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Posts Tagged ‘Bernie Sanders’

In addition to being a contest over expanding the burden of government spending, the Democratic primary also is a contest to see who wants the biggest tax increases.

Bernie Sanders and Elizabeth Warren have made class-warfare taxation an integral part of their campaigns, but even some of the supposedly reasonable Democrats are pushing big increases in tax rates.

James Pethokoukis of the American Enterprise Institute opines about the anti-growth effect of these proposed tax hikes, particularly with regard to entrepreneurship and successful new firms.

The Democratic presidential candidates have plenty of ideas about taxes. Wealth taxes. Wall Street taxes. Inequality taxes. And probably more to come. So lots of creative thinking about wealth redistribution. Wealth creation? Not so much. …one way to look at boosting GDP growth is thinking about specific policies to boost labor force and productivity growth. But there’s another way of approaching the issue: How many fast-growing growing new firms would need to be generated each year to lift the economy-wide growth rate each year by one percent? …a rough calculation by analyst Robert Litan figures there about 15 billion-dollar (in sales) companies formed every year. But what if the American entrepreneurial ecosystem were so vibrant that it produced 60 such companies annually? …The big point here is that the American private sector is key to growth. No other large economy is as proficient as the US in creating high-impact startups. But it doesn’t appear that the Democratic enthusiasm for big and bold tax plans is matched by concern about unwanted trade-offs.

If you want a substantive economic critique of class-warfare tax policy, Alan Reynolds has a must-read article on the topic.

He starts by explaining why it’s important to measure how sensitive taxpayers are (the “elasticity of taxable income”) to changes in tax rates.

Elasticity of taxable income estimates are simply a relatively new summary statistic used to illustrate observed behavioral responses to past variations in marginal tax rates. They do so by examining what happened to the amount of income reported on individual tax returns, in total and at different levels of income, before and after major tax changes. …For example, if a reduced marginal tax rate produces a substantial increase in the amount of taxable income reported to the IRS, the elasticity of taxable income is high. If not, the elasticity is low. ETI incorporates effects of tax avoidance as well as effects on incentives for productive activity such as work effort, research, new business start-ups, and investment in physical and human capital.

Alan then looks at some of the ETI estimates and what they imply for tax rates, though he notes that the revenue-maximizing rate is not the optimal rate.

Diamond and Saez claim that, if the relevant ETI is 0.25, then the revenue-maximizing top tax rate is 73 percent. Such estimates, however, do not refer to the top federal income tax rate, …but to the combined marginal rate on income, payrolls, and sales at the federal, state, and local level. …with empirically credible changes in parameters, the Diamond-Saez formula can more easily be used to show that top U.S. federal, state, and local tax rates are already too high rather than too low. By also incorporating dynamic effects — such as incentives to invest in human capital and new ideas — more recent models estimate that the long-term revenue-maximizing top tax rate is between 22 and 49 percent… Elasticity of taxable, or perhaps gross income…can be “a sufficient statistic to approximate the deadweight loss” from tax disincentives and distortions. Although recent studies define revenue-maximization as “optimal,” Goolsbee…rightly emphasizes, “The fact that efficiency costs rise with the square of the tax rate are likely to make the optimal rate well below the revenue-maximizing rate.”

These excerpts only scratch the surface.

Alan’s article extensively discusses how high-income taxpayers are especially sensitive to high tax rates, in part because they have considerable control over the timing, level, and composition of their income.

He also reviews the empirical evidence from major shifts in tax rates last century.

All told, his article is a devastating take-down of the left-of-center economists who have tried to justify extortionary tax rates. Simply stated, high tax rates hinder the economy, create deadweight loss, and don’t produce revenue windfalls.

That being said, I wonder whether his article will have any impact. As Kevin Williamson points out is a column for National Review, the left isn’t primarily motivated by a desire for more tax money.

Perhaps the strangest utterance of Barack Obama’s career in public office…was his 2008 claim that raising taxes on the wealthy is a moral imperative, even if the tax increase in question ended up reducing overall federal revenue. Which is to say, Obama argued that it did not matter whether a tax increase hurt the Treasury, so long as it also hurt, at least in theory and on paper, certain wealthy people. …ideally, you want a tax system with low transaction costs (meaning a low cost of compliance) and one that doesn’t distort a lot of economic activity. You want to get enough money to fund your government programs with as little disruption to life as possible. …Punitive taxes aren’t about the taxes — they’re about the punishment. That taxation should have been converted from a technical question into a moral crusade speaks to the basic failure of the progressive enterprise in the United States…the progressive demand for a Scandinavian welfare state at no cost to anybody they care about…ends up being a very difficult equation to balance, probably an impossible one. And when the numbers don’t work, there’s always cheap moralistic histrionics.

