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I realize that we’re in the midst of an important tax battle in Washington and that I should probably be writing about likely amendments to the Senate tax bill.

But long-time readers know that I’m bizarrely preoccupied by international tax issues (I would argue for very good reasons since global tax competition is a way to discipline greedy politicians and because I want the power of governments to be constrained by national borders).

So I can’t resist commenting on a Washington Post story about the tax implications of the upcoming wedding of Prince Harry and Meghan Markle.

It may seem like a modern fairy tale, but the upcoming wedding of Britain’s Prince Harry to American actress Meghan Markle will come with some mundane hurdles. Perhaps most inconveniently for the British royals, this transatlantic partnership could end up involving the United States’ Internal Revenue Service.

Most readers probably wonder how and why the IRS will be involved. After all, Ms. Markle no longer will be living in the United States or earning income in the United States after she marries the Prince.

But here’s the bad news (for the millions of Americans who live overseas, not just Ms. Markle): The United States imposes “worldwide taxation,” which means the IRS claims the right to tax all income earned by citizens, even if those citizens live overseas and earn all their income outside of America.

…there already has been widespread speculation that the union of Prince Harry and Markle eventually could result in some British royal children wielding American passports. But there’s a big obstacle in the way: American tax laws. …The United States’ citizenship-based taxation system is unusual: Only Eritrea has a similar system. It’s a relic of the Civil War and the Revenue Act of 1862, which called for the taxing of U.S. citizens abroad.

Here’s what this means for the royal family.

Markle’s American citizenship could open up the secretive finances of the royal family to outside scrutiny. If she remains a U.S. citizen, Markle will have to file her taxes to the IRS every year. And if she has more than $300,000 in assets at any point during the tax year — a likely scenario, given her successful acting career and her future husband — she will be expected to annually file a document called Form 8938 that will reveal the detail of these assets, which could include foreign trusts. …Although Markle’s tax information would not become public once sent to the United States, it would leave the royal family open not only to IRS review but also the risk that the information could leak, said Dianne Mehany, a tax lawyer at Caplin & Drysdale.

So what’s the solution if the royal family wants to avoid the greedy and intrusive IRS?

Ms. Markle will need to copy thousands of other overseas Americans and renounce her citizenship.

…the royal family employs some of the country’s best tax consultants. …”My guess is that she’ll be pressured by the Royal family to renounce [her U.S. citizenship], even if she’d rather not,” Spiro added. In many ways, that solution may be the simplest. And if Markle does give up her citizenship, she won’t be alone. Treasury Department data show that 5,411 people chose to expatriate in 2016 — a 26 percent year-over-year increase and potentially a historic high — and experts expect that number to keep rising because of the increasing tax burdens placed on U.S. citizens living abroad.

And it’s embarrassing to acknowledge that the United States has a very barbaric practice (used by evil regimes such as Nazi Germany and Soviet Russia) of extorting funds from Americas who are forced to give up citizenship.

She…would be subject to a potentially considerable exit tax.

This is adding injury to injury.

But Ms. Markle can be comforted by the fact that she’s not an outlier. Because of America’s bad worldwide tax regime (and especially because of FATCA, which makes enforcement of that bad system especially painful), an ever-growing number of overseas Americans have been forced to give up their citizenship.

Maybe as a wedding present to Prince Harry, American politicians can junk America’s terrible worldwide tax regime. That doesn’t require dramatic change, but why not fix a bunch of problems at once? I’ll simply point out that the flat tax is based on the common-sense approach of territorial taxation (governments only tax economic activity inside national borders).

P.S. This issue also impacts America’s Olympic athletes.

P.P.S. And Santa Claus as well!

I have a fantasy of junking the entire corrupt tax system and adopting a simple and fair flat tax.

I have an even bigger fantasy of shrinking the size and scope of the federal government to what America’s Founders intended, in which case Washington wouldn’t need any broad-based tax.

But in the real world, where I know “public choice” determines political behavior, I have much more limited hopes and dreams.

I’ve been saying for months that tax reform will be a worthwhile success if it leads to a significantly lower corporate tax rate and the elimination of the deduction for state and local income taxes.

And I recently added repeal of the death tax as a third item that would make me very happy.

Now let’s add a fourth item to my wish-list. The House version of tax reform actually does  a decent job of curtailing some of the egregious distortions that line the pocket of companies that peddle so-called green energy.

I know it must be a decent job since the GOP plan is causing angst for leftist journalists.

The Republican-controlled House of Representatives…bill would slash incentives for renewable energy and the electric car industry. Environmental groups are frantic. …The House provision raising the most ire are proposed changes to the renewable electricity production tax credit, which benefits producers of wind, solar, geothermal and other types of renewable energy. …The House GOP plan would also repeal the Investment Tax Credit for big solar projects that start construction after 2027. House Republicans also propose eliminating the $7,500 credit for electric vehicle purchases. …the Senate bill may not include all of the House’s cuts to clean energy.

It is true that the Senate bill is very timid. But given that there will be a lot of pressure to find “offsets” in any final deal, I’m vaguely hopeful that some of the good provisions in the House bill will survive.

