Spending Caps are the Fiscal Gold Standard

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

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

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

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

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

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

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

Here are the relevant excerpts.

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

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

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

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

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

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

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TABOR Is America’s Fiscal “Gold Standard”

If Republicans do as well as expected in next Tuesday’s mid-term elections, especially with regard to gubernatorial and state legislative contests, I expect that more states will enact and expand on school choice in 2023.

That will be great news for families.

But I also want great news for taxpayers, and that’s why I’m hoping that we also will see progress on fiscal policy. To be more specific, I want to see more states copy Colorado’s very successful spending cap.

Known as the Taxpayer Bill of Rights (TABOR), it basically limits the growth of annual tax revenue to the growth of population-plus-inflation. Any revenue above that amount automatically must be returned to taxpayers.

And since the state also has a balanced-budget requirement, that means spending can only increase as fast as population-plus-inflation as well. A very simple concept.

Has TABOR been successful? Has it produced better fiscal policy and more economic prosperity?

The answer is yes. In a column for National Review, Jonathan Williams and Nick Stark say it is the “gold standard” for state fiscal policy.

TABOR is a state constitutional amendment that limits the amount of revenue Colorado lawmakers can retain and spend to a reasonable formula of population plus inflation growth. If the state government collects more tax revenue than TABOR allows, the money is returned to taxpayers as a refund. Just this year, Colorado taxpayers will receive nearly $4 billion in TABOR refund checks. If any government in Colorado intends to spend surplus revenue, increase taxes or fees, or increase debt, it must submit the proposed measure to the ballot and win the approval of a majority of voters. …Following the low-tax-plus-limited-government formula, Colorado developed into one of the most competitive business climates in the nation in the years following TABOR’s adoption. During the past three decades, Colorado has been one of the most competitive and fastest-growing economies in the nation. …Even in the face of this tremendous economic-success story, the tax-and-spend crowd have spent a tremendous amount of resources trying to demonize TABOR, often attempting to find work-arounds or suing to have TABOR declared unconstitutional. Why? In short, because it is an effective limit on the growth of government, and it restricts the wild spending increases that fund their constituencies — who generally favor big government. …Other states trying to implement meaningful checks and balances on the inexorable government-growth machine…should follow Colorado’s example.

Courtesy of Jon Caldera, here’s some of Colorado’s fiscal history, which began with a flat tax in the 1980s and then culminated with TABOR in the 1990s.

Colorado used to have a progressive income tax where people and companies would pay a higher tax rate the more money they earned. Thanks to the Independence Institute…and…economist Barry Poulson, the legislature was convinced to switch from the progressive tax to a flat one in the mid-1980s. Poulson urged that the new tax rate be 4.5% so that it would bring in the same amount of revenue as the system it was replacing. …So, of course, the legislature set the new rate at 5% to create a fine windfall, which it did. Even so, the flat income tax did what it was predicted to do. It lit the engine of Colorado’s economy. When productive people and their companies are looking to locate, they are attracted to states with low and stable tax policy. The flat tax began the Colorado boom. That boom resulted in massive tax receipts to the state. So much so that the legislature quickly felt the growing pressure of a tax rebellion. …So, we then passed the Taxpayer’s Bill of Rights in 1992. The combination of our flat tax and TABOR attracted more and more businesses and jobs to Colorado. So much so that in the late 1990s the state had to refund some $3.2 billion of surplus tax revenue to taxpayers. …The combination of our flat-rate income tax and TABOR has made for a sustainable gold rush which has turned Colorado into one of the most economically vibrant states in the country with one of the lowest unemployment rates.

I’ll close by explaining why folks on the left also should support TABOR-style spending caps.

Part of the reason is that they should care about future generations.

Part of the reason is that they should care about economic growth.

But another reason is that it may be politically beneficial. Check out these excerpts from a column in the Denver Post by Scott Gessler.

TABOR requires a vote of the people to raise taxes, incur debt, or spend excess government funds. Practically, it makes all three much harder. So Democrats hate TABOR. …conservatives love TABOR. They rarely support tax increases or additional borrowing, and for them TABOR imposes fiscal discipline and forces government to live within its means. And Colorado has avoided the ongoing fiscal crises that have plagued other states like Illinois or California. Plus, it’s hard to argue against the public’s right to vote on taxes and debt. …But what about Republicans? They’re the ones who have paid the political price. …Today, voters can oppose Republicans and support Democrats, with little fear taxes will go up. …So expect the continued irony, as Democrats attack TABOR with a unified voice, while Republicans usually support it, yet lose political strength.

Since I care about policy rather than partisanship, I hope lots of Democrats read this article and then embrace spending caps. If they don’t want to copy Colorado, they can opt for the Swiss version of a spending cap. So long as they choose something real, it will work.

That would be bad for Republicans, but good for prosperity.

P.S. Colorado is now a blue-leaning state, but voters in 2019 rejected an effort by the pro-spending lobbies to eviscerate TABOR.

