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Posts Tagged ‘Higher Taxes’

Public finance experts sometime differ in how to describe a value-added tax.

  • Is it a hidden form of a national sales tax, imposed at each stage of the production process?
  • Is it a hidden withholding tax on income, imposed at each stage of the production process?

Both answers are actually correct. The VAT is both a tax on consumption and a tax on income because – notwithstanding its other flaws – it has the right “tax base.”

In other words, like the flat tax, a VAT taxes all economic activity, but only one time (i.e., no double taxation of income that is saved and invested). And it usually has a single rate, which is another feature of a flat tax.

That’s why a VAT (in theory!) would be acceptable if it was used to finance the complete abolition of the income tax.

But that’s not a realistic option. Heck, it’s not even an unrealistic option.

Instead, many politicians in the United States want to keep the income tax and also impose a VAT so they can finance a bigger burden of government – which is exactly what’s been happening in Europe.

Unfortunately, they’re getting some support from the American Enterprise Institute. Alan Viard, a resident scholar at AEI, has a new column urging the adoption of a VAT.

Let’s review what he wrote and explain why he’s wrong.

The U.S. faces a large long-term imbalance between projected federal tax revenue and federal spending… To narrow the fiscal imbalance, we should follow the lead of 160 other countries by adopting a value-added tax (VAT), a consumption tax that is economically similar to a retail sales tax. …Adopting a VAT would significantly curb the debt buildup.

I’ve never been impressed with the argument that the U.S. should adopt a policy simply because other nations have done the same thing.

The United States is much richer than other countries in large part because we haven’t replicated their mistakes. So why start now?

But let’s deal with Viard’s assertion that a VAT would “significantly curb the debt buildup.”

I recently showed the opposite happened in Japan. They adopted a VAT (and have repeatedly increased the VAT rate), but debt has increased.

But I think the strongest evidence is from Europe since we have several additional decades of data. Those nations started imposing VATs in the late 1960s and they now all have very high VAT rates.

And what’s happened to debt?

Well, as you can see from the chart, big increases in the tax burden were matched by even bigger increases in government debt.

The moral of the story is that Milton Friedman was right when he warned that, “History shows that over a long period of time government will spend whatever the tax system raises plus as much more as it can get away with.”

So why would Viard support a VAT when the evidence overwhelmingly shows that a big tax increase will worse a nation’s fiscal outlook?

He argues that a VAT would be the least-worst way to finance bigger government.

Although tax increases on the affluent place the burden on those with the most ability to pay, they impede long-run economic growth by penalizing saving and investment and distorting business decisions. The economic costs become larger as tax rates are pushed higher. …The VAT is more growth-friendly than high-income tax increases because it does not penalize saving and investment and poses fewer economic distortions.

He’s right that a VAT doesn’t do as much damage as class-warfare tax, but he’s wildly wrong to assert that it is “growth-friendly.”

Simply stated, a VAT will drive a further wedge between pre-tax income and post-tax consumption. That not only will discourage work. It also will discourage saving and investment.

The only positive thing to say is that a VAT doesn’t discourage those good things as much as some other types of tax increases.

But that’s sort of like saying that it’s better to lose your hand in an accident instead of losing your entire arm. Call me crazy, but I think the best outcome is to avoid the accident in the first place.

In other words, the bottom line is that we shouldn’t have any tax increase. Especially since 100 percent of America’s fiscal problem is the consequence of excessive government spending.

I’ll close by debunking the notion that a VAT is a simple tax.

As you can see from this European map, VATs can impose huge complexity burdens on businesses.

Yes, the map shows that some nations have relatively simple VATs, but American politicians already have shown with the income tax that they can’t resist turning a tax system into a Byzantine nightmare. Of course they would do the same with the VAT, creating special loopholes and penalties to please their donors.

P.S. Here’s my video from 2009, which explains how a VAT works and why it would be a bad idea.

Everything I said back then is even more true today.

P.P.S. The clinching argument is that one of America’s best presidents opposed a VAT and one of America’s worst presidents supported a VAT. That tells you everything you need to know.

P.P.P.S. You can enjoy some amusing – but also painfully accurate – cartoons about the VAT by clicking here, here, and here.

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In Part I of this series, I expressed some optimism that Joe Biden would not aggressively push his class-warfare tax plan, particularly since Republicans almost certainly will wind up controlling the Senate.

But the main goal of that column was to explain that the internal revenue code already is heavily weighted against investors, entrepreneurs, business owners and other upper-income taxpayers.

And to underscore that point, I shared two charts from Brian Riedl’s chartbook to show that the “rich” are now paying a much larger share of the tax burden – notwithstanding the Reagan tax cuts, Bush tax cuts, and Trump tax cuts – than they were 40 years ago.

Not only that, but the United States has a tax system that is more “progressive” than all other developed nations (all of whom also impose heavy tax burdens on upper-income taxpayers, but differ from the United States in that they also pillage lower-income and middle-class residents).

In other words, Biden’s class-warfare tax plan is bad policy.

Today’s column, by contrast, will point out that his tax increases are impractical. Simply stated, they won’t collect much revenue because people change their behavior when incentives to earn and report income are altered.

This is especially true when looking at upper-income taxpayers who – compared to the rest of us – have much greater ability to change the timing, level, and composition of their income.

This helps to explain why rich people paid five times as much tax to the IRS during the 1980s when Reagan slashed the top tax rate from 70 percent to 28 percent.

When writing about this topic, I normally use the Laffer Curve to help people understand why simplistic assumptions about tax policy are wrong (that you can double tax revenue by doubling tax rates, for instance). And I point out that even folks way on the left, such as Paul Krugman, agree with this common-sense view (though it’s also worth noting that some people on the right discredit the concept by making silly assertions that “all tax cuts pay for themselves”).

But instead of showing the curve again, I want to go back to Brian Riedl’s chartbook and review his data on of revenue changes during the eight years of the Obama Administration.

It shows that Obama technically cut taxes by $822 billion (as further explained in the postscript, most of that occurred when some of the Bush tax cuts were made permanent by the “fiscal cliff” deal in 2012) and raised taxes by $1.32 trillion (most of that occurred as a result of the Obamacare legislation).

If we do the math, that means Obama imposed a cumulative net tax increase of about $510 billion during his eight years in office

But, if you look at the red bar on the chart, you’ll see that the government didn’t wind up with more money because of what the number crunchers refer to as “economic and technical reestimates.”

Indeed, those reestimates resulted in more than $3.1 trillion of lost revenue during the Obama years.

I don’t want the politicians and bureaucrats in Washington to have more tax revenue, but I obviously don’t like it when tax revenues shrink simply because the economy is stagnant and people have less taxable income.

Yet that’s precisely what we got during the Obama years.

To be sure, it would be inaccurate to assert that revenues declined solely because of Obama’s tax increase. There were many other bad policies that also contributed to taxable income falling short of projections.

Heck, maybe there was simply some bad luck as well.

But even if we add lots of caveats, the inescapable conclusion is that it’s not a good idea to adopt policies – such as class-warfare tax rates – that discourage people from earning and reporting taxable income.

The bottom line is that we should hope Biden’s proposed tax increases die a quick death.

P.S. The “fiscal cliff” was the term used to describe the scheduled expiration of the 2001 and 2003 Bush tax cuts. According to the way budget data is measured in Washington, extending some of those provisions counted as a tax cut even though the practical impact was to protect people from a tax increase.

P.P.S. Even though Biden absurdly asserted that paying higher taxes is “patriotic,” it’s worth pointing out that he engaged in very aggressive tax avoidance to protect his family’s money.

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During the campaign, Joe Biden proposed a massive tax increase, far beyond what either Barack Obama or Hillary Clinton put forth when they ran for the White House.

Some people speculate that Biden isn’t actually that radical, and that his class-warfare agenda was simply a tactic to fend off Bernie Sanders, so it will be interesting to see how much of his political platform winds up as actual legislative proposals in 2021.

That being said, we can safely assume three things.