Let’s explore why that would be a very good outcome.

Veronique de Rugy of the Mercatus Center is not a fan of cronyist subsidies to solar energy.

Under President Barack Obama, green energy subsidies were given out like candy. The failure of solar panel company Solyndra is well-known, but the problem extends well beyond the shady loan deal and its half-billion-dollar cost to taxpayers. Between 2010 and 2013, federal subsidies for solar energy alone increased by about 500 percent, from $1.1 billion to $5.3 billion (according to the U.S. Energy Information Administration), and all federal renewable energy subsidies grew from $8.6 billion to $13.2 billion over the same period. …However, that didn’t stop the largest U.S. solar panel manufacturer, SolarWorld, from filing for bankruptcy earlier this year despite $115 million in federal and state grants and tax subsidies since 2012, along with $91 million in federal loan guarantees. SolarWorld and fellow bankrupt manufacturer Suniva are now begging for even more government assistance, in the form of a 40-cent-per-watt tariff on solar imports and a minimum price of 78 cents (including the 40-cent tariff) a watt on solar panels made by foreign manufacturers.

Mark Perry of the American Enterprise Institute explains that wind energy is reliant on taxpayer handouts.

…government data shows that offshore wind power cannot survive in a competitive environment without huge taxpayer subsidies. Today, wind power receives subsidies greater than any other form of energy per unit of actual energy produced. …public subsidies for wind on a per megawatt-hour basis are 26 times those for fossil fuels and 16 times those for nuclear power. …The tax credit gives $23 for every megawatt-hour of electricity a wind turbine generates during the first 10 years of operation. …Yet, even with these incentives, only 4.7 percent of the nation’s electricity is currently supplied by wind power and that is entirely wind power from on-land turbines. …Think about it: Four large power plants could produce as much electricity as offshore wind turbines placed side by side along the entire Atlantic seaboard from Maine to Florida. Moreover, power plants last longer than wind turbines. A British study found that turbines need to be replaced within 12 to 15 years, and they must be imported from Europe.

Given the disgusting nature of ethanol subsidies, I wonder whether Mark’s headline can possibly be accurate.

In any event, Senator Alexander of Tennessee agrees that wind subsidies are a bad idea.

As we look at all the wasteful and unnecessary tax breaks that are holding us back, I have a nomination: At the top of the list should be ending the quarter-century-old wind production tax credit now — not two years from now. This giveaway to wind developers was meant to end in 1999 but has been extended by Congress ten different times. While the wind production tax credit is scheduled to be phased out by the end of 2019, we should do better and end it at the end of this year, and use the $4 billion in savings to lower tax rates. …Congress needs to stop its habit of picking winners and losers in the marketplace. Twenty-five years of picking wind developers over more-reliable sources of electricity hasn’t paid off. Imagine what innovation we might unleash if we used the billions wasted on wind energy to invest in research to help our free-enterprise system provide the abundance of cheap, clean, reliable energy we need to power our 21st-century economy.

A recipient of tax preferences discusses his undeserved benefits in a Wall Street Journal column.

…it’s only appropriate that I express appreciation for the generous subsidy you provided for the 28-panel, four-array, 8,540-watt photovoltaic system I installed on my metal roof last year. Thanks to the investment tax credit, I slashed my 2016 federal tax bill by $7,758. …thanks to the incentives for rooftop solar, I’ve snared three subsidies. …fewer rooftop solar projects are being installed in low-income neighborhoods. …According to a study done for the California Public Utility Commission, residents who have installed solar systems have household incomes 68% higher than the state average. Ashley Brown, executive director of the Harvard Electricity Policy Group, calls the proliferation of rooftop solar systems and the returns they provide to lucky people like me, “a wealth transfer from less affluent ratepayers to more affluent ones.” It is, Mr. Brown says, “Robin Hood in reverse.” Do I feel bad about being a solar freeloader? Yes, a little. …the local barista or school janitor—people who likely can’t afford solar panels—are paying incrementally more for the grid’s maintenance and operation. And the more that people like me install panels, the more those baristas and janitors have to pay.

By the way, the United States is not the only nation with green-energy boondoggles (remember Solyndra?).

I’ve previously written about the failure of such programs in Germany.

Let’s add to that collection with an all-too-typical story from the United Kingdom.

Britain is wasting hundreds of millions of pounds subsidising power stations to burn American wood pellets that do more harm to the climate than the coal they replaced, a study has found. Chopping down trees and transporting wood across the Atlantic Ocean to feed power stations produces more greenhouse gases than much cheaper coal, according to the report. It blames the rush to meet EU renewable energy targets… Green subsidies for wood pellets and other biomass were championed by Chris Huhne when he was Liberal Democrat energy and climate change secretary in the coalition government. Mr Huhne, 62, who was jailed in 2013 for perverting the course of justice, is now European chairman of Zilkha Biomass, a US supplier of wood pellets.

In a perverse way, I admire Mr. Huhne, who didn’t follow the usual revolving-door strategy of politician-to-cronyist. He apparently went politician-to-prisoner-to-cronyist.