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The Most Important Ballot Initiative of 2019

Last November, voters in some states had the opportunity to accept or reject some very important initiatives, including votes on Colorado’s flat tax, Arizona’s school choice system, and a carbon tax in the state of Washington.

Since 2019 is an off-year election, there aren’t as many initiatives and referendums. But one of them is vitally important. Politicians in Colorado are hoping voters will approve Proposition CC, which would gut the Taxpayer Bill of Rights (TABOR) and thus allow more government spending.

Why is TABOR worth defending? Because it’s far and away the most effective and well-designed fiscal rule in the United States.

It’s basically a spending cap, which is the ideal fiscal policy, and here’s a description of how it works that I shared last year.

Colorado voters adopted The Taxpayer’s Bill of Rights in 1992. TABOR allows government spending to grow each year at the rate of inflation-plus-population. Government can increase faster whenever voters consent. Likewise, tax rates can be increased whenever voters consent. …The Taxpayer’s Bill of Rights requires that excess government revenues be refunded to taxpayers, unless taxpayers vote to let the government keep the revenue.

Proposition CC doesn’t fully repeal TABOR, but it allows politicians to keep – and spend – excess tax revenues.

Thomas Aiello of the National Taxpayers Union wrote last month for the Colorado Springs Gazette about TABOR. He explains why it has been successful.

By guaranteeing refunds of excessive taxes, restricting spending to sensible growth rates, and giving Coloradans the ability to vote on tax increases, TABOR has been instrumental in the state’s booming economy. …Since TABOR limits the amount of money the state is allowed to spend, surplus revenue in excess of the cap must be refunded to Colorado taxpayers. Generally, the revenue cap on the state level grows with inflation plus population increases. …TABOR is working as designed: limiting the growth of government, protecting taxpayers, and ensuring working Coloradans keep more of their hard-earned money. …since 1992 more than $3 billion has been refunded back to taxpayers in the form of lower property, sales, and income taxes.

And he warns about the adverse consequences of Proposition CC.

…in the 2019 legislative session, the Democratic-controlled legislature agreed to place Proposition CC onto the November ballot. If approved by voters, TABOR’s provision for refunds would be gutted, thereby allowing the treasury to retain all excess revenue it is required to return to taxpayers. That means taxpayers would forfeit future refunds from 2019 on. Just put that into perspective: taxpayers will send an extra $1.3 billion to the treasury than what would normally be spent. Instead of giving that money back to you as required by TABOR, lawmakers want Coloradans to forget about overpayments so they can just spend it on other things in the budget.

Writing for the Grand Junction Daily Sentinel, Jay Stooksbury also opines against Proposition CC.

They lied to us in 2005, and they are doubling down on this lie in 2019. Colorado voters were sold a bill of goods with Referendum C in 2005, and it is of the utmost importance that we aren’t fooled again with Proposition CC in 2019. Proponents of Referendum C originally claimed that their measure was “temporary.” The measure was supposed to offer a five-year reprieve from the constitutional limitations created by the Taxpayer’s Bill of Rights (TABOR)… Referendum C proved to be anything but “temporary.” The referendum allowed Colorado’s spendthrift government to permanently augment its spending cap, shortchanging taxpayers on their potential refund year after year since its passing.

He explains that Proposition CC would be far worse.

If passed, this 2019 ballot measure would permanently abolish the state government’s obligation to refund taxpayers. I repeat: permanently. At least this time around, legislators have dropped the pretense that they are bluffing with “temporary” half-measures; when it comes to keeping all of your hard-earned income, these legislators are going all-in, baby. …TABOR is, unfortunately, a shell of its former self. Its effectiveness has been chipped away by a decades-long rebranding campaign that laundered tax revenue by using terms like “fees” and “enterprises.” …Regardless, TABOR is still a vital, one-of-a-kind safeguard that empowers Coloradans against the wastefulness of government. Come November, let’s be certain to keep it that way. Fool us once with C, shame on you; fool us twice with CC, shame on all of us.

I don’t have much to add to these analyses. The real gold standard for good fiscal policy is to make sure government doesn’t grow faster than the private sector, and that’s what TABOR is designed to achieve.

It’s basically the closest thing we have in America to Switzerland’s “debt brake” and Hong Kong’s Article 107.

My only contribution to the discussion is this chart, based on data from the St. Louis Federal Reserve, showing how Coloradans now enjoy more than $4,000 of additional personal income compared to the national average – up from just $526 when TABOR was enacted.

While it’s impossible to precisely explain why income has grown faster in Colorado, I don’t think it is a coincidence that the state gets high scores for economic liberty.

P.S. To see the real-world impact of TABOR, look at what happened after pot legalization produced additional tax revenue.

P.P.S. I’m also paying close attention to Proposition 4 in Texas, which would amend the state constitution to prohibit consideration of a personal income tax.

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Proven Reforms to Restrain Leviathan Government

Back in March, I shared a remarkable study from the International Monetary Fund which explained that spending caps are the only truly effective way to achieve good fiscal policy.