  1. Biden will propose higher taxes.
  2. Those tax increases will target upper-income taxpayers such as entrepreneurs, investors, and business owners.
  3. Those tax increases will be a very bad idea.

The main argument that Biden and his supporters will use to justify such a plan is that “rich” taxpayers are not paying their fair share.

More specifically, we’ll be told that upper-income households are not pulling their weight thanks to the cumulative impact of the Reagan tax cuts, the Bush tax cuts, and the Trump tax cuts.

There’s just one problem with this argument. As shown by this multi-decade data from Brian Riedl’s chartbook, it’s wildly, completely, and utterly inaccurate. The richest 20 percent are now shouldering a much greater share of the tax burden.

Every other group, by contrast, is now paying a smaller share of the tax burden.

Some folks on the left assert that the above chart is misleading. They say the chart merely shows that the rich have been getting richer and everyone else is falling behind.

The solution, they argue, is to catch up with the rest of the world by making the tax system more “progressive.”

Their assertions about income trends are wrong, but let’s leave that for another day and focus on so-called progressivity.

Once again, Riedl’s chartbook is the go-to source. As shown in this chart, it turns out that rich people pay a higher share than their counterparts in every other developed nation.

Please notice, by the way, the additional explanation in the lower-left portion of the chart, The numbers displayed do not include the value-added taxes that are imposed by every other nation, which are regressive or proportional depending on the time horizon. This means that the overall American tax code is far more tilted against the rich than shown by this chart.

But the key point to understand, as I’ve noted before, is that difference between Europe and the United States is not the taxation of the rich. The real reason that America has the most progressive tax system is that European nations impose much heavier taxes on lower-income and middle-class taxpayers.

P.S. At the risk of stating the obvious, this is not desirable since class-warfare taxes generally cause the most economic damage on a per-dollar-collected basis.

P.P.S. It’s also worth remembering that higher tax rates on the rich don’t necessarily lead to higher tax revenues.

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Since Americans are not as sensible as the Swiss, I’m generally not a fan of direct democracy in the United States.

Simply stated, I don’t like untrammeled majoritarianism, which occurs when 51 percent of voters can pillage 49 percent of voters.

But I’ll admit that the level of my angst fluctuates depending on whether voters make wise choices. With that in mind, here are the six ballot initiatives that I’ll be closely watching on election day.

1. Proposed Amendment to the 1970 Illinois Constitution

The most important ballot initiative is the proposal by the hypocritical governor of Illinois to undo the state’s flat tax. I’ve already dedicated an entire column to this issue, so I’ll simply add some additional analysis from a Wall Street Journal editorial.

Illinois voters will decide next month whether to enact a progressive income tax, paving the way for a new top rate of 7.99%. …The Prairie State currently ranks 36th worst in overall tax burden because its flat individual rate of 4.95% offsets very high property and other taxes. …its proposed slate of new individual income tax rates, along with a corporate tax hike tied to the same ballot measure, would drop the state’s rank overall to 47th. That would move Illinois into Dante’s ninth ring of tax hell, ahead of only New Jersey, New York and California. …Iowa and Missouri have…slashed their top rates in recent years rather than jacking them up as Illinois Democrats intend. Kentucky lawmakers in 2018 replaced their progressive income tax with a flat rate of 5%. Heading in the opposite direction of neighboring states could push many of Illinois’s overburdened families and businesses across the border.

2. Arizona Proposition 208

There’s a class-warfare proposal to dramatically increase the top income tax rate in Arizona.

Once again, the editors at the Wall Street Journal have spot-on analysis.

Arizona has long been a refuge for Americans seeking relief from high-tax California and states in the Northeast. But a tax referendum on the ballot Nov. 3 would whack job creators and make people rethink retirement in Scottsdale or a business move to Tucson. …The current top rate of 4.5% would rise to 8%, which would move the state to the 10th highest income-tax rate in the country, from 11th lowest today… Arizona would move closer to California (13.3% top rate) than Nevada (no income tax). …about half of the targets would be small businesses that pay taxes at the individual rate… They employ a huge chunk of Arizona workers, and the added tax costs would trickle down in lower pay and fewer jobs. …One definition of fiscal insanity would be to raise state taxes when the Biden Democrats may soon raise federal tax rates to heights not seen since the 1970s.

3. California Proposition 16

In California, politicians want the state to have to power to engage in racial and sexual discrimination. In pursuit of that goal, they are asking voters to repeal Proposition 209, adopted by voters in 1996.

Gail Heriot, a law professor who also serves on the U.S. Civil Rights Commission, explains why this is a bad idea in a column for Real Clear Politics.

California’s deep-blue legislature has been itching to repeal Proposition 209 for years. …Proposition 209 amended California’s constitution to prohibit the state from engaging in preferential treatment based on race or sex. It was a rebuke to the identity politics obsessions of state and local governments. …By approving Proposition 209 by a wide margin, they aimed to end the race and sex spoils system. …The best reason for retaining Proposition 209 is…that the initiative has been good for Californians — of all races…the number of under-represented minority students in academic jeopardy collapsed. …in the years immediately following Proposition 209, it had three effects on under-represented minorities in the UC system. It increased (1) graduation rates, (2) GPAs, and (3) the number of science or engineering majors.

4. California Proposition 15

Since we just discussed one bad California proposition, we may as well mention another.

There’s also a scheme to (again) raise taxes. The Wall Street Journal opines on this misguided initiative.

Sooner or later California’s public unions had to hit up the hoi polloi to pay for their pensions after soaking what’s left of the state’s millionaire class, and here they come. On Nov. 3, Californians will vote on a “split roll” ballot initiative (Prop. 15) that seeks to enact the biggest tax hike in state history. …Under current law, tax rates on residential and commercial property are capped at 1% of their assessed value—i.e., the purchase price—and can increase by no more than 2% annually. …This is the only balm in California’s oppressive tax climate and acts as a modest restraint on the government spending ratchet. Unions know that attempting to repeal this entirely would spur a homeowner revolt, so they are targeting businesses. …Facebook CEO Mark Zuckerberg is Prop. 15’s second biggest donor. Perhaps he’s trying to atone for his wealth, but as the NAACP and minority business groups explained in a letter to him in August: “Unlike Facebook, restaurants, dry cleaners, nail salons and other small businesses can’t operate right now and many may never open again. The last thing they need is a billionaire pushing higher taxes on them under the false flag of social justice.” …Prop. 15 would raise property taxes by $8.5 billion to $12.5 billion a year by 2025.

5. Colorado Proposition 117

Proponents of fiscal responsibility in Colorado want to strengthen TABOR (or, to be more accurate, stop the erosion of TABOR) by requiring a public vote for non-trivial efforts to increase government revenue.

Here’s a summary from CPR.

Proposition 117..would add a new TABOR-like provision to state law, requiring the state government to get voter permission before it creates major new “enterprises,” which are partially funded by fees. Colorado voters already have authority over tax increases and rarely approve them. The state Supreme Court has held that a fee is different from a tax because it is reasonably connected to a specific purpose. And in the years that TABOR has been in effect, lawmakers have used them as a way to raise money without raising taxes. Critics see fees as an end-run around TABOR’s spending limits.

6. Colorado Proposition 116

Sticking with Colorado, there’s also a proposal to lower the state’s flat tax.

Once again, let’s use CPR as a source.

This initiative would cut the state’s income tax rate from 4.63 percent to 4.55 percent. …This change would reduce the state government’s revenue by an estimated $170 million in the next fiscal year. Supporters argue it would boost businesses and consumer spending, while opponents say it would weaken government services and social supports already severely cut by the downturn. The measure was originally intended to counter a progressive tax measure that failed to make the ballot.

Honorable Mention

There are many other ballot initiatives. Here are some that I care about, even if they were not important enough to be featured.

Proposition 21 for rent control in California. Bad idea.

Proposition 22 to penalize the gig economy in California. Also a bad idea. [Oops, got this backwards. Prop 22 would undo the legislation that penalizes the gig economy.]