If you head north in Great Britain, the foolishness mostly revolves around wind power.

…the blackmailing, money-printing sausage factory is a wind farm in Scotland. There are currently about 750 wind farms north of the border, with roughly 3,000 wind turbines. …The wind farms are distributed across Scotland, sometimes in very remote regions, so there is a real problem in getting their energy down to the English border – let alone getting it across. …Why has so much been built? Partly, it is because of income-support subsidies. This top-up of nearly 100 per cent over the wholesale price – funded, of course, from consumer bills – makes wind farms very attractive… Subsidies to onshore wind in the UK now cost a little under £600 million a year, with Scottish wind taking about half, yet the Scottish government continues to ignore the protests and consent to new wind farms as if they cost almost nothing at all. Which as far as Holyrood is concerned, is in fact true. Part of the attraction for Scottish politicians is that the subsidies that pay for Scottish wind farms come from consumers all over Great Britain. Scottish consumption is about 10 per cent of the British total – so when the Scottish government grants planning permission to the wind industry, it is simply writing a cheque drawn overwhelmingly on English and Welsh accounts. …The result is that there is a perverse incentive to locate wind farms in Scotland, even though they aren’t welcome and the grid can’t take their output.

You won’t be surprised to learn, by the way, that taxpayers in the U.K. have been subsidizing green groups.

From an economic perspective, the bottom line is that green energy is more expensive and it requires subsidies that line the pockets of politically connected people and companies. That’s true in America, and it’s true in other nations.

Which is unfortunate, because it gives a bad name to energy sources that probably will be capable of producing low-cost energy in some point in the future.

Indeed, my long-run optimism about green energy is one of the reasons why I’m such a big believer in capitalism and private property. I just don’t want politicians to intervene today and make it harder to achieve future innovation.

I’ve been grousing all year that tax cuts and tax reform are jeopardized by the failure to restrain the growth of federal spending.

At the start of the year, I pointed out that it would be possible to both balance the budget and approve a $3 trillion tax cut if spending grew each year by an average of 1.96 percent.

That modest bit of fiscal discipline apparently was asking too much. When Trump’s budget was released in May, he proposed that spending should increase by an average of 3.5 percent annually.

But neither Trump nor Republicans on Capitol Hill have done much to hit even that lax target (which is especially disappointing since they actually did a good job of restraining spending when Obama was in the White House). So the federal budget instead is operating on auto-pilot and spending is now projected to increase by 5.2 percent annually, more than tw0-and-one-half times faster than needed to keep pace with inflation.

Sigh. No wonder I’ve fretted that GOPers can’t be trusted to do the right thing.

The net result of all this is that there’s very little leeway for tax relief under congressional budget rules. This is why Republicans are looking at tax reform proposals that only have a modest tax cut in the first 10 years and no net tax cut after the first decade.

But even that may be too much to hope for.

Republicans on Capitol Hill are now considering an automatic tax hike as part of tax reform legislation. I’m not joking.

Senate Republicans are considering a trigger that would automatically increase taxes if their sweeping legislation fails to generate as much revenue as they expect. It’s an effort to mollify deficit hawks who worry that tax cuts for businesses and individuals will add to the nation’s already mounting debt. …The trigger would be a way for senators to test their economic assumptions, with real consequences if they are wrong. “Do we have realistic numbers and is there a backstop in the process just in case we don’t?” asked Sen. James Lankford, R-Okla. “We should build in the ‘What if?’ What if this doesn’t work?” Lankford said. “What changes might be needed in the tax code in the days ahead to be able to adjust in what scenario?” Sen. Bob Corker, R-Tenn., said the Trump administration and Senate Republican leaders are open to some kind of a trigger to increase revenues if the tax plan falls short. Neither Corker nor Lankford spelled out exactly how the trigger would work, noting that senators are still working on the proposal.

This is discouraging beyond words. I’m almost at the point of wanting the whole exercise to collapse.

But I don’t want to lose sight of two very important goals: Lowering the corporate rate and getting rid of the deduction for state and local income taxes (and I’m still fantasizing about a third goal of death tax repeal).

So let’s contemplate what a tax-hike trigger would mean.

First, what tax hikes would be imposed by a Trigger?

Any automatic tax hike is a bad idea, but not all tax increases are equally bad. If politicians insert a provision that automatically increases the corporate tax rate, that’s a very bad recipe for uncertainty and the result will be less growth. If the standard deduction for households is reduced, by contrast, the resulting increase in taxable income will give politicians more tax revenue but not cause as much harm.

Second, would a Trigger be linked to projected revenue(s)?

Based on the article, it appears that politicians are focused on potential revenue shortfalls. But are they looking at overall revenue, or revenue by category? This raises important questions, such as whether businesses should get hit by an automatic tax hike if individual tax collections fall short – or vice-versa.

Third, is a Trigger linked to deficit projections?