And earlier this month, I discussed another good IMF study that showed how deficit and debt rules in Europe have been a failure.

In hopes of teaching American lawmakers about this international evidence, the Cato Institute put together a forum on Capitol Hill to highlight the specific reforms that have been successful.

I moderated the panel and began by pointing out that there are many examples of nations that have enjoyed good results thanks to multi-year periods of spending restraint.

I even pointed out that we actually had an unintentional – but very successful – spending freeze in Washington between 2009 and 2014.

But the problem, I suggested, is that it is very difficult to convince politicians to sustain good policy on a long-run basis. The gains of good policy (such as what was achieved in the 1990s) can quickly be erased by a spending binge (such as what happened during the Bush years).

Unless, of course, there’s some sort of constraint on the desire to spend money. And the panelists discussed the three most successful examples of reforms that constrain the growth of government.

We started with a presentation by Daniel Freihofer from the Swiss Embassy. He talked about Switzerland’s “Debt Brake,” which actually is a spending cap.

It’s remarkable how well Switzerland has performed while most other European nations have suffered downward spirals of more spending-more taxes-more debt. Here’s a chart I put together on what’s happened to spending in Switzerland ever since 85 percent of voters imposed the Debt Brake early last decade.

By the way, Herr Freihofer said during the Q&A session that support for the Debt Brake is now probably about 95 percent, so Swiss voters obviously understand that the policy has been very successful.

Our second speaker was Clement Leung, Hong Kong’s Commissioner to the United States. He talked about Article 107 and other rules from Hong Kong’s Basic Law (their constitution) that limit the temptation to over-tax and over-spend.

And if you want to see some of the positive results of these rules in Hong Kong, here’s some of what Commissioner Leung presented.

By the way, the burden of government spending in Hong Kong averages about 18 percent of economic output. That’s the most impressive result. And Commissioner Leung explained that there’s a commitment to keep the burden of spending below 20 percent of GDP.

The final panelist was Jonathan Williams from the American Legislative Exchange Council, and he talked about Colorado’s Taxpayer Bill of Rights, popularly known as TABOR.

Jonathan talked about how the pro-spending lobbies keep attacking TABOR, and he mentioned that they narrowly succeeded in getting a five-year suspension of the law back in 2005. But Colorado voters generally understand they have a good policy.

The most recent attempt to enable more spending came in the form of an increase in the state’s flat tax back in 2013 and voters rejected it by a stunning 66-34 margin (almost as impressive as the recent vote against tax hikes in Michigan) even though Jonathan said advocates outspent opponents by a 289-1 margin.

Here’s a slide from his presentation showing what happened during other attempts to enable more spending.

By the way, Jonathan also mentioned that Colorado’s voters are about to get a TABOR-mandated tax cut because taxes on marijuana are pushing revenues above the limit. Talk about a win-win situation!

To wrap up, one of the big lessons from all the presentations is that governments generally get in trouble because they can’t resist over-spending when the economy is doing well and generating lots of tax revenue.

I fully agree, and I’ve previously explained this is why Alberta got in fiscal trouble, and also why California suffers a boom-bust budgetary cycle.

The way you solve this problem is not with a balanced budget requirement (which often serves as the justification for tax hikes), but some sort of spending limitation rule.

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Two Big Fiscal Lessons from Colorado’s Pot Legalization

Regular readers know that I don’t approve of drug use, but that I also favor legalization because the Drug War has been a costly and ineffective failure.

(And it’s led to horrible policies such as intrusive money-laundering laws and Orwellian asset-forfeiture laws).

So I was happy when folks in Colorado voted to decriminalize marijuana use, even if part of me didn’t like the idea that politicians would gain a new source of tax revenue.

If nothing else, what’s happening in Colorado (and Washington state) will be an interesting social experiment.

And even though we only have a modest bit of data, I’m going to be bold and assert that we can already learn two lessons from what’s happened.

1. Politicians are so greedy that they set taxes too high.

In the real world, there’s this thing called the Laffer Curve. And what it shows is that excessive tax rates don’t generate big piles of tax revenue because people change their behavior.

I’ve made this point before when dealing with personal income tax rates, corporate tax rates, capital gains taxes, and tobacco taxes.

Simply stated, the political class is so anxious to get more of our money that they impose punitive tax rates that fail to generate the desired amount of revenue.

And it’s also true with taxes on marijuana.

But don’t believe me. Let’s look at some news sources about what’s happened in Colorado.

Here are some excerpts from a Daily Beast report.

According to the Colorado Department of Revenue, the state collected $44 million in taxes from recreational marijuana in 2014, $25 million less than predicted.  …why did recreational marijuana sales in Colorado fall short? …Coloradoans bought less recreational marijuana than they could have… Looking at the taxes on cannabis in the state, it’s not hard to see why. Pot taxes in Colorado are steep. In Denver, for example, an eighth of cannabis can come with four taxes: an excise tax, regular sales tax, special sales tax (for pot retailers), and a special city tax. That equals a markup of roughly 30 percent. …many pot aficionados looked at the numbers and decided to stick with their medical marijuana programs or their other dealers.