Initiatives to legalize marijuana in Arizona, Montana, New Jersey, and South Dakota. The libertarian side of me is very supportive, but the fiscal side of me doesn’t like the fact that one of the motives is a desire to collect more tax revenue.

Ranked-choice voting in Alaska and Massachusetts. This is a system that requires voters rank all candidates and awards victory to whoever has the strongest support across all ballots. It is assumed that the impact will be more centrist candidates and more civil elections. I don’t have strong views, but it’s worth noting that Australia uses this approach and it’s one of my favorite nations.

13 initiatives in San Francisco. Lot of tax increases, as you might expect from that poorly governed city.

P.S. Voting for politicians who make bad decisions is unfortunate. Directly voting for bad propositions isn’t any better.

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Bernie Sanders was considered a hard-core leftist because his platform was based on higher taxes and higher spending.

Elizabeth Warren also was considered a hard-core leftist because she advocated a similar agenda of higher taxes and higher spending.

And Joe Biden, even though he is considered to be a moderate, is currently running on a platform of higher taxes and higher spending.

Want to know who else is climbing on the economically suicidal bandwagon of higher taxes and higher spending? You probably won’t be surprised to learn that the pro-tax International Monetary Fund just published its World Economic Outlook and parts of it read like the Democratic Party’s platform.

Here are some of the ways the IMF wants to expand the burden of government spending.

Investments in health, education, and high-return infrastructure projects that also help move the economy to lower carbon dependence… Moreover, safeguarding critical social spending can ensure that the most vulnerable are protected while also supporting near-term activity, given that the outlays will go to groups with a higher propensity to spend their disposable income… Some fiscal resources…should be redeployed to public investment—including in renewable energy, improving the efficiency of power transmission, and retrofitting buildings to reduce their carbon footprint. …social spending should be expanded to protect the most vulnerable where gaps exist in the safety net. In those cases, authorities could enhance paid family and sick leave, expand eligibility for unemployment insurance, and strengthen health care benefit coverage…social spending measures…strengthening social assistance (for example, conditional cash transfers, food stamps and in-kind nutrition, medical payments for low-income households), expanding social insurance (relaxing eligibility criteria for unemployment insurance…), and investments in retraining and reskilling programs.

And here’s a partial list of the various class-warfare taxes that the IMF is promoting.

Although adopting new revenue measures during the crisis will be difficult, governments may need to consider raising progressive taxes on more affluent individuals and those relatively less affected by the crisis (including increasing tax rates on higher income brackets, high-end property, capital gains, and wealth) as well as changes to corporate taxation that ensure firms pay taxes commensurate with profitability. …Efforts to expand the tax base can include reducing corporate tax breaks, applying tighter caps on personal income tax deductions, instituting value-added taxes.

Oh, by the way, if nations have any rules that protect the interests of taxpayers, the IMF wants “temporary” suspensions.

Where fiscal rules may constrain action, their temporary suspension would be warranted

Needless to say, any time politicians have a chance to expand their power, temporary becomes permanent.

When I discuss IMF malfeasance in my speeches, I’m frequently asked why the bureaucrats propose policies that don’t work – especially when the organization’s supposed purpose is to promote growth and stability.

The answer is “public choice.” Top IMF officials are selected by politicians and are given very generous salaries, and they know that the best way to stay on the gravy train is to support policies that will please those politicians.

And because their lavish salaries are tax free, they have an extra incentive to curry favor with politicians.

P.S. I wish there was a reporter smart enough and brave enough to ask the head of the IMF to identify a single nation – at any point in history – that became rich by expanding the size and cost of government.

P.P.S. There are plenty of good economists who work for the IMF and they often write papers pointing out the economic benefits of lower taxes and smaller government (and spending caps as well!). But the senior people at the bureaucracy (the ones selected by politicians) make all the important decisions.

 

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On election day, most people focus on the big-ticket partisan battles, such as this year’s contest between Trump and Biden.

Let’s not forget, though, that there are sometimes very important referendum battles at the state (or even local) level.

This year, the most important referendum will be in Illinois, where hypocritical Governor J.B. Pritzker wants voters to approve an initiative to replace the state’s flat tax with a discriminatory progressive tax.

I’ve already explained that the flat tax is the only thing saving Illinois from going further and faster in the wrong direction. Let’s add some additional evidence, starting with excerpts from this editorial in the Wall Street Journal.

The last state to adopt a progressive income tax was Connecticut in 1996, and we know how that turned out. Now Democrats in Illinois want to follow Connecticut down the elevator shaft with a referendum replacing the state’s flat 4.95% income tax with progressive rates… Public unions have long wanted to enact a progressive tax to pay for increased spending and pensions, and they think the political moment has finally arrived. Democratic Gov. J.B. Pritzker says a progressive tax will hit only the wealthy… Don’t believe it. There aren’t enough wealthy in the state to pay for his spending promises, so eventually Democrats will come after the middle class. …Illinois has no fiscal room to fail. Since 2015 Illinois’s GDP has grown a mere 1% annually, about half as fast as the U.S. and slower than Ohio (1.4%), Indiana (1.7%), Wisconsin (1.7%) and Michigan (2.1%). About 11% of Illinois residents have left since 2001, the second biggest state exodus after New York. Taxpayer flight has been accelerating as income and property taxes have risen. …A progressive tax would be a gift to Florida and Texas.

The head of the Illinois Chamber of Commerce, Todd Maisch, also worries that other states will benefit if voters make the wrong choice. Here are excerpts from his column in the Chicago Sun-Times.

The rest of the nation’s states are cheering on Illinois’ efforts to enact a progressive income tax. That’s because they know it will be one more self-inflicted blow to our state’s economy, certain to drive dollars, jobs and families into their waiting arms. …The reality is that this proposal is intended to do just one thing: Make it easier to raise taxes on all Illinoisans. …the spenders in Springfield are coming for you too, sooner or later. Proponents of the progressive tax know something they don’t want to tell you. Taxing millionaires will in no way meet their appetite for state spending. There simply isn’t enough money at the higher income levels to satisfy their demands. Tax rates will go up and tax brackets will reach lower and lower incomes. …Other states already are benefiting from the outmigration of Illinoisans and their money. Illinois passing the progressive tax is exactly what they are hoping for.

Amen. We already have lots of evidence showing that taxpayers move from high-tax states to low-tax states. And Illinois already has been bleeding taxable income to other states, so it’s very likely that a progressive tax would dramatically worsen the state’s position.

Illinois voters can and should learn from what’s happened elsewhere.

For instance, Orphe Divounguy of the Illinois Policy Institute shares evidence from California about the adverse impact of class-warfare taxation.

Illinois Gov. J.B. Pritzker finds himself in the same place as then-California Gov. Jerry Brown was in back in 2012 – trying to convince voters that a progressive state income tax hike will fix state finances in crisis. Brown claimed the burden of those tax hikes would only harm those earning $250,000 or more – the top 3% of earners. That’s exactly what Pritzker promises with his “fair tax” proposal. Brown was wrong. …Here are the main findings of the new study… The negative economic effects of the tax hike wiped out nearly half of the expected additional tax revenue. Among top-bracket California taxpayers, outward migration and behavioral responses by stayers together eroded 45% of the additional tax revenues from the tax hike… The “temporary” income tax hike, which has now been extended through 2030, made it about 40% more likely wealthy residents would move out of California, primarily to states without income taxes.

Illinois voters also should learn from the painful experiences of taxpayers in Connecticut and New Jersey.

The Wall Street Journal editorialized this morning about their negative experiences.

Illinois is the nation’s leading fiscal basket case, with runaway pension liabilities and public-union control of Springfield. But it has had one saving grace: a flat-rate income tax that makes it harder for the political class to raise taxes. Now that last barrier to decline is in jeopardy on the November ballot. …the pattern of other blue states is instructive. Democratic governors have often lowballed voters with modest rates when introducing a new tax, only to ratchet up the levels in each administration. …New Jersey first taxed individual income in 1976 amid a national revenue slump, with a top rate of 2.5%. …Democratic Gov. James Florio raised the tax to 7%… A decade later Democrats raised the top rate to 8.97%, and last year Gov. Murphy added the 10.75% rate… Or take Connecticut… For decades its lack of an income tax lured New York workers and businesses, but Gov. Lowell Weicker introduced the tax in 1991…and the original 1.5% rate has since been raised five times to today’s 6.99%.