Early last decade, some politicians wanted tax-increase triggers based on what happens to deficits and/or debt. This approach would create a perverse scenario where taxpayers are punished when politicians over-spend. And what happens if there is a recession, which would mean falling tax revenues? Do politicians really want an automatic tax hike in a faltering economy?

Fourth, is a Trigger symmetrical, meaning automatic tax cuts are possible?

If taxpayers are punished when revenues fall short, simple fairness requires that they benefit if revenues rise faster than projected. Since the bean counters at the Joint Committee on Taxation almost surely will underestimate the pro-growth impact of a lower corporate tax rate, this is especially relevant when looking at specific sources of revenue.

Fifth, why not a spending-cut Trigger?

Since America’s long-run fiscal problems are entirely caused by excessive government spending, politicians who claim to be concerned about fiscal balance should support a provision to automatically restrain spending. Such a mechanism already exists, and it works very well. It’s called sequestration.

Sadly, the fifth option is not very likely. Under current law, there are partial spending caps as a result of the 2011 Budget Control Act. But big-spending Republicans cancelled the sequester in 2013, and then cancelled another sequester in 2015.

So I won’t hold my breath for a sequester in 2017.

Using comparative bar charts, I’ve analyzed the economic policies of Presidents Barack Obama, George W. Bush, Bill Clinton, Ronald Reagan, and Richard Nixon.

My basic conclusion was that economic policy moved in the right direction under Reagan and Clinton and moved in the wrong direction under Obama, Bush, and Nixon. Though I always included the caveat that I was agnostic about whether the various presidents deserved credit/blame for the changes that happened during their tenure.

Now let’s go back in time and look at the unambiguously awful economic record of Herbert Hoover. I’ve written about Hoover’s statism on several occasions and thought there was no need for an overall assessment since there was near-unanimous agreement that he was a failure (even if some people don’t understand why).

But near-unanimous is not the same as unanimous. And I was horrified to read that David Frum actually thinks Herbert Hoover should be some sort of role model for today’s Republicans. Here are some excerpts from his Atlantic column, which looks at a new biography of Hoover.

Hoover commenced his political life as a progressive-leaning Republican. …progressives like Hoover…accepted some increased government regulation of industry…endorsed heavier taxation of inheritances. …it’s possible to imagine a Hoover presidency that signed into law some kind of Social Security system… Hoover’s old party could learn things from his impressive career of public service. …Hoover’s astounding accomplishments and generous impulses have been effaced by polemical narratives written to serve polemical political purposes. Such distortions are offenses against historical memory.

Before we look at his economic policies, I should acknowledge that Frum makes a compelling argument that Hoover was a fundamentally good person with some impressive achievements both before and after his time in the Oval Office.

But my presidential economic scorecards are very dispassionate. I’m only looking at the changes in economic policy that occurred while a president was in office.

And by that very neutral benchmark, Hoover was terrible. Nothing but bad policy.

I give extra weight to the protectionist Smoot-Hawley legislation, which surely must rank among the worst bills ever enacted. The tax hike in 1932 also gets some extra weight because of the radical increase in marginal tax rates (the top rate was increased from 25 percent to 63 percent!).

By the way, this assessment (like all my previous assessments) only includes policies that were adopted.

If I included policies that should have been adopted (sins of omission rather than sins of commission), Hoover would get severely dinged for his failure to prevent a severe contraction of the money supply by the Federal Reserve (those interested in such issues should watch this George Selgin video and read this George Selgin article for more information).

And if you want more information on Hoover’s record, I strongly recommend this article by my buddy from grad school, Steve Horwitz.

By the way, the Wikipedia entry on Herbert Hoover is very accurate in noting that he engaged in “large-scale interventions.”

As president from 1929 to 1933, his ambitious programs were overwhelmed by the Great Depression, which seemed to get worse every year despite the increasingly large-scale interventions he made in the economy.

But it is grossly inaccurate because it says that the economy got worse “despite” that intervention rather than “because of” that intervention.

There’s one other blurb that is worth sharing, just in case anyone thinks that I’m unfairly characterizing Hoover as a statist.

FDR aide Rexford Tugwell would claim in a 1974 interview that “practically the whole New Deal was extrapolated from programs that Hoover started.”

I’ll close by recycling a Center for Freedom and Prosperity video that reviews the anti-market policies of Herbert Hoover and Franklin Roosevelt.

P.S. I heartily encourage this cartoon for anyone who wants an easy way of understanding public policy and the Great Depression.

P.P.S. Looking at presidents from the 20th century, Ronald Reagan and Calvin Coolidge stand head and shoulders above all the others when looking at economic policy, though I’ve never tried to figure out which one is best. Similarly, I haven’t figured out who deserves the “prize” for being the worst president, but I have decided that Hoover, FDR, Wilson, and Nixon are the Four Horsemen of the Economic Apocalypse.

Kill the Death Tax

Since Republicans screwed up Obamacare repeal and haven’t even tried to impose spending restraint, I was rather pessimistic about tax reform earlier this year.

Given my dour attitude, I thought the best-possible outcome was nothing more than a reduction in the corporate tax rate.

