors like California, but the surtax would have sent the Grand Canyon State down a Golden State path. The tax’s $250,000 income threshold made it a particular burden on small businesses that pay taxes under the individual code. The episode is a reminder of the value of constitutional guardrails on state taxes and spending. Arizona voters in 1980 placed limits on school spending through a ballot initiative, preventing unrestrained budget bloat.
In a column for National Affairs, James Glassman mentions school choice and the flat tax, but also a few of his other accomplishments.
Since Arizona’s governor is limited to eight years in office, Ducey’s second term — which ends in January — will be his last. This makes it an opportune time to consider Ducey’s legacy… This past January, Ducey told the state legislature, “[l]et’s think big and find more ways to get kids into the school of their parents’ choice…” In July, he did just that. The Empowerment Scholarship Account program — the most expansive school-choice program in America — is a pure choice-based system that provides $6,500 per student to any family that prefers an alternative to public schools. …When he entered office, he announced that he wanted the state’s personal income tax rate, which stood at 4.5%, to be “as close to zero as possible.” He started by indexing brackets to inflation, then chipped away at the rate with dozens of specific reductions. Finally, last year, he signed into law the largest tax cut in the state’s history, which will achieve a flat tax of 2.5% within three years. On regulatory policy, …he axed or modified more than 3,000 regulations. …he signed the first universal occupational-licensing law in the nation: Arizona now automatically recognizes occupational licenses issued by any other state. He also eliminated initial licensing fees for applicants from families making less than 200% of the federal poverty level.
Ducey’s licensing reform is especially impressive. For all intents and purposes, he adopted an approach based on “mutual recognition,” and that makes it much easier for people in other states to shift economic activity to Arizona.
P.S. George Will’s column also notes that Ducey is not a fan of Republicans who want to surrender to bigger government.
During a September speech at the Ronald Reagan Presidential Library in California, Ducey deplored the fact that “a dangerous strain of big-government activism has taken hold” in the Republican Party, and “for liberty’s sake we need to fight it with every fiber in our beings”.
And I’ve specifically written that Medicaid is the entitlement program most in need of reform.
Moreover, I explained in this video that Medicaid’s split-financing model (some of the costs are paid by Washington and some of the costs are paid by states) creates a perverse incentive for politicians to make the program bigger.
The bottom line is that Medicaid needs to be fixed. That being said, not all reform proposals are created equal.
In a column for National Review, Chris Pope of the Manhattan Institute starts by correctly diagnosing the perverse incentives that make Medicaid a fiscal nightmare.
Medicaid now generally provides between $1 and $3 of federal funds for every $1 that states spend on medical services for eligible low-income beneficiaries, offering them an extraordinarily high return on investment. …states have become adept at using Medicaid to harvest federal funds. All 50 states now tax hospitals and other medical providers to inflate the matching aid they can claim from the federal government… When Medicaid caseloads decline during economic upturns, states have tended to expand benefit packages and loosen eligibility criteria — relying on Congress to provide ad hoc bailouts when expenses spike in subsequent recessions.
Amen.
I’m particularly disgusted that the system rewards states for taxing healthcare providers (who largely like the system because the taxes are less than the extra money they get from the added Medicaid spending).
But my enthusiasm for his article evaporated when he said the solution is to put Washington completely in charge.
America’s state governments are currently flush with funds and expanding their spending commitments. …This dynamic — of states overextending themselves in healthy fiscal times and then relying on national bailouts when the business cycle takes a downturn — has become characteristic of modern American federalism. …Should a future recession necessitate another round of bailouts, the federal government should assume full financial and operational responsibility by nationalizing currently split entitlement programs. Federal legislation already mandates most details of basic Medicaid benefits and eligibility, as well as providing 70 percent of funding. …Entitlements can be provided most robustly and cost-effectively if they are administered and financed nationally. As with Medicare and Social Security, this would make programs easier for Congress to control, avert the need for bailouts of states in recessions, and eliminate the ability of politicians to overextend programs by shifting costs to taxpayers outside their states.
The author is almost surely right that a federal takeover would produce better outcomes than the current hybrid system.