And here’s the chart that every taxpayer should memorize before they vote next month.

And never forget that ever-increasing tax rates on high earners inevitably are accompanied by ever-increasing tax rates on everyone else – exactly as predicted by the Sixth Theorem of Government.

So if middle-class Illinois voters approve the so-called Fair Tax initiative, they’ll have nobody to blame but themselves when their tax rates also climb.

P.S. If voters in very-blue Illinois reject Pritzker’s class-warfare tax referendum, I wonder if that will discourage Democrats in Washington from embracing Biden’s class warfare agenda next year (assuming he wins the election)?

P.P.S. There’s a debate whether ballot initiatives and other forms of “direct democracy” are a good idea. Professor Garett Jones of George Mason University persuasively argues we’ll get better governance with less democracy. On the other hand, Switzerland is a very successful, very well-governed nation where voters directly decide all sorts of major policy issues.

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If you’re a curmudgeonly libertarian like me, you don’t like big government because it impinges on individual liberty.

Most people, however, get irked with government for the practical reason that it costs so much and fails to provide decent services.

California is a good example. Or perhaps we should say bad example.

The Tax Foundation recently shared data on the relative cost of living in various metropolitan areas. Looking at the 12-most expensive places to live, 75 percent of them are in California.

So what do people get in exchange for living in such expensive areas?

They get great weather and scenery, but they also get lousy government.

Victor Davis Hanson wrote for National Review about his state’s decline.

Might it also have been smarter not to raise income taxes on top tiers to over 13 percent? After 2017, when high earners could no longer write off their property taxes and state income taxes, the real state-income-tax bite doubled. So still more of the most productive residents left the state. Yet if the state gets its way, raising rates to over 16 percent and inaugurating a wealth tax, there will be a stampede. It is not just that the upper middle class can no longer afford coastal living at $1,000 a square foot and $15,000–$20,000 a year in “low” property taxes. The rub is more about what they get in return: terrible roads, crumbling bridges, human-enhanced droughts, power blackouts, dismal schools that rank near the nation’s bottom, half the nation’s homeless, a third of its welfare recipients, one-fifth of the residents living below the poverty level — and more lectures from the likes of privileged Gavin Newsom on the progressive possibilities of manipulating the chaos. California enshrined the idea that the higher taxes become, the worse state services will be.

Even regular journalists have noticed something is wrong.

In an article in the San Francisco Chronicle, Heather Kelly, Reed Albergotti, Brady Dennis and Scott Wilson discuss the growing dissatisfaction with California life.

California has become a warming, burning, epidemic-challenged and expensive state, with many who live in sophisticated cities, idyllic oceanfront towns and windblown mountain communities thinking hard about the viability of a place many have called home forever. For the first time in a decade, more people left California last year for other states than arrived. …for many of California’s 40 million residents, the California Dream has become the California Compromise, one increasingly challenging to justify, with…a thumb-on-the-scales economy, high taxes… California is increasingly a service economy that pays a far larger share of its income in taxes and on housing and food. …Three years ago, state lawmakers approved the nation’s second-highest gasoline tax, adding more than 47 cents to the price of a gallon. …service workers in particular are…paying far more as a share of their income on fuel just to stay employed. …A poll conducted late last year by the University of California at Berkeley found that more than half of California voters had given “serious” or “some” consideration to leaving the state because of the high cost of housing, heavy taxation or its political culture. …Business is booming for Scott Fuller, who runs a real estate relocation business. Called Leaving the Bay Area and Leaving SoCal, the company helps people ready to move away from the state’s two largest metro areas sell their homes and find others.

Niall Ferguson opines for Bloomberg about the Golden State’s outlook.

As my Hoover Institution colleague Victor Davis Hanson put it last month, California is “the progressive model of the future: a once-innovative, rich state that is now a civilization in near ruins.”… It’s not that California politicians don’t know how to spend money. Back in 2007, total state spending was $146 billion. Last year it was $215 billion. …the tax system is one of the most progressive, with a 13.3% top tax rate on incomes above $1 million — and that’s no longer deductible from the federal tax bill as it used to be. …And there’s worse to come. The latest brilliant ideas in Sacramento are to raise the top income rate up to 16.8% and to levy a wealth tax (0.4% on personal fortunes over $30 million) that you couldn’t even avoid paying if you left the state. (The proposal envisages payment for up to 10 years after departure to a lower-tax state.) It is a strange place that seeks to repel the rich while making itself a magnet for illegal immigrants… And the results of all this progressive policy? A poverty boom. California now has 12% of the nation’s population, but over 30% of its welfare recipients. …according to a new Census Bureau report, which takes housing and other costs into account, the real poverty rate in California is 17.2%, the highest of any state. …But that’s not all. The state’s public schools rank 37th in the country… Health care and pension costs are unsustainable. …people eventually vote with their feet. From 2007 until 2016, about five million people moved to California but six million moved out to other states. For years before that, the newcomers were poorer than the leavers. This net exodus is surging in 2020. …Now we know the true meaning of Calexit. It’s not secession. It’s exodus.

It’s not just high taxes and poor services.

George Will indicts California’s politicians for fomenting racial discord in his Washington Post column.

California…progressives…have placed on November ballots Proposition 16 to repeal the state constitution’s provision…forbidding racial preferences in public education, employment and contracting. Repeal, which would repudiate individual rights in favor of group entitlements, is part of a comprehensive California agenda to make everything about race, ethnicity and gender. …Proposition 16 should be seen primarily as an act of ideological aggression, a bold assertion that racial and gender quotas — identity politics translated into a spoils system — should be forthrightly proclaimed and permanently practiced… California already requires that by the end of 2021 some publicly traded companies based in the state must have at least three women on their boards of directors… And by 2022, boards with nine or more directors must include at least three government-favored minorities. …Gov. Gavin Newsom (D) signed legislation requiring all 430,000 undergraduates in the California State University system to take an “ethnic studies” course, and there may soon be a similar mandate for all high school students. “Ethnic studies” is an anodyne description for what surely will be, in the hands of woke “educators,” grievance studies.

Several years ago, I crunched some numbers to show California’s gradual decline.

But there was probably no need for those calculations. All we really need to understand is that people are “voting with their feet” against the Golden State.

Simply stated, productive people are paying too much of a burden thanks to excessive spending, excessive taxes, and excessive regulation.

So they’re leaving.

P.S. Many Californians are moving to the Lone Star State, and if you want data comparing Texas and California, click here, here, herehere, and here.

P.P.S. Some folks in California started talking about secession after Trump’s election. Now that the state’s politicians are seeking a bailout, I expect that talk has disappeared.

P.P.S. My favorite California-themed jokes can be found here, here, and here.

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New Jersey is a tragic example of state veering in the wrong direction.

Back in the 1960s, it was basically like New Hampshire, with no income tax and no sales tax. State politicians then told voters in the mid-1960s that a sales tax was needed, in part to reduce property taxes. Then state politicians told voters in the mid-1970s that an income tax was needed, again in part to reduce property taxes.

So how did that work out?

Well, the state now has a very high sales tax and a very high income tax. And you won’t be surprised that it still have very high property taxes – arguably the worst in the nation according to the Tax Foundation.

But you have to give credit to politicians from the Garden State.

They are very innovative at coming up with ways to make a bad situation even worse.

In an article for City Journal, Steven Malanga reviews the current status of New Jersey’s misguided fiscal policies.