Here’s some similar analysis from a New York Times article.

Colorado’s tax results underscore a big conflict facing public officials considering marijuana legalization. Taxes should be kept low if the goal is to eliminate pot’s black market. …Colorado has also shown that pot-smokers don’t necessarily line up to leave the tax-free black market and pay hefty taxes. If medical pot is untaxed, or if pot can be grown at home and given away as in Colorado, the black market persists.

And here are some passages from the Mic’s analysis.

David Huff…from Aurora, told the AP that the state’s taxes on marijuana, which increase the price of pot by 30 percent or more, are too, um, high. “I don’t care if they write me a check, or refund it in my taxes, or just give me a free joint next time I come in. The taxes are too high, and they should give it back,” Huff said. …only 60 percent of Coloradans obtained their marijuana through a legal exchange in 2014. Some buyers are using the state’s legal medical marijuana, which is untaxed, as a source for green, while others take advantage of Amendment 64’s provision allowing the personal use of as many as six marijuana plants. The products of those plants have flooded the black market, depriving Colorado of more taxable pot.

The bottom line is that politicians better figure out how to limit their greed if they truly want the legal market to function properly.

2. A spending cap ensures that new revenue won’t finance bigger government.

I’m a big fan of restraining the growth of government. Needless to say, this means I don’t like giving politicians new sources of revenue.

That’s my view on all of the proposals for new revenue that are percolating in the corridors of power, including energy taxes, financial taxes, value-added taxes, and wealth taxes.

But if there’s actually some sort of binding limit on the growth of government, then politicians can’t use new revenue to finance a more bloated public sector.

And thanks to the nation’s best expenditure limit, that’s the case in Colorado.

Here’s what Mic wrote on the topic.

Colorado’s state constitution limits how much tax money the state treasury can receive before having to return it to taxpayers. The provision, known as the Taxpayer Bill of Rights, or TABOR… Since Colorado’s economy has been growing as a faster rate than expected, the state underestimated its total revenue, which means Centennial State residents may soon get a cut of the estimated $50 million in taxes collected from the sale of recreational marijuana during its first year of legalization. …TABOR, passed in 1992, dictates that Colorado can’t spend revenue made from taxation if those revenues grow faster than the rate of inflation and population growth. That money, known as a TABOR bonus, must be refunded to taxpayers unless voters approve a revenue change. This amendment has netted Colorado taxpayers about $3.3 billion since 1992.

Let’s return to the Daily Beast story.

In a state with one of the strictest tax and expenditure limitations in the country, Colorado operates under a Taxpayer Bill of Rights called TABOR. According to the bill, refunds are to be considered when state tax revenues don’t match up to the state estimates. This year, owing to a slight rise in the economy, the overall revenue was higher.

Though you won’t be surprised to learn that politicians want to figure out a way of spending the money. Check out these passages from the aforementioned piece in the New York Times.

Colorado will likely have to return to voters to ask to keep the pot tax money. That’s because of a 1992 amendment to the state constitution that restricts government spending. The amendment requires new voter-approved taxes, such as the pot taxes, to be refunded if overall state tax collections rise faster than permitted. Lawmakers from both parties are expected to vote this spring on a proposed ballot measure asking Coloradans to let the state keep pot taxes.

So both Republicans and Democrats will join hands in an effort to spend the money.

Gee, knock me over with a feather. What a surprise!

But let’s not focus on whether politicians want more of our money. Let’s learn from TABOR.

What it teaches us is that you get better policy when you limit the growth of government spending. And the closest thing we have to TABOR at the national level is the Swiss Debt Brake.

It’s worked very well in Switzerland because it puts the focus on the underlying problem of too much government. Notwithstanding the name, it limits the annual growth of spending, not the growth of debt.

The moral of the story is that when you address the real problem of too much spending, you automatically address the symptom of red ink.

And politicians presumably won’t have much incentive to impose higher taxes if they can’t use the money to buy votes with bigger government, so it’s a win-win situation!

P.S. Though there are some who favor higher taxes solely for reasons of spite and envy.

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More Good News in the Battle to Preserve Second Amendment Freedoms

Like all advocates of freedom, I normally despair about the future. Whether we’re measuring the ever-growing burden of government or the erosion of key forms of social capital such as self-reliance and the work ethic, it seems that the world is heading in the wrong direction.

But, at least for today, I want to be optimistic. At least on the issue of guns.

Mexico isn’t a tax haven, but Cabo is still much better than DC

My good cheer may simply be a function of the holiday season. Or maybe my optimism is merely an illogical side-effect of having just enjoyed a couple of days of warm sunshine.

But I don’t think so. I actually think we’re winning the battle to preserve the Second Amendment.