So what leads our friends on the left to pursue such misguided policies? What drives their support for punitive taxation?

Is is that they’re overflowing with compassion and concern for the poor?

Hardly.

Writing for the Federalist, Emily Ekins shares some in-depth polling data that discovers that envy is the real motive.

Supporters often contend their motivation is compassion for the dispossessed… In a new study, I examine…competing explanations and ask whether envy and resentment of the successful or compassion for the needy better explain support for socialism, raising taxes on the rich, redistribution, and the like. …Statistical tests reveal resentment of the successful has about twice the effect of compassion in predicting support for increasing top marginal tax rates, wealth redistribution, hostility to capitalism, and believing billionaires should not exist. …people who agree that “very successful people sometimes need to be brought down a peg or two even if they’ve done nothing wrong” were more likely to want to raise taxes on the rich than people who agree that “I suffer from others’ sorrows.” …I ran another series of statistical tests to investigate the motivations behind the following beliefs: 1) It’s immoral for our system to allow the creation of billionaires, 2) billionaires threaten democracy, and 3) the distribution of wealth in the United States is “unjust.” Again, the statistical tests find that resentment against successful people is more influential than compassion in predicting each of these three beliefs. In fact, not only is resentment more impactful, but compassionate people are significantly less likely to agree that it’s immoral for our system to allow people to become billionaires.

Here’s one of her charts, showing that resentment is far and away the biggest driver of support for class-warfare proposals.

These numbers are quite depressing.

They suggest that no amount of factual analysis or hard data will have any effect on the debate.

And there is polling data to back up Emily’s statistical analysis. Heck, some folks on the left openly assert that envy should be the basis for tax policy.

In other words, Deroy Murdock and Margaret Thatcher weren’t creating imaginary enemies.

P.S. If you think Kevin Williamson was somehow mischaracterizing or exaggerating Obama’s spiteful position on tax policy, just watch this video.

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I sometimes mock the New York Times for dodgy and inaccurate writing about economics.

Though, to be fair, the paper has many sound journalists who do a good job, so I should be more careful about explaining that the mistakes are the result of specific reporters and columnists.

Paul Krugman is an obvious example.

And we should add David Leonhardt to the list. He actually claims that imposing a wealth tax and confiscating private capital can lead to more growth.

There are two problems with the arguments from these opponents. First, they’re based on a premise that the American economy is doing just fine and we shouldn’t mess with success. …Second, …it’s also plausible that a wealth tax would accelerate economic growth. …A large portion of society’s resources are held by a tiny slice of people, who aren’t using the resources very efficiently. …Sure, it’s theoretically possible that some entrepreneurs and investors might work less hard… But it’s more likely that any such effect would be small — and more than outweighed by the return that the economy would get on the programs that a wealth tax would finance, like education, scientific research, infrastructure and more.

Wow. It’s rare to see so much inaccuracy in so few words.

Let’s review his arguments.

His first claim is utter nonsense. I’ve been following the debate over the wealth tax for years, and I’ve never run across a critic who argued that the wealth tax is a bad idea because the economy is “doing just fine.”

Instead, critics invariably explain that the tax is a bad idea because it would exacerbate the tax code’s bias against saving and investment and thus have a negative effect on jobs, wages, productivity, and competitiveness.

And those arguments are true and relevant whether the economy is booming, in a recession, or somewhere in between.

His second claim is equally absurd. He wants readers to believe that government spending is good for growth and that those benefits will more than offset the economic harm from the punitive tax.

To be fair, at least this is not a make-believe argument. Left-leaning bureaucracies such as the International Monetary Fund and Organization for Economic Cooperation and Development have been pushing this idea in recent years. They use phrases such as “resource mobilization” and “financing for development” to argue that higher taxes will lead to more growth because governments somehow will use money wisely.

Needless to say, that’s a preposterous, anti-empirical assertion. Especially when dealing with a tax that would do lots of damage on a per-dollar-collected basis.

Interestingly, a news report in the New York Times had a much more rational assessment, largely focusing on the degree of damage such a tax would cause.