Relative to the size of its budget, New Jersey’s borrowing is by far the largest. Jersey plans to cover most of the cost of its deficit with debt by tapping a last-resort Federal Reserve lending program. New Jersey is already the nation’s most fiscally unsound state, according to the Institute for Truth in Accounting. It bears some $234 billion in debt, including about $100 billion in unfunded pension liabilities. A recent Pew study estimated that, between 2003 and 2017, the state spent $1 for every 91 cents in revenue it collected. …Before the pandemic, Murphy had proposed a $40.7 billion budget for fiscal 2021, a spending increase of 5.4 percent. …The administration has taken only marginal steps to reduce spending by, for instance, delaying water infrastructure projects. Many other cuts Murphy has announced involve simply shelving plans to spend more money.

The very latest development is that the state’s politicians want to exacerbate New Jersey’s uncompetitive tax system by extending the state’s top tax rate of 10.75 percent to a larger group of taxpayers.

The New York Times reports on a new tax scheme concocted by the Governor and state legislature.

New Jersey officials agreed on Thursday to make the state one of the first to adopt a so-called millionaires tax… Gov. Philip D. Murphy, a Democrat, announced a deal with legislative leaders to increase state taxes on income over $1 million by nearly 2 percentage points, giving New Jersey one of the highest state tax rates on wealthy people in the country. …The new tax in New Jersey…is expected to generate an estimated $390 million this fiscal year… With every call for a new tax comes criticism from Republicans and some business leaders who warn that higher taxes will lead to an exodus of affluent residents.

As is so often the case, the Wall Street Journal‘s editorial does a good job of nailing the issue.

New Jersey Gov. Phil Murphy and State Senate President Steve Sweeney struck a deal on Thursday to raise the state’s top marginal tax rate to 10.75% from 8.97% on income of more than $1 million. Two years ago, Democrats increased the top rate to 10.75% on taxpayers making more than $5 million. …New Jersey’s bleeding budget can’t afford to lose any millionaires. In 2018 New Jersey lost a net $3.2 billion in adjusted gross income to other states, including $2 billion to zero-income tax Florida, according to IRS data. More will surely follow now.

The WSJ is right.

As shown by this map, there’s already been a steady exodus of people from the Garden State. More worrisome is that the people leaving tend to have higher-than-average incomes (and it’s been that way for a while since New Jersey’s been pursuing bad policy for a while).

I’ll add one additional point to this discussion. One of the best features of the 2017 tax reform is that there’s now a limit on deducting state and local taxes when filing with the IRS.

This means that people living in high-tax jurisdiction such as California, New York, and Illinois (and, of course, New Jersey) now bear the full burden of state taxes.

In other words, New Jersey’s politicians are pursuing a very foolish policy at a time when federal tax law now makes bad state policy even more suicidal.

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Every single economic school of thought agrees with the proposition that investment is a key factor in driving wages and growth.

Even foolish concepts such as socialism and Marxism acknowledge this relationship, though they want the government to be in charge of deciding where to invest and how much to invest (an approach that has a miserable track record).

Another widely shared proposition is that higher tax rates will discourage whatever is being taxed. Even politicians understand this notion, for instance, when arguing for higher taxes on tobacco.

To be sure, economists will argue about the magnitude of the response (will a higher tax rate cause a big effect, medium effect, or a small effect?).

But they’ll all agree that a higher tax on something will lead to less of that thing.

Which is why I always argue that we need the lowest-possible tax rates on the activities – work, saving, investment, and entrepreneurship – that create wealth and prosperity.

That’s why it’s so disappointing that Joe Biden, as part of his platform in the presidential race, has embraced class-warfare taxation.

And it’s even more disappointing that he specifically supports policies that will impose a much higher tax burden on capital formation.

How much higher? Kyle Pomerleau of the American Enterprise Institute churned through Biden’s proposals to see what it would mean for tax rates on investment and business activity.

Former Vice President and Democratic presidential candidate Joe Biden has proposed several tax increases that focus on raising taxes on business and capital income. Taxing business and capital income can affect saving and investment decisions by reducing the return to these activities and distorting the allocation across different assets, forms of financing, and business forms. Under current law, the weighted average marginal effective tax rate (METR) on business assets is 19.6 percent… Biden’s tax proposals would raise the METR on business investment in the United States by 7.8 percentage points to 27.5 percent in 2021. The effective tax rate would rise on most assets and new investment in all industries. In addition to increasing the overall tax burden on business investment, Biden’s proposals would increase the bias in favor of debt-financed and noncorporate investment over equity-financed and corporate investment.

Here’s the most illuminating visual from Kyle’s report.

The first row of data shows that the effective tax rate just by almost 8 percentage points.

I also think it’s important to focus on the last two rows. Notice that the tax burden on equity increases by a lot while the tax burden on debt actually drops slightly.

This is very foolish since almost all economists will acknowledge that it’s a bad idea to create more risk for an economy by imposing a preference for debt (indeed, mitigating this bias was one of the best features of the 2017 tax reform).

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It’s not easy to identify the worst international bureaucracy.

As you can see, it’s hard to figure out which bureaucracy is the worst.

I’ve solved this dilemma by allowing a rotation. Today, the OECD is at the top of my list.

That’s because the top tax official at that Paris-based bureaucracy, Pascal Saint-Amans, has a new article about goals for future tax policy.

…policy flexibility and agility may be what is needed to help restore confidence. …Governments should seize the opportunity to build a greener, more inclusive and more resilient economy. Rather than simply returning to business as usual, the goal should be to “build back better” and address some of the structural weaknesses that the crisis has laid bare.

So how do we get a “more resilient economy” with less “structural weakness”?

According to the bureaucrats at the OECD, we achieve that goal with higher taxes. I’m not joking. Here are some additional excerpts.

Today, taxes on polluting fuels are nowhere near the levels needed… Seventy percent of energy-related CO2 emissions from advanced and emerging economies are entirely untaxed.

Here’s a chart from the article showing how nations supposedly are under-taxing energy use.

But it’s not just energy taxes.

The OECD wants a bunch of other tax increases, including a digital tax deal that specifically targets America’s high-tech firms.

It’s also disturbing that the bureaucrats want higher taxes on “personal capital income,” particularly since even economists at the OECD have specifically warned that those types of taxes are particularly harmful to prosperity.

Fair burden sharing will also be central going forward. …consideration should be given to strengthening…social protection in the longer run. …Governments will need to find alternative sources of revenues. The taxation of property and personal capital income will have an important role to play… Rising pressure on public finances as well as increased demands for fair burden sharing should provide new impetus for reaching an agreement on digital taxation.

By the way, “social protection” is OECD-speak for redistribution spending. In other words, “fair burden sharing” means a bigger welfare state financed by ever-higher taxes.

The bureaucrats apparently think we should all be like Greece and Italy.

I want to close by revisiting the topic of environmental taxation. If you peruse the above chart, you’ll see that the OECD wants all nations to impose (at a minimum) a €30-per-ton tax on carbon.

What would that imply for American taxpayers? Well, if we extrapolate from estimates by the Tax Policy Center and Tax Foundation, that would be a tax increase of more than $400-per-year for every man, woman, and child in the United States. That’s $1600 of additional tax for each family of four.

P.S. The OECD has traditionally tailored its analysis to favor Democrats, but even I am surprised that Saint-Amans used the Biden campaign slogan of “build back better” in his column. I’m sure that was no accident. The bureaucrats at the OECD must be quite confident that Biden will win. Or they must feel confident that Republicans will be too stupid to exact any revenge if Trump prevails (probably a safe assumption since Republicans gave the bureaucracy lots of American tax dollars even after a top OECD official compared Trump to Hitler).

P.P.S. To add insult to injury, OECD bureaucrats get tax-free salaries, so they have a special exemption from the bad policies they want for the rest of us.

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New York is in trouble from bad economic policy, especially excessive taxing and spending.

This is one of the reasons why there’s been a steady exodus of taxpayers from the Empire State.

The problem is especially acute for New York City, which has been suffering from Mayor Bill De Blasio’s hard-left governance.

To be sure, not all of the city’s problems are self-inflicted. The 2017 tax reform removed the IRS loophole for state and local tax payments, which means people living in places such as NYC no longer can artificially lower their tax liabilities. And the coronavirus hasn’t helped, either, particularly since Governor Cuomo bungled the state’s response.