But now I’m actually somewhat hopeful that we’ll get a lower corporate rate and repeal of the pernicious deduction for state and local income taxes.

And I’m even wondering whether I should allow myself to hope that the death tax can be repealed. The final outcome will depend on negotiations on Capitol Hill. The House bill gets rid of the tax (albeit only for people who can stay alive a few more years). The Senate bill isn’t as good since it only increases the exemption.

Is it possible the final deal will kill this destructive form of double taxation?

Folks on the left are afraid it may happen. The New York Times is predictably editorializing in favor of keeping the tax.

“Only morons pay the estate tax,” Gary Cohn, Mr. Trump’s chief economic adviser, told Senate Democrats, meaning, it was later explained, “rich people with really bad tax planning.” Many of the very wealthy use loopholes, like trusts, to avoid paying inheritance tax. …An estate tax repeal would provide a tax windfall of more than $3 million apiece for the top 0.2 percent of earners, and more than $20 million for the wealthiest Americans. It would cost $239 billion in revenue over a decade. It offers nothing for middle-class people, except more evidence of Mr. Trump’s and Republicans’ bad faith.

Frankly, I don’t care whether rich people benefit. I want the tax repealed because it penalizes saving and investment.

The actual victims of the tax (the “morons” who failed to hire clever lawyers and accountants) are forced to liquidate assets and turn the money over to government.

And potential victims of the tax engage in inefficient forms of tax planning to protect assets from the government.

Call me crazy, but I want capital to be allocated efficiently since that’s one of the keys for economic growth and rising wages.

The U.K.-based Economist has just published a defense of the death tax that begins by acknowledging that it’s not a popular levy.

Inheritance tax is routinely seen as the least fair by Britons and Americans. This hostility spans income brackets. …The estate of a dead adult American is 95% less likely to face tax now than in the 1960s. …For a time before the second world war, Britons were more likely to pay death duties than income tax; today less than 5% of estates catch the taxman’s eye. It is not just Anglo-Saxons. Revenue from these taxes in OECD countries, as a share of total government revenue, has fallen sharply since the 1960s. Many other countries have gone down the same path. In 2004 even the egalitarian Swedes decided that their inheritance tax should be abolished.

Notwithstanding the magazine’s name, the article shows very little understanding of economics.

…this trend towards trifling or zero estate taxes ought to give pause. Such levies pit two vital…principles against each other. One is that governments should leave people to dispose of their wealth as they see fit. The other is that a permanent, hereditary elite makes a society unhealthy and unfair. How to choose between them? …The positive argument for steep inheritance taxes is that they promote fairness and equality. …Unlike capital-gains taxes, heavier estate taxes do not seem to dissuade saving or investment.

I’m glad that the article pays lip service to the notion that people should be able to decide how to spend their own money, but then the article veers into pure class warfare.

What’s really remarkable, though, is that we’re supposed to believe that death taxes don’t have a negative impact on capital formation (i.e., saving and investment). Utter nonsense. Let’s think this through. Imagine a successful entrepreneur who earns income and gets hit with, say, a 40 percent personal income tax. That entrepreneur than invests some of the after-tax income, which then presumably triggers additional layers of tax (business taxes, capital gains taxes, dividend taxes), which easily can confiscate 30 percent of affected funds. And then there can be a death tax that may grab another 40 percent.

At the risk of plagiarizing the New York Times, only a “moron” is going to ignore the cumulative impact of all those taxes. There’s either going to be less quantity of saving and investment or less quality of saving and investment (because of inefficient tax planning).

Fortunately, governments in the real world increasingly understand that death taxes are very damaging. In another article, the Economist shares some specific details on how death taxes have become less popular around the world.

In OECD countries the proportion of total government revenues raised by such taxes has fallen by three-fifths since the 1960s, from over 1% to less than 0.5%. Over the same period Australia, Canada, Russia, India and Norway are among countries that have abolished death duties. More than 20 American states binned wealth-transfer taxes between 1976 and 2000… In 1976 roughly 8% of American estates filed a taxable return; that has since fallen to around 0.2%.

I actually think tax competition deserves a lot of the credit for the good reforms that have happened, but that’s an issue for another day.

Here’s a chart from the article, which is supposed to show how death taxes have become a smaller and smaller share of tax revenue. This seems like good news, but keep in mind that what it really shows is that personal income taxes, payroll taxes, and (in the U.K.) the value-added tax have grown enormously since the pre-World War II era. If the Economist wanted to be honest, it would have shown inflation-adjusted death tax revenue.

I can’t resist commenting on one other thing. The Economist wants people to think that the death tax is okay because compliance costs supposedly are modest.

A study published in 1999 suggests that the overall cost of estate-tax compliance is 7% of estate-tax revenues. Yet a chunk of those costs, such as selecting executors and drafting documents, would still be paid even in the absence of the tax. So it is hardly clear that the rich would be left with much extra time for more productive undertakings.

I’m skeptical of their compliance calculations, but let’s set that aside.