And Colorado is Ground Zero in this battle. In an unprecedented move, two state senators – including the Senate President – were kicked out of office earlier this year because voters were upset that they voted to undermine the right to keep and bear arms.

Then, more recently, another state senator in Colorado resigned her seat rather than face a similar recall election.

Those political results were impressive, but it’s even more surprising that we’re now we’re seeing some very admirable forms of civil disobedience. But what’s amazing isn’t that citizens are refusing to obey tyrannical and unjust law.

That’s inspiring, of course, but we’ve now reached the point where even law enforcement is refusing to comply.

Here are some encouraging excerpts from a report in the New York Times about how Colorado sheriffs are openly stating that they have no intention of carrying out the misguided dictates of the political class.

When Sheriff John Cooke of Weld County explains in speeches why he is not enforcing the state’s new gun laws, he holds up two 30-round magazines. One, he says, he had before July 1, when the law banning the possession, sale or transfer of the large-capacity magazines went into effect. The other, he “maybe” obtained afterward. He shuffles the magazines, which look identical, and then challenges the audience to tell the difference. “How is a deputy or an officer supposed to know which is which?” he asks.

It’s not just Sheriff Cooke.

…if Sheriff Cooke and a majority of the other county sheriffs in Colorado offer any indication, the new laws — which mandate background checks for private gun transfers and outlaw magazines over 15 rounds — may prove nearly irrelevant across much of the state’s rural regions. Some sheriffs, like Sheriff Cooke, are refusing to enforce the laws, saying that they are too vague and violate Second Amendment rights. Many more say that enforcement will be “a very low priority,” as several sheriffs put it. All but seven of the 62 elected sheriffs in Colorado signed on in May to a federal lawsuit challenging the constitutionality of the statutes.

Even the Sheriffs on the wrong side of the lawsuit aren’t necessarily on the wrong side of the issue.

Even Sheriff W. Pete Palmer of Chaffee County, one of the seven sheriffs who declined to join the federal lawsuit because he felt duty-bound to carry out the laws, said he was unlikely to aggressively enforce them. He said enforcement poses “huge practical difficulties,” and besides, he has neither the resources nor the pressure from his constituents to make active enforcement a high priority. Violations of the laws are misdemeanors. “All law enforcement agencies consider the community standards — what is it that our community wishes us to focus on — and I can tell you our community is not worried one whit about background checks or high-capacity magazines,” he said.

We’re seeing healthy resistance in other states as well.

The resistance of sheriffs in Colorado is playing out in other states. …In New York State, where Gov. Andrew M. Cuomo signed one of the toughest gun law packages in the nation last January, two sheriffs have said publicly they would not enforce the laws — inaction that Mr. Cuomo said would set “a dangerous and frightening precedent.” …In Liberty County, Fla., a jury in October acquitted a sheriff who had been suspended and charged with misconduct after he released a man arrested by a deputy on charges of carrying a concealed firearm. The sheriff, who was immediately reinstated by the governor, said he was protecting the man’s Second Amendment rights. …“Our way of life means nothing to these politicians, and our interests are not being promoted in the legislative halls of Sacramento or Washington, D.C.,” said Jon E. Lopey, the sheriff of Siskiyou County, Calif.

By the way, Governor Cuomo is half-right about “a dangerous and frightening precedent.” He’s just oblivious to the fact that this phrase applies to his policies, not to the Sheriffs who are obeying the Constitution and common sense.

For more information on the Second Amendment and the folly of gun control, here are some great videos.

• Ted Nugent talking about gun ownership and the right of self defense.
• A look at Switzerland’s strong gun culture and the importance of self defense as a protection against oppression.
• And some very powerful testimony to some weasels on Capitol Hill (make sure to pay attention around the 5:00 mark).
• Ice-T talking about the real reason to defend and support the 2nd Amendment.
• A Reason TV video with five facts for Vice President Biden’s task force.
• A look at how a young woman can defend herself.
• Debunking the left’s “black NRA” parody.
• A 15-year old speaking truth to power.

P.S. Andrew Cuomo was Secretary of Housing and Urban Development during the Clinton years when the so-called affordable lending requirements were dramatically expanded, thus helping to pave the way for the housing and financial crisis.

P.P.S. Another way of protecting the Second Amendment is for juries to engage in nullification and to refuse to convict people for peaceably owning and bearing arms.

P.P.P.S. My fourth, sixth, and ninth most viewed posts are about gun control and the Second Amendment, so this obviously is an issue people care about.

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Obama Advocates Higher Unemployment for Lower-Skilled Workers (and Some Great Election News from Colorado)

Perhaps because he wants to divert attention from the slow-motion train wreck of Obamacare, the President is signalling that he will renew his efforts to throw more people into the unemployment line.

Needless to say, that’s not how the White House would describe the President’s proposal to increase the minimum wage, but that’s one of the main results when the government criminalizes certain employment contracts between consenting adults.

To be blunt, if a worker happens to have poor work skills, a less-than-impressive employment record, or some other indicator of low productivity that makes them worth, say, $7.50 per hour, then a $9-per-hour minimum wage is a ticket to the unemployment line.