The net result of bad policy and bad luck is that New York City has serious economic problems. And this leads, as one might expect, to serious fiscal problems.

What’s surprising, however, is that the normally left-leaning New York Times actually wrote an editorial pointing out that fiscal restraint is the only rational response.

New York is facing…a budget hole of more than $5 billion… Mayor Bill de Blasio has asked the State Legislature to give him the authority to borrow… But borrowing to meet operating expenses is especially hazardous. Cities that do so over and over again are at greater risk of the kind of bankruptcy faced by New York in the late 1970s and Detroit in 2013. …Before Mr. de Blasio adds billions to the city’s debt sheet…he needs to find savings. …The city’s budget grew under Mr. de Blasio, to $92 billion last year from about $73 billion in 2014, his first year in office. Complicating matters, the mayor has hired tens of thousands of employees over his tenure, adding significantly to the city’s pension and retirement obligations. …the mayor will have to be creative, make unpopular decisions and demand serious cost-saving measures… One way to begin is with a far stricter hiring freeze. …The mayor will need to do something he has rarely been able to: ask the labor unions to share in the sacrifice. …There are other cuts to be made.

Wow, this may be the first sensible editorial from the New York Times since it called for abolishing the minimum wage in 1987.*

Mayor De Blasio, needless to say, doesn’t want any form of spending restraint. Depending on the day, he either wants to tax-and-spend or borrow-and-spend.

Both of those approaches are misguided.

Kristin Tate explained in a column for the Hill that the middle class suffers most when class-warfare politicians such as De Blasio impose policies that penalize the private sector.

Finance giant JPMorgan is…slowly relocating many of its operations and jobs to lower tax locations in Ohio, Texas, and Delaware. The Lone Star State currently hosts 25,000 of its employees, and Texas will likely surpass the New York portion in coming years. The resulting move will harm the middle earners of New York far more than that of the wealthy… The exodus is part of a trend sweeping traditionally Democratic states over the last several years. …A whopping 1,800 businesses left California in 2016 alone, while manufacturing firm Honeywell moved its headquarters from New Jersey to greener pastures in North Carolina. …the primary losers in this formula are middle class workers. Between the loss of jobs and revenue, these states and cities press even harder on millions of middle income taxpayers to make up the difference. …Many of the Democrats…who are in charge of the blue state economic models…love to preach that their proposals will make the economy fairer by targeting the most productive members of their states and cities. However, the encompassing butterfly effect spells bad news for people like you and me. Every time you vote for a proposition or a candidate promising a repeat of bad policy, just remember that it will ultimately be the middle class that will pay the largest share.

My contribution to this discussion is to point out that New York City’s fiscal problems are the entirely predictable result of politicians spending too much money over an extended period of time.

In other words, they violated my Golden Rule.

Indeed, the burden of government spending has climbed more than three times faster than inflation during De Blasio’s time in office.

If this story sounds familiar, that’s because excessive spending is the cause of every fiscal crisis (as I’ve noted when writing about Cyprus, Alaska, Ireland, Alberta, Greece, Puerto Rico, California, etc).

My final observation is that New York City’s current $5 billion budget shortfall would be a budget surplus of more than $6 billion if De Blasio and the other politicians had adopted a spending cap back in 2015 and limited budget increases to 2 percent annually.

*The New York Times also endorsed the flat tax in 1982, so there have been rare outbursts of common sense.

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There are two reasons why I generally don’t write much about government debt.

  • First, red ink is not desirable, but it’s mostly just the symptom of the far more important problem of excessive government spending.
  • Second, our friends on the left periodically try to push through big tax increases by hypocritically exploiting anxiety about red ink.

The one thing I can state with full certainty, however, is that tax increases are guaranteed to make a bad situation worse.

We’ll get a weaker economy (perhaps much weaker since the left is now fixated on pushing for the kinds of tax increases that do the most damage).

Equally worrisome, the biggest impact of a tax increase is that politicians won’t feel any need to control spending or reform entitlements. Indeed, it’s quite likely that they’ll respond to the expectation of higher revenue by increasing the spending burden.

To complicate matters further, any tax increase probably won’t generate that much additional revenue because of the Laffer Curve.

All of which explains why budget deals that include tax increases usually lead to even higher budget deficits.

This analysis is very timely and relevant since advocates of bigger government somehow claim that the new fiscal forecast from the Congressional Budget Office is proof that we need new taxes.

So I’m doing the same thing today I did back in January (and last August, and in January 2019, and many times before that starting back in 2010). I’ve crunched the numbers to see what sort of policies would be needed to balance the budget without tax increases.

Lo and behold, you can see from this chart that we wouldn’t need draconian spending cuts. All that’s needed for fiscal balance is to limit spending so that it grows slightly less than 1 percent per year (and this analysis even assumes that they get to wait until 2022 before imposing a cap on annual spending increases).

To be sure, politicians would not want to live with that kind of limit on their spending. So I’m not optimistic that we’ll get this type of policy in the near future.

Especially since the major parties are giving voters a choice between big-spender Trump and big-spender Biden.

But the last thing that we should do is worsen the nation’s fiscal outlook by acquiescing to higher taxes.

P.S. It’s worth noting that there was a five-year nominal spending freeze between 2009 and 2014 (back when the Tea Party was influential), so it is possible to achieve multi-year spending restraint in Washington.

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Speculating about tax policy in 2021, with Washington potentially being controlling by Joe Biden, Chuck Schumer, and Nancy Pelosi, there are four points to consider.

  1. The bad news is that Joe Biden has endorsed a wide range of punitive tax increases.
  2. The good news is that Joe Biden has not endorsed a wealth tax, which is one of the most damaging ways – on a per-dollar raised basis – for Washington to collect more revenue.
  3. The worse news is that the additional spending desired by Democrats is much greater than Biden’s proposed tax increases, which means there will be significant pressures for additional sources of money.
  4. The worst news is that the class-warfare mentality on the left means the additional tax increases will target successful entrepreneurs, investors, innovators, and business owners – which means a wealth tax is a very real threat.

Let’s consider what would happen if this odious example of double taxation was imposed in the United States.

Two scholars from Rice University, John Diamond and George Zodrow, produced a study for the Center for Freedom and Prosperity on the economic impact of a wealth tax.

They based their analysis on the plan proposed by Senator Elizabeth Warren, which is probably the most realistic option since Biden (assuming he wins the election) presumably won’t choose the more radical plan proposed by Senator Bernie Sanders.

They have a sophisticated model of the U.S. economy. Here’s their simplified description of how a wealth tax would harm incentives for productive behavior.

The most direct effect operates through the reduction in wealth of the affected taxpayers, including the reduction in accumulated wealth over time. Although such a reduction in wealth is, for at least some proponents of the wealth tax, a desirable result, the associated reduction in investment and thus in the capital stock over time will have deleterious effects, reducing labor productivity and thus wage income as well as economic output. …A wealth tax would also affect saving by changing the relative prices of current and future consumption. In the standard life-cycle model of household saving, a wealth tax effectively increases the price of future consumption by lowering the after-tax return to saving, creating a tax bias favoring current consumption and thus reducing saving. … we should note that the apparently low tax rates under the typical wealth tax are misleading if they are compared to income tax rates imposed on capital income, and the capital income tax rates that are analogous to wealth tax rates are often in excess of 100 percent. …For example, with a 1 percent wealth tax and a Treasury bond earning 2 percent, the effective income tax rate associated with the wealth tax is 50 percent; with a 2 percent tax rate, the effective income tax rate increases to 100 percent.

And here are the empirical findings from the report.