Progressive Democrats are advocating the most drastic shift in tax policy in over a century as they look to redistribute wealth…with new taxes that could fundamentally reshape the United States economy. …Senators Elizabeth Warren of Massachusetts and Bernie Sanders of Vermont have proposed wealth taxes that would shrink the fortunes of the richest Americans. Their plans envision an enormous transfer of money from the wealthy… the idea of redistributing wealth by targeting billionaires is stirring fierce debates at the highest ranks of academia and business, with opponents arguing it would cripple economic growth, sap the motivation of entrepreneurs who aspire to be multimillionaires and set off a search for loopholes. …At a conference sponsored by the Brookings Institution in September, N. Gregory Mankiw, a Harvard economist, …offered a searing critique, arguing that a wealth tax would skew incentives that could alter when the superrich make investments, how they give to charity and even potentially spur a wave of divorces for tax purposes. He also noted that billionaires, with their legions of lawyers and accountants, have proven to be experts at gaming the system to avoid even the most onerous taxes. …“On the one hand it’s a bad policy, and then the other thing is it’s a feckless policy,” Mr. Mankiw said. Left-leaning economists have expressed their own doubts about a wealth tax. Earlier this year, Lawrence Summers, who was President Bill Clinton’s Treasury secretary, warned…that wealth taxes would sap innovation by putting new burdens on entrepreneurial businesses while they are starting up. In their view, a country with more millionaires is a sign of economic vibrancy.

This is an example of good reporting. It cited supporters and opponents and fairly represented their arguments.

Readers learn that the real debate is over the magnitude of economic harm.

Speaking of which, a Bloomberg column explains how much money might get siphoned from the private economy if a wealth tax is imposed.

Billionaires such as Jeff Bezos, Bill Gates and Warren Buffett could have collectively lost hundreds of billions of dollars in net worth over decades if presidential candidate Elizabeth Warren’s wealth tax plan had been in effect — and they had done nothing to avoid it. That’s according to calculations in a new paper by two French economists, who helped her devise the proposed tax on the wealthiest Americans. The top 15 richest Americans would have seen their net worth decline by more than half to $433.9 billion had Warren’s plan been in place since 1982, according to the paper by University of California, Berkeley professors Emmanuel Saez and Gabriel Zucman. …The calculations underscore how a wealth tax of just a few percentage points might erode fortunes over time.

Here’s the chart that accompanied the article.

What matters to the economy, though, is not the amount of wealth owned by individual entrepreneurs.

Instead, it’s the amount of saving and investment (i.e., the stock of capital) in the economy.

A wealth tax is bad news because it diverts capital from the private sector and transfers it to Washington where politicians will squander the funds (notwithstanding David Leonhardt’s fanciful hopes).

So I decided to edit the Bloomberg chart so that is gives us an idea of how the economy will be impacted.

The bottom line is that wealth taxation would be very harmful to America’s economy.

P.S. Several years ago, bureaucrats at the IMF tried to argue that a wealth tax wouldn’t damage growth if two impossible conditions were satisfied: 1) It was a total surprise, and 2) It was only imposed one time.

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Three years ago, I shared a cartoon that succinctly summarized the problem with socialism and the welfare state.

It’s the same lesson that we also get from Thomas Sowell, which is that redistribution over time creates an ever-larger number of dependents financed by ever-higher taxes on workers.

Or, as this Wizard-of-Id parody and this Little-Red-Hen parody make clear, why work hard if you can get things for free?

Now I have a different way of illustrating the problem with socialism. Here’s a very clever tweet from Young Americans Against Socialism.

Very clever and amusing.

I will add this short video to my collection of socialism humor, but it actually makes a very serious point.

Socialists and other redistributionists want equality of outcomes, but they don’t think about the unintended consequences of such an approach.

Some people will be lured into sloth and dependency, for instance, while others – particularly those with greater ability and/or greater work ethic – will choose to be less productive (especially because they also get hit with higher tax burdens to finance all the handouts).

Bastiat wrote that the failure to consider the “unseen” was the defining quality of a bad economist.

And since we’re on that topic, here’s an example of Crazy Bernie failing to appreciate that actions have unintended consequences.

A perfect metaphor for what would happen to the economy if some of his policies were imposed on the economy.

Except Bernie would still have his comfortable life. It’s the rest of us who would suffer.

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I’m getting worried that Senator Bernie Sanders is fading in the polls.

That doesn’t make me happy. I want Crazy Bernie to stay relevant.

Why? Because he’s an endless source of clever satire.

Previous editions of Bernie humor can be found here and here.

For today’s edition, let’s start with the fact that Bernie has used political office to become a millionaire, yet he doesn’t put his money where his mouth is (the federal government actually has a website for people who are foolish enough to pay extra tax).

Bernie also has an opinion on the protests in Hong Kong. At least according to the satirists at the Babylon Bee.