Which is the point I made in a rather unfriendly interview with Yahoo Finance.

But a higher minimum wage is popular with voters who don’t understand economics, and unions strongly support a higher minimum wage since it means potential competitors are then priced out of the market.

So it’s not exactly a surprise that the White House is siding with unions over lower-skill workers. Here’s some of what is being reported by The Hill.

President Obama might soon renew his push for a $9 minimum wage, a top economic adviser said on Monday. “You’ll certainly be hearing more about it,” Jason Furman, the chairman of the Council of Economic Advisers, told reporters Monday at a Wall Street Journal event. …Obama urged lawmakers during January’s State of the Union address to boost the wage from $7.25 to $9 per hour and index it so that it rises with inflation.

The “indexing” provision would be especially pernicious. In the past, rising overall wage levels have diminished the harmful impact of the minimum wage. But if the minimum wage automatically increases, then the ladder of opportunity may be permanently out of reach for some low-skilled workers.

Walter Williams also has weighed in on this issue, noting specifically the negative impact of higher minimum wages on minorities. Indeed, he cited research showing that, “each 10 percent increase reduces hours worked by 3 percent among white males, 1.7 percent for Hispanic males, and 6.6 percent for black males.”

The bottom line is that businesses aren’t charities. They hire workers when they think more employees will improve the bottom line. So if you artificially increase the price of labor, it’s easy to understand why marginal workers won’t get hired.

For more information on this issue, here’s a video produced by the Center for Freedom and Prosperity.

P.S. I wrote yesterday that the tax-hike referendum in Colorado was the most important battle in the 2013 elections.

Well, I’m delighted to report that Colorado voters are even wiser than Swiss voters. A take-hike referendum in 2010 was defeated in Switzerland by a 58.5-41.5 margin. Colorado voters easily exceeded that margin, rejecting the tax hike in a staggering 66-34 landslide.

Here’s what the Denver newspaper – which liked the tax increase – wrote about the referendum.

The pro-66 side raised more than $10 million that it lavished on advertising, messaging and get-out-the-vote efforts, thanks in part to huge donations from teachers unions, Michael Bloomberg, and Bill and Melinda Gates. Opponents meanwhile had barely the equivalent of a street-corner megaphone at their disposal. And yet Colorado voters, in another display of independence, ignored the prodding in one direction and chose to go their own way. They didn’t merely defeat Amendment 66. They demolished the idea.

In other words, taxpayers were heavily outspent by union bosses and out-of-state billionaires, yet they easily prevailed and Colorado’s flat tax is safe.  At least for now.

P.P.S. I conducted a test this morning on media bias. I’m still in Iceland, so I went to sleep last night long before American election results were announced. When I woke up this morning, I looked first at both the CNN and Washington Post websites. When I didn’t see any results for the Colorado tax referendum, I was 99 percent confident that the statists had lost. Needless to say, it would have been front page news if the referendum was approved.

P.P.P.S. Since I’m adding some comments on Colorado elections, we also should be happy that the pro-school choice members of the Douglas County School Board were all reelected, notwithstanding a big effort by the unions.

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The Most Important Election of 2013

There’s an off-year election today in the United States. There are no contests for the White House or Congress, but that doesn’t mean there aren’t any important choices being made.

I say that notwithstanding the fact that the big races between politicians at the state and local level aren’t expected to be close.

Governor Christie in New Jersey is poised for a landslide victory in his race for a second term. The only interesting aspect of this race is whether he will use his reelection as a springboard for a run at the White House in 2016. That may please you, depending on whether you focus on his rhetoric (here and here) or his record (here and here).

Bill de Blasio is going to be elected Mayor of New York City, replacing a politically correct Napoleonic busy-body (see here, here, here, here, and here) with a hard-left statist. I expect many productive people will be fleeing in the next few years. Given what will happen, I suspect Detroit-on-the-Hudson will be the future name of NYC.

Terry McAuliffe, a former Clinton fundraiser, will probably become Governor of Virginia. The GOP in the state has been dispirited and weak every since the corrupt Republican governor imposed a big tax hike, though the GOP candidate has a slight chance for an upset because of growing anti-Obamacare sentiment.

The contest that should command our attention is Amendment 66 in Colorado, a ballot initiative that would eliminate the state’s 4.63 percent flat tax and replace it with a so-called progressive tax regime with rates of 5 percent and 5.9 percent.

Here’s how the Wall Street Journal describes the proposal.

Colorado has veered to the political left in recent years, and on November 5 it may take another leap toward California. The Democrats and unions who now run state government are promoting a ballot initiative that would raise taxes and unleash a brave new era of liberal governance. …a $950 million revenue increase for politicians in the first year alone.

The real problem is what happens once the flat tax is gutted and politicians can play divide and conquer with the tax code.