But an even better option would be complete decentralization. The federal portion of Medicaid spending should be turned into “block grants,” meaning states would simply get a pile of money and they can then decide how best to provide health care to lower-income people.
Under that kind of system, we’d get innovation, with states learning from each other (and also competing with each other).
I’ll close by noting that this is not some sort of risky or untested notion. Bill Clinton’s welfare reform replaced a federal entitlement with a block grant and that was very successful.
Federal bureaucrats are overpaid compared to workers in the productive sector of the economy.
State and local bureaucrats also are overpaid compared to people in the private sector, though usually the gap is not quite as large.
But “usually” does not means “always.”
The most absurd examples of excess bureaucrat pay generally are found at the state and local level.
Especially in places like New Jersey where politicians and government employee unions have strong alliances against taxpayers.
And California, of course, where fleecing taxpayers has become an art form for some bureaucrats (see here, here, here, here, here, here, here, and here).
If you don’t believe me, read these excerpts from a Bloomberg report by Martine Paris.
A Beverly Hills cop tops the list of the highest-paid California municipal employees, 100 of whom took home $439,000 or more in total wages last year. The assistant police chief’s total compensation was $716,284 in 2021, $208,087 in regular income, with the rest for lump-sum and other pay… Marc Coopwood retired last year as assistant police chief in Beverly Hills after 4 years and 7 months in the role… As part of his separation agreement, he was issued a final payment that included 12 months’ salary and benefits, as well as compensation for unused leave, the city said in a statement. …The top 10 highest-paid list includes city managers in West Hollywood, Artesia and Fremont, two fire captains in the city of Los Angeles and a firefighter, as well as a load dispatcher at the Los Angeles Department of Water & Power who booked $400,000 in overtime compensation.
I don’t know what’s more outrageous, the assistant police chief with more than $716K of compensation, or the fact that 100 bureaucrats pocketed at least $439K?
Or is it the bureaucrat who fleeced taxpayers for $400K of overtime?
When I write about government schools, I often revise Winston Churchill’s famous quote about the Royal Air Force so that it reads “never have so many paid so much to achieve so little.”
Many families, especially those with money, have opted out. They are still forced to pay taxes for government schools, of course, but they prefer private education.
That means paying with their money for a private school or paying with their time (and some money) for homeschooling.
It’s happening more and more, as John Harden and Steven Johnson have reported in the Washington Post.
The pandemic transformed the landscape of K-12 education. Some parents withdrew their kids from public school and placed them into private or home schools. Their reasons varied: Many preferred private schools that offered in-person instruction; others distrusted public schools’ pandemic precautions. …So far, data show that since 2019, private enrollment is up, public enrollment is down and home schooling has become more popular. Families flocked to private and home schools at the greatest rate in a decade, according to American Community Survey estimates from the U.S. Census. The government projects that K-12 public school enrollment — already facing demographic pressures — will drop further to about 46 million students by fall 2030, according to the National Center for Education Statistics, reversing decades of growth.
The story then continues with summary statements from several parents about why they opted their kids out of government schools.
But allow me to throw in my two cents and answer the question about “Why are Americans Fleeing Public Schools?”
Subpar Education – I sent my kids to private schools because I wanted them to get a better-quality education and the evidence is clear that private alternatives do a much better job of teaching.
Political Brainwashing – It is good for kids to learn the good points and bad points about their nation’s history, but things like the “1619 Project” are academically sloppy and almost seem designed to promote victimhood and division.
Pandemic Failure – It became apparent to many parents that government schools, first and foremost, are run for the benefit of government bureaucrats rather than providing education for children.
There doubtlessly are many other reasons for choosing private alternatives over the government monopoly.
Some parents worry about safety. Others want a school that reflects their social and religious values.
Since I’m a public-finance economist, I’m motivated by the fact that government schools cost more and provide and inferior product.
The bottom line is that everyone deserves education choice, not just rich people (including lots of hypocritical leftists).
P.S. Here’s a video explaining the benefits of school choice.
P.P.S. There’s international evidence fromSweden, Chile, Canada, and the Netherlands, all of which shows superior results when competition replaces government education monopolies.
One of the reasons the western world became relatively rich in recent centuries is that “rule of law” evolved to constrain capricious and dictatorial behavior by government officials.