We compare the macroeconomic effects of the policy change to the values that would have occurred in the absence of any changes — that is, under a current law long run scenario… The macroeconomic effects of the wealth tax are shown in Table 1. Because the wealth tax reduces the after-tax return to saving and investment and increases the cost of capital to firms, it reduces saving and investment and, over time, reduces the capital stock. Investment declines initially by 13.6 percent…and declines by 4.7 percent in the long run. The total capital stock declines gradually to a level 3.5 percent lower ten years after enactment and 3.7 percent lower in the long run… The smaller capital stock results in decreased labor productivity… The demand for labor falls as the capital stock declines, and the supply of labor falls as households receive larger transfer payments financed by the wealth tax revenues… Hours worked decrease initially by 1.1 percent and decline by 1.5 percent in the long run. …the initial decline in hours worked of 1.1 percent would be equivalent to a decline in employment of approximately 1.8 million jobs initially. The declines in the capital stock and labor supply imply that GDP declines as well, by 2.2 percent 5 years after enactment and by 2.7 percent in the long run.

Here’s the table mentioned in the above excerpt. At the risk of understatement, these are not favorable results.

Other detailed studies on wealth taxation also find very negative results.

The Tax Foundation’s study, authored by Huaqun Li and Karl Smith, also is worth perusing. For purposes of today’s analysis, I’ll simply share one of the tables from the report, which echoes the point about how “low” rates of wealth taxation actually result in very high tax rates on saving and investment.

The American Action Forum also released a study.

Authored by Douglas Holtz-Eakin and Gordon Gray, it’s filled with helpful information. The part that deserves the most attention is this table showing how a wealth tax on the rich results in lost wages for everyone else.

Yes, the rich definitely lose out because their net wealth decreases.

But presumably the rest of us are more concerned about the fact that lower levels of saving and investment reduce labor income for ordinary people.

The bottom line is that wealth taxes are very misguided, assuming the goal is a prosperous and competitive America.

P.S. One obvious effect of wealth taxation, which is mentioned in the study from the Center for Freedom and Prosperity, is that some rich people will become tax expatriates and move to jurisdictions (not just places such as Monaco, Bermuda, or the Cayman Islands, but any of the other 200-plus nations don’t tax wealth) where politicians don’t engage in class warfare.

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Because of changing demographics and poorly designed entitlement programs, the burden of government spending in the United States (in the absence of genuine reform) is going to increase dramatically over the next few decades.

That bad outlook will get even worse thanks to all the coronavirus-related spending from Washington.

This is bad news for America since more of the economy’s output will be consumed by government, leaving fewer resources for the private sector. And that problem would exist even if all the spending was magically offset by trillions of dollars of unexpected tax revenue.

Many people, however, think the nation’s future fiscal problem is that politicians will borrow to finance  that new spending. I think that’s a mistaken view, since it focuses on a symptom (red ink) rather than the underlying disease (excessive spending).

But regardless of one’s views on that issue, fiscal policy is on an unsustainable path. And that means there will soon be a fight between twho different ways of addressing the nation’s grim fiscal outlook.

  • Restrain the growth of government spending.
  • Divert more money from taxpayers to the IRS.

Fortunately, we now have some new evidence to help guide policy.

A new study from the Mercatus Center, authored by Veronique de Rugy and Jack Salmon, examines what actually happens when politicians try to control debt with spending restraint or tax increases.

Here’s what the authors wanted to investigate.

Fiscal consolidation can take two forms: (1) adopting a debt-reduction package driven primarily by tax increases or (2) adopting a package mostly consisting of spending restraint. …What policymakers might not know is which of these two forms of consolidation tend to be more effective at reining in debt levels and which are less harmful to economic performance: tax-based (TB) fiscal consolidation or expenditure-based (EB) fiscal consolidation.

Here’s their methodology.

Our analysis focuses on large fiscal consolidations, or consolidations in which the fiscal deficit as a share of GDP improves by at least 1.5 percentage points over two years and does not decrease in either of those two years. …A successful consolidation is defined as one in which the debt-to-GDP ratio declines by at least 5 percentage points three years after the adjustment takes places or by at least 3 percentage points two years after the adjustment. …Episodes in which the consolidation is at least 60 percent revenue increases are labeled TB, and episodes in which the consolidation is at least 60 percent spending decreases are labeled EB.

And here are their results.

…of the 45 EB episodes, more than half were successful, while of the 67 TB episodes, less than 4 in 10 were successful. …The results in table 2 show that while in unsuccessful adjustments most (74 percent) of the changes are on the revenue side, in successful adjustments most (60 percent) of the changes are on the expenditure side. In successful adjustments, for every 1.00 percent of GDP increase in revenues, expenditures are cut by 1.50 percent. By contrast, in unsuccessful adjustments, for every 1.00 percent of GDP increase in revenues, expenditures are cut by less than 0.35 percent. From these findings we conclude that successful fiscal adjustments are those that involve significant spending reductions with only modest increases in taxation. Unsuccessful fiscal adjustments, however, typically involve significant increases in taxation and very modest spending reductions.

Table 2 summarizes the findings.

As you can see, tax increases are the least effective way of dealing with the problem. Which makes sense when you realize that the nation’s fiscal problem is too much spending, not inadequate revenue.

In my not-so-humble opinion, I think the table I prepared back in 2014 is even more compelling.

Based on IMF data, it shows nations that imposed mutli-year spending restraint and how that fiscally prudent policy generated very good results – both in terms of reducing the spending burden and lowering red ink.

When I do debates at conferences with my left-wing friends, I almost always ask them to show me a similar table of countries that achieved good results with tax increases.

Needless to say, none of them have ever even attempted to prepare such a list.

That’s because nations that repeatedly raise taxes – as we’ve seen in Europe – wind up with more spending and more debt.

In other words, politicians pull a bait-and-switch. They claim more revenue is needed to reduce debt, but they use any additional money to buy votes.

Which is why advocates of good fiscal policy should adamantly oppose any and all tax increases.

Let’s close by looking at two more charts from the Mercatus study.

Here’s a look at how Irish politicians have mostly chose to restrain spending.

And here’s a look at how Greek politicians have mostly opted for tax increases.

It goes without saying (but I’ll say it anyhow) that the Greek approach has been very unsuccessful.

P.S. For fiscal wonks, one of the best parts of the Mercatus study is that it cites a lot of academic research on the issue of fiscal consolidation.

Scholars who have conducted research find – over and over again – that spending restraint works.

In a 1995 working paper, Alberto Alesina and Roberto Perotti observe 52 efforts to reduce debt in 20 Organisation for Economic Co-operation and Development (OECD) countries between 1960 and 1992. The authors define a successful fiscal adjustment as one in which the debt-to-GDP ratio declines by at least 5 percentage points three years after the adjustment takes place. In successful adjustments, government spending is reduced by almost 2.2 percent of gross national product (GNP) and taxes are increased by less than 0.5 percent of GNP. For unsuccessful adjustments, government expenditure is reduced by less than 0.5 percent of GNP and taxes are increased by almost 1.3 percent of GNP. These results suggest that successful fiscal adjustments are those that cut spending and include very modest increases in taxation.

International Monetary Fund (IMF) economists John McDermott and Robert Wescott, in a 1996 paper, examine 74 episodes of fiscal adjustment in which countries attempted to address their budget gaps. The authors define a successful fiscal adjustment as a reduction of at least 3 percentage points in the ratio of gross public debt to GDP by the second year after the end of an adjustment. The authors then divide episodes of fiscal consolidation into two categories: those in which the deficit was cut primarily (by at least 60 percent) through revenue increases, and those in which it was reduced primarily (by at least 60 percent) through expenditure cuts. Of the expenditure-based episodes of fiscal consolidation, almost half were successful, while of the tax-based episodes, less than one out of six met the criteria for success.

Jürgen von Hagen and Rolf Strauch observe 65 episodes in 20 OECD countries from 1960 to 1998 and define a successful adjustment as one in which the budget balance stands at no more than 75 percent of the initial balance two years after the adjustment period. …it does find that successful consolidations consist of expenditure cuts averaging more than 1.2 percent of GDP, while expenditure cuts in unsuccessful adjustments are smaller than 0.3 percent of GDP. The opposite pattern is true for revenue-based adjustments: successful consolidations consist of increases in revenue averaging around 1.1 percent, while unsuccessful adjustments consist of revenue increases exceeding 1.9 percent.