…the real prize is down the road. Once a graduated tax code is in place, unions and Democrats will try again and again to raise tax rates on “the rich.” This has happened everywhere Democrats have run the show in the last decade, from Maryland to Connecticut, New York, Oregon and California. Within a decade, the top tax rate will be closer to 8% or 9%.  …that won’t make the state any more competitive in its interior U.S. neighborhood, where states like Kansas and Oklahoma are cutting tax rates. High-tax states created one net new job for every four in states without an income tax from 2002-2012, according to a study for the American Legislative Exchange Council.

So which side will win this vote?

As recently as 2011, Colorado voters voted down a state sales and income-tax increase, but the unions keep coming. And it’s no surprise they’ve already put $2 million behind Amendment 66. If it passes, they know they’ll get a big return on that political investment for decades to come. If it does pass, we’ll also know that millions of Coloradans have taken to smoking that marijuana they legalized last year.

Hmmm…that’s probably the strongest argument I’ve heard in favor of drug prohibition.

For what it’s worth, I’m predicting Colorado voters will reject this foolish class warfare scheme. Though I realize that may be a foolish guess. After all, 54 percent of crazy Oregon voters approved a tax hike in 2010 and their southern neighbors in the suicidal state of California voted by a similar margin for a class-warfare tax hike in 2012.

I’d feel a lot more confident, however, if we could replace Colorado’s voters with some sensible people from Switzerland. When faced with a class-warfare tax hike referendum in 2010, they voted against it by a very strong 58.5-41.5 margin.

And it was Swiss voters who overwhelmingly voted (84.7 percent) for the “debt brake” in 2001. And as I noted just yesterday, that de facto spending cap has been quite effective in controlling the burden of government spending.

Anyhow, if you know any Colorado voters, you may want to send them this video.

Regardless of how they vote, they should understand the potential consequences if Amendment 66 is approved.

P.S. Some Colorado voters just made a very sensible decision to defend the Second Amendment, but it’s unclear whether they have a similar attitude about economic liberty.

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A Libertarian Quandary: Should Drugs Be Legalized if It Means Bigger Government?

Here’s a new edition of my “you be the judge” series.

These are posts designed to explore some of the more challenging aspects of a pro-libertarian philosophy.

Today’s example comes from Colorado, which had displayed a libertarian streak on issues ranging from school choice to drug legalization.

But the latter issue is the source of today’s quandary. Should marijuana be legal if it means more tax revenue that will be used by the political elite to expand the burden of government spending?

Here are the details from the Denver CBS station.

A draft bill floating around the Capitol late this week suggests that a new ballot question on pot taxes should repeal recreational pot in the state constitution if voters don’t approve 15 percent excise taxes on retail pot and a new 15 percent marijuana sales tax. Those would be in addition to regular state and local sales taxes. …Marijuana activists immediately blasted the proposal as a backhanded effort to repeal the pot vote, in which 55 percent of Coloradans chose to flout federal drug law and declare pot legal in small amounts for adults over 21.

If my math is correct, the politicians want a 30 percent special tax on marijuana, which is on top of the regular taxes that would be imposed.

That would be fine with me – if the proposal specified that the additional tax revenue was offset by a tax cut of equal size.

But as I explained in my “starve-the-beast” post, higher taxes usually finance bigger government.

Indeed, some politicians openly admit that they want the new revenue to expand the budget.

Sen. Larry Crowder, R-Alamosa, said the whole purpose of legalizing recreational marijuana was to raise money for education and other programs. “So if there’s no money, we shouldn’t have marijuana,” Crowder said. …In Washington state, the only other place where voters last year approved recreational pot, the ballot measure set taxes at 75 percent, settling the question. Both states are still waiting to find out whether the federal government plans to sue to block retail sales of the drug, set to begin next year.

Though I didn’t realize that the state of Washington imposes a 75 percent tax on marijuana. How…um…French!

More Money for Government? The Ultimate Buzz Kill

So what’s the bottom line? If I lived in Colorado, would I vote to keep pot legal even if it meant more money from the buffoons in the state capital?

Since drug legalization is about 990 out of 1000 in my list of priorities, I’m tempted to say no.

On the other hand, it would be nice to reduce the onerous burden of the War on Drugs, which has been used an excuse to expand the size and scope of government.

What do you think?

P.S. If you want more examples of “you be the judge,” previous editions are listed below.

• Is fleeing to Cuba a justifiable way to keep your children away from government control?
• Is it appropriate to put politicians on trial for economic malfeasance?
• Is it excessive vigilante justice to set your daughter’s rapist on fire?
• Should prisoners with AIDS be segregated from other convicts?
• Which tax collection tactic is more brutal and unjust?
• When a wheelchair-bound guy uses a baseball bat to punish his granddaughter’s molester, what’s the right response?
• Should politicians set pay levels at government-owned firms?
• Is sharia law sometimes appropriate?
• Is the Netherlands right to segregate troublemakers from the general population?
• What do you do about self-destructive behavior in a government-run healthcare system?
• Should there be laws against incest among consenting adults?
• Should motorists be allowed to warn other drivers about speed traps?
• Is jury nullification the right approach for victimless crimes?
• Was this angry father wrong to take matters into his own hands?
• Should drunk-rafting be a crime?
• Should rich people pay higher speeding fines?