But support for the “rule of law” as a concept does not mean blind approval and/or acquiescence to every bit of legislation that politicians enact.
Simply stated, I want justice. In some cases, that means I want enforcement of laws. In other cases, I want resistance to laws.
Now let’s apply this principle to the issue of gun control in America’s northern neighbor.
Here’s what’s happening in Canada, as reported by Amanda Coletta for the Washington Post.
…in 2020, …Prime Minister Justin Trudeau banned some 1,500 makes and models of “military-grade” assault-style firearms and pledged to buy them back from owners. …as Canada’s Liberal government prepares to launch the first phase of the mandatory buyback, several provinces and territories say they won’t help. The most strident opponents, including the United Conservative Party government in Alberta, are suggesting the Royal Canadian Mounted Police “refuse to participate.” Tyler Shandro, the province’s justice minister, declared the buyback was not “an objective, priority or goal” of the province or its Mounties. Alberta, he said, is “not legally obligated to provide resources for it.” …Saskatchewan, Manitoba and New Brunswick have also balked at using “scarce RCMP resources” for the program. …“Alberta taxpayers pay over $750 dollars per year to fund the RCMP as our provincial police service,” Shandro, the Alberta justice minister, wrote in September to Curtis Zablocki, the head of the Alberta RCMP. “We expect that those dollars not be wasted to pay for a confiscation program that will not increase public safety.”
For what it’s worth, Mr. Shandro is understating the case against gun confiscation.
It’s not just that such proposals “will not increase public safety.” An even bigger concern is that they will reduce public safety because bad people obviously won’t be turning in their guns.
But I’m digressing. Let’s get back to the issue of civil disobedience.
The Post article only mentions one type of disobedience, which is the extent to which provincial and territorial governments will refuse to help enforce Trudeau’s bad law (the same phenomenon exists in the US).
The other type is when individuals refuse to comply, which is something we’ve seen in the United States and in nations such as Australia and New Zealand.
By the way, this is why gun registration is a dangerous step. If politicians and bureaucrats know who has guns, confiscation schemes are easier to enforce.
Though hopefully such efforts can be thwarted if gun owners report that their weapons have been “lost” or “stolen” – which surely would happen if American politicians ever tried gun confiscation in the United States.
I frequently call attention to my “anti-convergence club” because it shows – using decades of data – that you get more prosperity in nations with more economic liberty.
Including in Eastern Europe, as we can see from this comparison of pro-market reform nations (the dark blue line) and countries with more government (the light green line).
To be more specific, it comes from a chapter, authored by Dan Negrea, Joseph Lemoine, and Yomna Gaafar, that compares the nations in the region that done the most pro-market reforms with the ones that have lagged behind.
Here’s an excerpt.
Eastern European countries…were at a comparable development level at the time of the democratic revolutions that swept Eastern Europe in the late 80s and early 90s. But by 2021 the group was no longer homogenous: they had different levels of freedom, and some had experienced robust prosperity while others had stagnated at a middle-income level. …we show that the countries that experienced more political, economic, and legal freedoms enjoy greater prosperity. Conversely, those which progressed less on the path of freedom are also less prosperous. …We first selected from among Europe’s formerly Communist countries a group with a comparable level of economic development in 1996, the first year with World Bank data for all post-Communist countries. …We then ranked these countries by their progress towards greater freedom by 2021 using the Atlantic Council’s Freedom Index. …We then created two groups. Group 1 includes all countries in the select group that are in the “free” category of this index. Group 2 includes all the other countries in our select group. Next, for countries in both groups, we compared their GDP per capita levels in 1996 and 2021, and calculated GDP growth multiples for each country and for both groups.
As already suggested by the above chart, Group 1 nations are doing much better than Group 2 nations.
If you want some of the details, here’s a table with a lot more information.
Back in September, Richard Rahn also wrote about economic freedom in Eastern Europe. Here are some excerpts from his column in the Washington Times.