What the article overlooks (and what is far more important from an economic perspective) is that the death tax causes capital to be misallocated. Successful families make decisions about saving and investment based on potential tax implications rather than what is most productive. And really successful families create trusts and foundation to protect their wealth. Good for them (and good for their financial advisers), but not so good for everyone else since money won’t be used as efficiently.

And if you don’t think the death tax distorts incentives, consider that evidence from Australia indicates it even impacts when people die.

I’m not going to hold my breath, but it would be great news if congressional Republicans can kill the death tax.

P.S. Here’s a semi-amusing left-wing humor on Trump and the death tax.

Not as good as the video on Somalia as a libertarian paradise, but still worth sharing.

P.P.S. You won’t be surprised to know that both Barack Obama and Hillary Clinton actually wanted to make the death tax more punitive. Which is really remarkable since the current U.S. approach is even more punitive than Greece and Venezuela.

Experts in the field of political marketing periodically tell me that you need to have sympathetic victims when trying to change policy.

That’s probably good advice. When people have real-world examples – especially ones they can relate to – that presumably helps them understand the need for a reform.

I have to admit, however, that my approach is generally more wonky. Whether I’m meeting with a policymaker, giving a speech, or writing a column, I view my role as trying to help people understand one or more basic economic concepts (the importance of lower marginal tax rates, for example).

I think there’s value in my approach (if people grasp an underlying principle, that can impact their understanding of both current and future policy fights). But there’s no reason why I shouldn’t do both.

So I’m going to begin today’s column about occupational licensing (when state governments impose restrictions and regulations that limit who can work in a particular field) with a sympathy-eliciting example that hopefully will resonate with readers.

Consider what happened in New York City recently now that bureaucrats have decided that people couldn’t be dog sitters without going through all the red tape to become a licensed kennel.

Pet lovers are barking mad over a little-known city rule that makes dog-sitting illegal in New York. Health Department rules ban anyone from taking money to care for an animal outside a licensed kennel — and the department has warned a popular pet-sitting app that its users are breaking the law. “The laws are antiquated,” said Chad Bacon, 29, a dog sitter in Greenpoint, Brooklyn, with the app Rover. “If you’re qualified and able to provide a service, I don’t think you should be penalized.” Bacon, a former zookeeper and wildlife researcher, signed up for the app to help make ends meet while he was between jobs, but did enough business that he now makes his living from it full-time.

Now that we’ve identified Mr. Bacon as our sympathetic example, let’s look at the broader issue of the government creating barriers to employment and entrepreneurship.

The health code bans boarding, feeding and grooming animals for a fee without a kennel license — and says those licenses can’t be issued for private homes. …at least two apartment residents were slapped with violations in November and December for caring for pets without a permit. Fines start at $1,000. “If you’ve got a 14-year-old getting paid to feed your cats, that’s against the law right now,” said Rover’s general counsel John Lapham. “Most places right now continue to make it easier to watch children than animals, and that doesn’t make any sense.”

By the way, that’s not an argument for regulating babysitting (the kind of nonsense you might find in California). Instead, it’s a reason why state governments shouldn’t be going overboard with licensing rules.

The Institute for Justice just released a study on licensing rules for jobs that generally employ lower-skilled individuals.

Occupational licensing is, put simply, government permission to work in a particular field. In the 1950s, about one in 20 American workers needed an occupational license before they could work in the occupation of their choice. Today, that figure stands at about one in four. Securing an occupational license may require education or experience, exams, fees, and more, and working without one can mean fines or even jail time. …Policymakers, scholars and opinion leaders left, right and center are increasingly recognizing that licensing comes with high costs—fewer job opportunities and steeper prices—and does little to improve quality or protect consumers. …Most of the 102 occupations are practiced in at least one state without state licensing and apparently without widespread harm. Only 23 of these occupations are licensed by 40 states or more.

The last section of that excerpt is critically important. Special interests argue that occupational licensing somehow protects people, yet we have real-world examples for all 102 professions of states that have zero licensing restrictions and we don’t have examples of people dying or being harmed because of unregulated florists or rogue cosmetologists.

And shouldn’t there be some evidence of societal benefit before government restricts economic freedom (the same argument I’ve used when analyzing OSHA)?

As you might imagine, some states are worse than others. Here’s a map showing the degree to which state politicians conspire with special interests to create cartels in various fields. Louisiana and Washington are the worst (based on number of licensed professions) and Wyoming and Vermont (yes, that Vermont) are the least onerous.

Having written about a horrible example of occupational licensing in DC, I’m surprised that the District of Columbia isn’t at the bottom of the rankings. Or Alabama.

Though I’m not surprised to see that Oregon is green.

Here’s the report’s accompany video.

If you liked that video, you can click here for another video on occupational licensing.

A column by Conor Friedersdorf in the Atlantic highlights some of the findings in the IJ study.

…in Connecticut, a home-entertainment installer is required to obtain a license from the state before serving customers. It costs applicants $185. To qualify, they must have a 12th-grade education, complete a test, and accumulate one year of apprenticeship experience in the field. A typical aspirant can expect the licensing process to delay them 575 days. …Occupational-licensing obstacles are much more common than they once were. “In the 1950s, about one in 20 American workers needed an occupational license before they could work in the occupation of their choice,” the report states. “Today, that figure stands at about one in four.”