As soon as Bernie Sanders heard about the democratic protesters in Hong Kong, he knew something had to be done. The U.S. senator quickly chartered a flight to Hong Kong… Sanders bravely stood in the middle of the conflict between police and protesters, shouting at the “ungrateful little dissenters”… “Remember, you could have it a lot worse—you could be in America!” Sanders bellowed as police officers for the totalitarian regime beat protesters in the background. …Sanders continued his long-winded rant about the need for the government to own the means of production, how great breadlines are, and how bad things are in capitalist America as protesters got dragged away by police to be disappeared. “Just think—in America, we have to pick between 14 different types of deodorant!” he said, his fingers flopping around like limp sausages.

While this story is amusing, the folks at Babylon Bee screwed up. The people of Hong Kong aren’t protesting because they live in a communist system.

They’re protesting because they’re worried that China will sooner or later absorb them into a communist system.

But since so much real media is “fake but accurate” (or is it “accurate but fake”?), I’m not going to worry about details.

Let’s now shift to another example of Babylon Bee satire.

Showing himself to be a compassionate man of the people who cares deeply about the plight of the downtrodden, Senator Bernie Sanders selflessly offered a stack of bills to a homeless man on the street Monday after fishing the money out of a purse sitting next to a woman on a park bench. Sanders had been…on the prowl for people who looked like they had too much money when he leaped out to steal the wallet from the purse… The Vermont senator..saw a homeless man sitting nearby, begging for money. Moved by the pathetic sight of the man’s disheveled appearance, Sanders found it in his heart to commit a random act of kindness, digging through the wallet until he was able to find several $20 bills and slipping them into the man’s hand. “It’s not theft—it’s redistribution,” he told reporters later. “I was simply…doing what any old citizen couldn’t do without committing a crime. But it’s different because I’m the government, see?” At publishing time, the Senator was seen pocketing the rest of the money.

How very generous he is with other people’s money!

Last but not least, here’s a game from Imgur that allows anyone to prepare a Bernie speech. For some reason, it reminds me of State-of-the-Union bingo during the Obama years.

For other examples of Bernie humor, you can click hereherehereherehereherehere, and here.

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The invaluable John Stossel has an entertaining and informative video that estimates how many handouts are being promised by Joe Biden, Pete Buttigieg, Kamala Harris, Bernie Sanders, Donald Trump, and Elizabeth Warren.

Wow, how depressing.

When I wrote about about the “dangerous seduction of free” a month ago, I apparently underestimated the problem. We have politicians completely divorced from fiscal reality (the “Green New Deal” being a frightening example).

But the key question is whether the American people are actually getting seduced.

It’s not looking good on the Democratic side. Joe Biden is presumably part of the Democratic Party’s anti-socialist wing, which is encouraging. But all the other leading candidates are hard-core big spenders.

And it’s not looking good on the Republican side, either. Trump may not have crazy proposals for new spending, but in practice he’s been profligate. Indeed, I’m guessing he will wind up with a worse record on spending than Obama.

The bottom line is that the public sector already is too large in the United States. Yet we have politicians who want it to become an even bigger burden. In some cases, much bigger.

That has very serious economic consequences. Especially if it coincides with an erosion of societal capital.

For instance, I think some European countries have already reached a “tipping point” because of a dependency mindset.

Historically, the United States has been insulated from that problem because of a belief in personal responsibility. But ever-growing levels of dependency suggest that this advantage is dissipating.

I’ll close with a final observation about the candidates – Sanders, Warren, and Harris – who were identified in the video as advocating trillions of dollars of new spending.

How do they plan to finance this orgy?

  • Sanders has a plethora of new taxes, including class-warfare tax increase and middle-class tax increases, so he definitely wants to put our money where his mouth is. In terms of fiscal policy, think of him as Sweden.
  • Warren supports a bunch of new taxes, mostly on the rich, most notably a huge wealth tax, which surely would backfire but theoretically is a big source of money. In terms of fiscal policy, think of her as France.
  • Harris has some class-warfare tax hikes but is mostly promising a free lunch since there’s a huge mismatch between what she wants to spend and the new taxes she has embraced. In terms of fiscal policy, think of her as Greece.

For what it’s worth, I’m waiting for the Hong Kong candidate.

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Two months ago, I pointed out that San Francisco’s housing crisis was a “learnable moment” because some folks on the left actually now understand the negative consequences of government intervention.

Now I’m wondering if we might actually have a learnable moment on the issue of minimum wages for Crazy Bernie.

The Vermont socialist is experiencing something akin to what it’s like to be an entrepreneur or business owner. He’s having to generate revenue for his campaign and figure out the best way to allocate the funds.