…many of the former countries in Eastern Europe that were part of the Soviet Union or under the Soviet thumb have become some of the economically freest and most successful countries. …As a result of economic freedom, real incomes have also risen rapidly so most are now middle income – which is a sharp change from the poverty that they were mired in during Soviet times. The question is “Why did they do so well?” …Estonia was perhaps the best example of rapid constructive change. When the country gained full independence in 1991, its people elected a brilliant young history professor, Mart Laar, who liked to say the only book he had ever read in economics was Milton Friedman’s “Free to Choose.” Mr. Laar said it sounded good to him so the Estonians went ahead and did it. As expected, the international bureaucrats at the World Bank, IMF, and foreign affairs departments of major countries recommended against going all out for economic freedom. …their advice was properly often ignored. …To this day, many of the former socialist countries have some of the world’s lowest debt-to-GDP ratios and are much more fiscally sound than most of the major countries. During a worldwide financial crisis, they will be the last ones to go bankrupt or resort to hyperinflation… Most the countries instilled more sensible new tax systems with low-rate or even flat taxes. Bulgaria has a simple 10% flat tax on both corporate and personal income.
The demographic outlook in Eastern Europe is terrible. I wrote on that topic back in 2016.
And here are some excerpts from a column in the Washington Post by Charles Lane in late 2019.
The question now is whether the end might be near for Eastern Europe, demographically. …Of the 20 most rapidly shrinking countries in the world, 15 are erstwhile Warsaw Pact members, ex-Soviet republics or components of the former Yugoslavia (plus neighboring Albania). …Eastern Europe’s looming demographic crisis stems directly from its escaping the Soviet orbit in 1989. Freedom of movement, coupled with membership in the borderless European Union, enabled millions of working-age people to leave the former Soviet bloc for work in the more prosperous West. Emigration, plus low and declining birthrates — a characteristic of modern society that Eastern Europe shares with Western Europe and the United States — has resulted in whole villages hollowing out, with only pensioners left behind. …Demographic decline is extremely difficult to reverse, wherever it occurs. As experience has shown in various countries, governments cannot do much to raise birthrates, even with generous subsidies for families with children.
Needless to say, the situation has not improved. Though it will be interesting to see whether the huge baby subsidies in Hungary will make a difference.
But since I’m skeptical of that approach, I’ll close by noting that Eastern Europe’s demographic decline is a recipe for fiscal disaster because there won’t be enough future taxpayers to pay benefits that have been promised to the elderly.
For what it’s worth, “pre-funding” is probably the only practical way of dealing with demographic decline, and this means big reforms such as personal retirement accounts.
This is feasible. Jurisdictions such as Hong Kong and Singapore also are facing demographic decline, but they are in a much stronger position because they don’t have tax-and-transfer welfare states. People are required to save for their own retirement.
The bottom line is that Eastern European nations need to engage in a lot more reform (especially self-funding for things like Social Security and health care) if they want to continue to make economic progress.
P.S. Here’s one final excerpt, dealing with membership in the European Union, from the chapter that we discussed at the start of the column.
…for Eastern Europe’s former Communist countries, the EU’s rules and standards catalyzed national consensus for reforms to make a clean break with their former malefic and malfunctioning Communist political and economic system. Today, EU support for reform in candidate member states, culminating in their EU membership, is a propellant for freedom and prosperity in these countries.
Notwithstanding my general disdain for the European Union, I agree that membership is good for Eastern European nations.
As we have seen in nations such as Greece and Argentina, voters sometimes cannot resist the temptation to support profligate politicians – a process that can lead to “goldfish government.”
In effect, voters choose fiscal suicide.
There’s even a quote, often mistakenly attributed to Ben Franklin, that this is the Achilles’ Heel of democratic governments (for what it’s worth, it appears that a Scottish historian, Alexander Fraser Tytler, was the real source).
If you think I’m being unduly pessimistic, consider what House Republicans did earlier this week. As Kimberly Strassel explained in her Wall Street Journal column, they decided that the swamp is actually a hot tub.
Self-awareness isn’t one of the modern GOP’s strong suits, as House Republicans proved again this week. …Leader Kevin McCarthy in September unveiled to great fanfare the party’s Commitment to America, which vowed that Republicans would “curb wasteful government spending”… Then came Wednesday’s first test of whether this was all hot air… Rep. Tom McClintock moved to repeal the recent party rule allowing earmarks. The caucus routed his motion, voting it down 158-52. Commitment to America? More like Commitment to Spoils.