And he points out that consumers and workers (those outside the cartel) are the victims.

These requirements…are at their most pernicious when they are both needless and most burdensome to the middle class, the working class, and recent immigrants to a society. The IJ report focuses its attention on these cases, surveying 102 lower-income occupations across all 50 states and the District of Columbia. It concludes that “most of the 102 occupations are practiced in at least one state without state licensing and apparently without widespread harm.” In other words, dropping many of those requirements likely wouldn’t do any harm. …Too often, occupational-licensing laws are less about protecting workers or consumers as a class than they are about protecting the interests of incumbents. Want to compete with me? Good luck, now that I’ve lobbied for a law that requires you to shell out cash and work toward a certificate before you can begin.

The Wall Street Journal also opined about IJ’s new report.

More than ever, the government requires Americans to get permission to earn a living. In the 1950s one in 20 workers needed a license to work; now about one in four do. The rules hurt the working poor in particular, but everyone suffers in states with the most licensing requirements… Hawaii’s prerequisites are the most grueling while Louisiana and Washington regulate the most professions, with both states requiring a license for 77 lower-income fields. …California has the most dysfunctional regime. Across professions, it has established “a nearly impenetrable thicket of bureaucracy” where “no one could” provide a “list of all the licensed occupations,” as one state oversight agency admitted last year. …The cost and time to obtain a license is no accident, as professional guild members sit on state licensing boards and reinforce the racket. They want to limit competition to keep prices high. …Stiff licensing requirements are often prohibitive for America’s working poor, keeping them trapped in low-wage, low-skill jobs. …Nationwide, licensing drives up prices by as much as $203 billion annually. The requirements also hurt consumers by restricting access to goods and services.

The WSJ editorial points out that both political parties are guilty of supporting these insidious cartels.

Here’s an example, from Reason, of Democrats behaving badly.

California Democrats prattle endlessly about helping the working poor, but their latest vote against a bill that would tangibly help financially struggling people shows that Democratic leaders are more interested in serving their real constituencies: state bureaucracies, unions and other interest groups that want to keep out the competition. …California has the nation’s highest poverty rates, according to a new U.S. Census Bureau standard that includes cost-of-living factors. A good starting place to address that problem is to chip away at unnecessary barriers to work. Trade groups, however, recognize that the best way to inflate their members’ pay is to raise the cost of entry for others—and the more fields regulated this way, the more it keeps poor people in the welfare lines. …Such concerns prompted even the Democratic Obama administration to call for far-reaching licensing reforms, yet California’s Democrats don’t even seem to understand the point of such efforts. Or maybe they just won’t let themselves understand the argument, given their political alliances.

And Reason also identifies a Republican behaving badly.

Otter is bending to the wishes of other special interests. In vetoing the licensing reform bill—a bill that would have done little more than reduce the number of hours of training before someone could be licensed to cut hair or apply makeup from 800 to 600—Otter said objections voiced by the state Board of Cosmetology and the State Board of Barber Examiners should overrule the majority of the state legislature. …”For years, Butch Otter has given great speeches about the need for a free economy and limited, constitutionally-based government,” said Wayne Hoffman, president of the Idaho Freedom Foundation, a free market think tank, in a statement about the two vetoes. “Yet once again, Gov. Otter has rejected sensible, conservative, bipartisan liberty-based legislation that would have put Idaho entrepreneurs back to work and would have protected constitutional rights of Idahoans.”

Let’s close with an image that is both amusing and sad. Amusing because it mocks government and sad because it’s true. It’s basically the cartoon version of something I shared last year.

P.S. Returning to the issue of political marketing, I actually do use real-world examples for some purposes. My Bureaucrat Hall of Fame is nothing but horror stories about specific government employees pillaging taxpayers. and my collection of honest leftists also is based on specific stories of statists inadvertently revealing something important.

P.P.S. Business permits at the local level also are akin to occupational licenses. Governments are making people pay to become entrepreneurs. Which oftentimes translates into painful lessons for young people about government greed.

One of the interesting things I’ve noticed in my world travels is that supporters of free markets and small government generally are known as “liberals” everywhere other than North America.

I think the rest of the world has the right idea. After all, folks like Adam Smith are considered “classical liberals,” so it’s bizarre that “liberal” now is used to describe anti-capitalists in America.

To muddy the waters even further, it’s not uncommon for modern supporters of capitalism to be called “neoliberals.”

Though I wonder if that’s supposed to a be a term of derision. When I’m called a neoliberal in other countries, it’s always by someone who is criticizing my support for economic liberty.

Professor Dani Rodrik of Harvard, in a column for the U.K.-based Guardian, is not a fan of neoliberalism. He acknowledges that the term is ill-defined, but recognizes that it means a less power for government.