And – surprise, surprise – he doesn’t want to pay above-market wages. Which makes him a giant hypocrite since he wants to use government coercion to impose higher minimum wages on the private sector.

Professor Art Carden highlights three things that Bernie should learn from this experience.

Bernie Sanders is having trouble with his unionized–and apparently underpaid–labor force. …the Sanders campaign “will limit the amount of time his organizers can work to guarantee that no one is making less than $15 per hour.” …I see three takeaways. First, …this is pretty much exactly what that story predicts. Firms don’t wish to hire as much labor as workers wish to supply at what is apparently an above-market wage. …Second, a $15 per hour national minimum wage will not be a free lunch, even for the people we claim we want to help. …there are a lot of hidden costs to higher minimum wages, like less-generous fringe benefits and stricter scheduling. A higher minimum wage will…also create a lot of losers: according to the Congressional Budget Office’s median estimate, “…1.3 million other workers would become jobless.” Third, this whole episode should make you more skeptical of socialism, even watered-down “democratic socialism.” …Sanders and his staff are struggling to manage an ideologically homogeneous group of people with similar worldviews…and a very well-defined end goal of “elect Bernie Sanders to the presidency.” Suffice it to say this does not make me confident that they can be trusted to organize something as complex and mind-bogglingly diverse as the US economy

So will this episode teach Crazy Bernie a lesson about the downside of minimum-wage laws?

Will his clueless volunteers now understand there are tradeoffs in the real world and that government can’t make people richer by waving a magic wand?

I won’t hold my breath, but it would be nice.

In the meantime, here’s a great video on the topic by John Stossel.

This confirms all the other research (see here, here, here, and here) we’ve seen on the negative impact of Seattle’s destructive new law.

Let’s close with an amusing Branco cartoon

P.S. Another Democratic presidential candidate also is a big hypocrite.

P.P.S. Actually, there are at least three hypocrites running for the Democratic nomination.

P.P.P.S. Here’s another video reviewing the evidence about Seattle’s job-killing increase in the minimum wage.

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As reported by the Washington Examiner, Crazy Bernie thinks the American people will be happy to pay more taxes in exchange for more goodies from Washington.

Presidential candidate Bernie Sanders said more taxes would be necessary in order to pay for things like universal healthcare and tuition-free college. …”a lot of people in the country would be delighted to pay more in taxes if they had comprehensive healthcare as a human right,” Sanders said. …Sanders, an independent senator from Vermont, said there is a “tradeoff” but he believes “most people will believe they will be better off…when they have healthcare as a human right and they have affordable housing, decent retirement security, and most Americans will understand that that is a good deal.”

I’m very skeptical of this claim.

When people are given the opportunity to voluntarily pay additional tax, whether to the federal government or state governments, they almost never cough up additional money.

Supporters of Bernie Sanders might claim that I’m being unfair. After all, he’s claiming that people would be happy to pay additional tax for additional spending, not additional tax for the current level of spending.

That’s a fair point.

So I’m willing to meet Crazy Bernie at the halfway point.

He says people would be happy to pay more tax and I think that’s wrong. How can we figure out which one of us is correct?

Simple. Let people choose. There are two ways to make this happen.

  1. Make socialism voluntary. If Crazy Bernie is correct about people wanting to pay more to get more, why not create a system where people can opt in or opt out? That shouldn’t be too difficult. Just create two tax systems, one for people who want to pay more to get more goodies, and another for people who don’t want that option. Heck, we could even create a third system for people (like me) who would like to opt out of existing redistribution and social insurance programs.
  2. Comprehensive federalism. Let’s basically repeal the Washington-centric welfare state and let states decide whether to impose such programs. If people like paying high taxes in exchange for big government, I’m sure politicians in New Jersey, California, and Illinois will be happy to oblige. But if Crazy Bernie is wrong, maybe people will vote with their feet and migrate to states that presumably would forego the opportunity to replicate the programs currently imposed from D.C.

Needless to say, I very much doubt whether Crazy Bernie or any of his supporters will go for either choice.

They know that voluntary socialism inevitably breaks down.

And folks on the left favor tax and spending harmonization precisely because they know that federalism and decentralization will lead to a smaller welfare state.

Which is why, notwithstanding Crazy Bernie’s claim, I described this tweet as perfectly capturing “the essential difference between libertarians and statists.”

Amen.

Statists don’t support choice. They don’t like federalism. The bottom line is that they know their intended victims will opt out.

Crazy Bernie is bluffing. He knows people don’t favor higher taxes. This cartoon explains everything.

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