She added some historical context.
The GOP swore off earmarks in 2011, when it stood for something… But when a Democratic Congress in 2021 announced intentions to bring them back, GOP trough-feeders rushed to sign up. …And the addicts aren’t interested in rehab.
Her conclusion does not pull punches.
If Republicans can’t muster the backbone to get rid of earmarks that are an affront to spending discipline, good governance and federalism, voters won’t muster the enthusiasm to keep them in charge.
And if you wonder whether earmarks are wrong, here are some excerpts from a column in National Review by Romina Boccia.
Earmarking contributes to excessive spending and is a distraction from more fundamental governing responsibilities, such as reining in deficit spending… Supporters of earmarks insist that they are central to Congress’s exercising its constitutional power of the purse. …To the degree that Congress leaves too much discretion to the executive to determine federal funding allocations, it should address that issue directly… Looking at the details of where the money flows, it becomes clear that earmarks mostly authorize pork-barrel spending. …Such a misdirected focus inevitably invites fraud, waste, and abuse. …The 117th Congress included 4,963 earmarks worth a total of $9.1 billion in fiscal-year (FY) 2022 appropriations bills. From feral-swine management to aquarium subsidies to museum and theater funding to local bike paths, FY2022 earmark spending spanned the gamut of parochial interests.
Needless to say (but I’ll say it anyhow), earmarks are directly linked to corruptions.
P.S. Just in case everything I just wrote did not convince you that earmarks are a problem, then maybe this headline from September will be more compelling.
My views on gridlock were fully captured in the title of a 2015 column, which stated that divided government was “Better than the Alternative of Expanding Government.”
And I followed up with a 2020 column that showed that spending restraint was more likely when the two parties were forced to share power.
To be sure, divided government also can produce very bad results (the country suffered a big expansion in the burden of government during the Nixon years, for instance).
But J.D. Tuccille from Reason explains why Americans should feel happy about gridlock starting in 2023.
…the election results stand as an expression of overwhelming lack of confidence in the major parties, with a resulting breather for the country resulting from the split decision’s ensuing, and quite welcome, gridlock. …The Wall Street Journal‘s Brody Mullins and John D. McKinnon noted last week. “…Washington overall isn’t expected to do much for the next two years.” That’s good news for Americans baffled by Democrats’ insistence on treating the U.S. economy as something between a laboratory experiment and a toy train set, with lawmakers indulging their whims through serial rounds of life-altering policy moves. …Republicans didn’t exactly convince the country that they were the cavalry riding to the rescue. Their main selling point seems to have been that they weren’t Democrats. …gridlock, with all of its faults and instability, is what we have, and we should be thankful for that. …gridlock can give us a bit of a national breather, and that may be the best we can hope for from a destructive political system.
But there are two reasons why gridlock is not a long-run solution.
First, Tuccille points out that we now have presidents claiming autocratic powers.
The gridlock…isn’t total. The increasingly autocratic nature of the presidency allows enormous room for the nation’s chief executive to act unilaterally. Through executive orders and memoranda, presidents enact policy changes that should go through Congress (if they’re permissible at all) in a manner befitting elective monarchs. The only real check on that power is the willingness of the courts to remind the country that, while rule-by-decree is a form of government, it’s not one permitted by the Constitution.
I’ll close with a depressing observation about what to expect from politics. Simply stated, politicians generally have incentives to maximize their short-run status, not to maximize the nation’s long-run health.
So, whether we have gridlock or not, it’s not easy to be optimistic.
You have to go all the way back to Ronald Reagan to find a Republican who actually was on the side of taxpayers (and before him, you have to go all the way back to Coolidge).
The same GOP that…blew through discretionary spending caps. The same GOP that has unofficially re-embraced earmarks. The party occasionally takes a breather—say to gripe about the Democrats’ $1.9 trillion Covid bill in 2021—but then it’s right back to the spending grindstone. When was the last time anyone heard a Republican talk about the need to reform Social Security or Medicare? That disappeared with the election of Donald Trump (opposed to both)… Instead, a growing faction of the party sees a future in buying the votes of working- and middle-class voters with costly new entitlement proposals of their own, such as expanded child tax credits.
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