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What Happens on School Choice in Colorado May Be More Important than Stopping Obama’s Tax Hikes

I generally focus on fiscal policy and I love low tax rates, so when I say that what happens on school choice in Douglas County, Colorado, may be more important to the future of the nation than what happens with Obama’s plan for higher tax rates next year, that should give you an idea of the critical importance of this education battle.

The union bosses at the National Education Association have been waging a vicious national campaign against competition and choice and have succeeded in limiting school choice to a handful of small systems (largely focused just on the poor) in places such as Milwaukee.

These are great success stories, but the government education monopoly won’t be broken until there is a big, highly visible, school choice success in a large, mostly white, jurisdiction. Douglas County is that example. Here’s an excerpt from a story in today’s Wall Street Journal.

The school board in a wealthy suburban county south of Denver is considering letting parents use public funds to send their children to private schools—or take classes with private teachers—in a bid to rethink public education. The proposals on the table in Douglas County constitute a bold step toward outsourcing a segment of public education…In 2002, the U.S. Supreme Court ruled in a case involving a voucher program in Cleveland that public money could be used for private religious schools as long as parents were not steered to any one particular faith-based program and had a “genuine choice” on where to use their vouchers. About 160,000 children in the U.S., mostly low-income or with special needs, use vouchers or scholarships subsidized indirectly by the state to attend private schools, according to the Brookings Institution in Washington, D.C. …Douglas County School District board members are also considering letting students enrolled in public schools opt out of some classes in favor of district-approved alternatives offered at for-profit schools or by private-sector instructors. Students might skip high-school Spanish, for example, to take an advanced seminar in Chinese, or bypass physics to study with a rocket scientist, in person or online. …The school board is dominated by conservatives, including several who won election last fall on vows to expand educational choices. “These days, you can build a custom computer. You can get a custom latte at Starbucks,” said board member Meghann Silverthorn. “Parents expect the same out of their educational system.” …Douglas County, a swath of tidy cul-de-sacs and look-alike subdivisions, already boasts nine charter schools, two magnet schools and an online school as well as 65 traditional schools—all funded by tax dollars. Students receive high scores on standardized tests and a recent community survey found overwhelmingly positive views about the public schools. Fewer than 4,000 students in the district chose private or home schools last year, according to state statistics. “But we will not rest on our laurels,” board president John Carson said at a recent meeting. …The voucher plan…would give participants about $5,000, enough to cover 35% to 100% of tuition at local private schools.

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Taxpayers vs Bureaucrats, Part XXXVIII

You know that bureaucrats are getting wildly overcompensated if even the New York Times is publishing articles about the problem. The article notes that there is a nationwide problem, and then cites developments in Colorado, where lawmakers actually took a tiny step in the right direction by limiting cost-of-living adjustments for existing retirees. Not surprisingly, the bureaucrats are suing to overturn this reform.

There’s a class war coming to the world of government pensions. The haves are retirees who were once state or municipal workers. Their seemingly guaranteed and ever-escalating monthly pension benefits are breaking budgets nationwide. The have-nots are taxpayers who don’t have generous pensions. Their 401(k)s or individual retirement accounts have taken a real beating in recent years and are not guaranteed. And soon, many of those people will be paying higher taxes or getting fewer state services as their states put more money aside to cover those pension checks. …Consider what’s going on in Colorado – and what is likely to unfold in other states and municipalities around the country. Earlier this year, in an act of rare political courage, a bipartisan coalition of state legislators passed a pension overhaul bill. Among other things, the bill reduced the raise that people who are already retired get in their pension checks each year. …this was apparently the first time that state legislators had forced current retirees to share the pain. Sharing the burden seems to be the obvious solution so we don’t continue to kick the problem into the future. “We have to take this on, if there is any way of bringing fiscal sanity to our children,” said former Gov. Richard Lamm of Colorado, a Democrat. “The New Deal is demographically obsolete. You can’t fund the dream of the 1960s on the economy of 2010.” But in Colorado, some retirees and those eligible to retire still want to live that dream. So they sued the state to keep all of the annual cost-of-living increases they thought they would be getting in perpetuity. …”All I can say is that I am sorry,” said Brandon Shaffer, a Democrat, the president of the Colorado State Senate, who helped lead the bipartisan coalition that pushed through the changes. (He also had to break the news to his mom, a retired teacher.) “I am tremendously sympathetic. But as a steward of the public trust, this is what we had to do to preserve the retirement fund.” Taxpayers, whose payments are also helping to restock Colorado’s pension fund, may not be as sympathetic, though. The average retiree in the fund stopped working at the sprightly age of 58 and deposits a check for $2,883 each month. Many of them also got a 3.5 percent annual raise, no matter what inflation was, until the rules changed this year.

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