…neoliberalism…denotes a preference for markets over government, economic incentives over cultural norms, and private entrepreneurship over collective action. …The term is used as a catchall for anything that smacks of deregulation, liberalisation, privatisation or fiscal austerity. …That neoliberalism is a slippery, shifting concept, with no explicit lobby of defenders, does not mean that it is irrelevant or unreal. Who can deny that the world has experienced a decisive shift toward markets from the 1980s on? Or that centre-left politicians – Democrats in the US, socialists and social democrats in Europe – enthusiastically adopted some of the central creeds of Thatcherism and Reaganism, such as deregulation, privatisation, financial liberalisation and individual enterprise?

Rodrik then proceeds with a lengthy discussion of the weaknesses and limitations of conventional economic analysis.

Much of what he writes is perfectly reasonable. The economy is not a machine and people are not robots, so mechanistic economic concepts – while useful – have limited value. Moreover, culture and institutions make a big difference, and it’s rather difficult to capture those concepts in economic models.

Moreover, he makes some interesting observations on how various nations such as China have liberalized in ways that defy easy analysis.

Which is certainly a fair point.

But then he finishes up his column with two examples that simply don’t make sense.

First, Rodrik cites Mexico as a supposed example of neoliberal reform.

Following a series of macroeconomic crises in the mid-1990s, Mexico embraced macroeconomic orthodoxy, extensively liberalised its economy, freed up the financial system, sharply reduced import restrictions and signed the North American Free Trade Agreement (Nafta). These policies did produce macroeconomic stability and a significant rise in foreign trade and internal investment. But where it counts – in overall productivity and economic growth – the experiment failed. Since undertaking the reforms, overall productivity in Mexico has stagnated, and the economy has underperformed even by the undemanding standards of Latin America.

My reaction is “huh?”

I spend a lot of time combing through international data in hopes of finding success stories to publicize and I’ve never come across anything to suggest Mexico is a good example. Instead, I found evidence a few years ago suggesting the country is a bad example.

Here’s the Mexican data from Economic Freedom of the World. You can certainly argue that Mexico did some good reforms in the late 1980s. But where’s the evidence for sweeping liberalization after the mid-1990s?

There was a very slight increase in Mexico’s score after 1995, which is better than nothing. But I’m not surprised that it didn’t yield impressive results since the rest of the world was liberalizing at a much faster rate.

Indeed, Mexico dropped from #49 to #69 between 1995 and 2000 because other nations were the ones with “extensive liberalization,” not Mexico.

Second, he takes a shot at Chile.

Chile’s neoliberal experiment eventually produced the worst economic crisis in all of Latin America.

“Huh?” would be an understatement. I was flabbergasted by this assertion.

But not the first part of that sentence. He’s correct that Chile is a poster child for market-friendly reform.

Here’s a chart from Economic Freedom of the World showing how the nation’s score dramatically improved between 1975 and 1995.

But I was shocked by the second part of the sentence. Chile had “the worst economic crisis in all of Latin America”?

Since I’ve written several times about the Chilean economic boom, I was totally baffled. What was Rodrik talking about?

So I took another look at a couple of sources to see if I had overlooked something.

Here’s the IMF data on per-capita GDP for Chile and the rest of Latin America. The numbers are only available back to 1980, but everything we see underscores my argument that Chile is a great success. It used to have living standards only slightly higher than the average for Latin America and now the people are more than twice as rich as their peers. If that’s a “worst economic crisis,” we should all be lucky enough to have similar problems.

Then I looked at the Angus Maddison dataset, which allows us to go back to 1970.

His numbers are adjusted for inflation, so the lines don’t rise as rapidly, but we see the same long-run pattern. Chile is getting richer at a much faster pace than other countries from Latin America. Once again, if this is a “crisis,” other nations should hope for a similar fate.

So what did Rodrik mean by “worst economic crisis”?

His article doesn’t provide any details, but if you look at the Maddison data for the early 1980s, there was a downturn, with per-capita output dropping in Chile from about $6,000 to about $5,000. And that reduction was noticeably larger than the average reduction for the rest of Latin America.

I’m guessing this is the supposed “crisis” that he mentions in the article.

But if that’s true, he’s guilty of an egregious example of “cherry-picking” data. Sort of like saying the record-setting 1998 Yankees were a failure because of a four-game losing streak in late August that year.

Honest analysis requires a look at the overall record, and all data sources show that Chile’s economic performance is far superior to its peers.

The bottom line is that Rodrik is on solid ground when he points out the limitations of conventional economic analysis. But when he then decides to criticize pro-market reforms, he concocts two examples that are – at best – sloppily inaccurate.

P.S. By the way, I can’t resist commenting on one additional assertion in Rodrik’s column.

The use of the term “neoliberal” exploded in the 1990s, when it became closely associated with…financial deregulation, which would culminate in the 2008 financial crash and in the still-lingering euro debacle.

This is another “huh?” moment.

The “neoliberals” were the people who opposed the policies – artificially low interest rates from the Federal Reserve and the corrupt Fannie Mae and Freddie Mac subsidies – that led to the financial crisis. And people like me were very opposed to the excessive government spending that led to the European fiscal crisis.

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