American Enterprise Institute economists Andrew Biggs, Kevin Hassett, and Matthew Jensen examine over 100 episodes of fiscal consolidation in a 2010 study. The authors define a successful fiscal adjustment as one in which the debt-to-GDP ratio declines by at least 4.5 percentage points three years after the first year of consolidation. Their study finds that countries that addressed their budget shortfalls through reduced spending burdens were far more likely to reduce their debt than countries whose budget-balancing strategies depended upon higher taxes. …the typical successful adjustment consists of 85 percent spending cuts and just 15 percent tax increases.

In a 1998 Brookings Institution paper, Alberto Alesina and coauthors reexamined the research on the economic effects of fiscal adjustments. Using data drawn from 19 OECD countries, the authors assess whether the composition of fiscal adjustments results in different economic outcomes… Contrary to the Keynesian view that fiscal adjustments are contractionary, the results of this study suggest that consolidation achieved primarily through spending reductions often has expansionary effects.

Another study that observes which features of fiscal adjustments are more or less likely to predict whether the fiscal adjustment is contractionary or expansionary is by Alesina and Silvia Ardagna. Using data from 20 OECD countries during 1960 to 1994, the authors label an adjustment expansionary if the average GDP growth rate in the period of adjustment and in the two years after is greater than the average value (of G7 countries) in all episodes of adjustment. …The authors conclude, “The composition of the adjustment appears as the strongest predictor of the growth effect: all the non-expansionary adjustments were tax-based and all the expansionary ones were expenditure-based.”

French economists Boris Cournède and Frédéric Gonand adopt a dynamic general equilibrium model to compare the macroeconomic impacts of four debt reduction scenarios. Results from the model suggest that TB adjustments are much more costly than spending restraint when policymakers are attempting to achieve fiscal sustainability. Annual consumption per capita would be 15 percent higher in 2050 if consolidation were achieved through spending reductions rather than broad tax increases.

In a review of every major fiscal adjustment in the OECD since 1975, Bank of England economist Ben Broadbent and Goldman Sachs economist Kevin Daly found that “decisive budgetary adjustments that have focused on reducing government expenditure have (i) been successful in correcting fiscal imbalances; (ii) typically boosted growth; and (iii) resulted in significant bond and equity market outperformance. Tax-driven fiscal adjustments, by contrast, typically fail to correct fiscal imbalances and are damaging for growth.”

Economists Christina and David Romer investigated the impact of tax changes on economic activity in the United States from 1945 to 2007. The authors find that an exogenous tax increase of 1 percent of GDP lowers real GDP by almost 3 percent, suggesting that TB adjustments are highly contractionary.

…the IMF released its annual World Economic Outlook in 2010 and included a study on the effects of fiscal consolidation on economic activity. The results of studying episodes of fiscal consolidation for 15 OECD countries over three decades…reveals that EB fiscal adjustments tend to have smaller contractionary effects than TB adjustments. For TB adjustments, the effect of a consolidation of 1 percent of GDP on GDP is −1.3 percent after two years, while for EB adjustments the effect is just −0.3 percent after two years and is not statistically significant. Interestingly, TB adjustments also raise unemployment levels by about 0.6 percentage points, while EB adjustments raise the unemployment rate by only 0.2 percentage points.

…a 2014 IMF study…estimates the short-term effect of fiscal consolidation on economic activity among 17 OECD countries. The authors of the IMF study find that the fall in GDP associated with EB consolidations is 0.82 percentage points smaller than the one associated with TB adjustments in the first year and 2.31 percentage points smaller in the second year after the adjustment.

Focusing on the fiscal consolidations that followed the Great Recession, Alesina and coauthors…find that EB consolidations are far less costly for economic output than TB adjustments. They also find that TB adjustments result in a cumulative contraction of 2 percent of GDP in the following three years, while EB adjustments generate very small contractions with an impact on output not significantly different from zero.

A study by the European Central Bank in 2018…finds that macroeconomic responses are largely caused by differences in the composition of the adjustment plans. The authors find large and negative multipliers for TB adjustment plans and positive, but close to zero, multipliers for EB plans. The composition of adjustment plans is found to be the largest contributor to the differences in economic performance under the two types of consolidation plans.

The bottom line is that nations enjoy success when they obey fiscal policy’s Golden Rule. Sadly, that doesn’t happen very often because politicians focus mostly on buying votes in the short run rather than increasing national prosperity in the long run.

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New York is ranked dead last for fiscal policy according to Freedom in the 50 States.

But it’s not the worst state, at least according to the Tax Foundation, which calculates that the Empire State is ranked #49 in the latest edition of the State Business Tax Climate Index.

Some politicians from New York must be upset that New Jersey edged them out for last place (and the Garden State does have some wretched tax laws).

So in a perverse form of competition, New York lawmakers are pushing a plan to tax unrealized capital gains, which would be a form of economic suicide for the Empire State and definitely cement its status as the place with the worst tax policy.

Here are some excerpts from a CNBC report.

The tax, part of a new “Make Billionaires Pay” campaign by progressive lawmakers and activists, would impose a new form of capital gains tax on New Yorkers with $1 billion or more in assets. …“It’s time to stop protecting billionaires, and it’s time to start working for working families,” Rep. Alexandria Ocasio-Cortez, D-N.Y., said… Currently, taxpayers pay capital gains tax on assets only when they sell. The new policy would tax any gain in value for an asset during the calendar year, regardless of whether it’s sold. Capital gains are taxed in New York at the same rate as ordinary income, so the rate would be 8.8%.

Given her track record, I’m not surprised that Ocasio-Cortez has embraced this punitive idea.

That being said, the proposal is so radical that even New York’s governor understands that it would be suicidal.

Gov. Andrew Cuomo said raising taxes on billionaires and other rich New Yorkers will only cause them to move to lower-tax states. …“If they want a tax increase, don’t make New York alone do a tax increase — then they just have the people move… Because if you take people who are highly mobile, and you tax them, well then they’ll just move next door where the tax treatment is simpler.”

Actually, they won’t move next door. After all, politicians from New Jersey and Connecticut also abuse and mistreat taxpayers.

Instead, they’ll be more likely to escape to Florida and other states with no income taxes.

In a column for the New York Post, E.J. McMahon points out that residents already have been fleeing.

…there were clear signs of erosion at the high end of New York’s state tax base even before the pandemic. Between 2010 and 2017, according to the Internal Revenue Service, the number of tax filers with incomes above $1 million rose 75 percent ­nationwide, but just 49 percent in New York. …Migration data from the IRS point to a broader leakage. From 2011-12 through 2017-18, roughly 205,220 New Yorkers moved to Florida. …their average incomes nearly doubled to $120,023 in 2017-18, from $63,951 at the start of the period. Focusing on wealthy Manhattan, the incomes of Florida-bound New Yorkers rose at the same rate from a higher starting point— to $244,936 for 3,144 out-migrants in 2017-18, from $124,113 for 3,712 out-migrants in 2011-12.

What should worry New York politicians is that higher-income residents are disproportionately represented among the escapees.

And the author also makes the all-important observation that these numbers doubtlessly will grow, not only because of additional bad policies from state lawmakers, but also because the federal tax code no longer includes a big preference for people living in high-tax states.

These figures are from the ­period ending just before the new federal tax law temporarily virtually eliminated state and local tax deductions for high earners, raising New York’s effective tax rates higher than ever. …soak-the-rich tax sloganeering is hardly a welcome-home signal for high earners now on the fence about their futures in New York.

The bottom line is that it’s a very bad idea for a country to tax unrealized capital gains.

And it’s a downright suicidal idea for a state to choose that perverse form of double taxation. After all, it’s very easy for rich people to move to Florida and other states with better tax laws.

And since the richest residents of New York pay such a large share of the tax burden (Investor’s Business Daily points out that the top 1 percent pay 46 percent of state income taxes), even a small increase in out-migration because of the new tax could result in receipts falling rather than rising.

Another example of “Revenge of the Laffer Curve.”

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There are lots of millionaires in the world. About 20 million of them, including about 6 million of them in the United States.

I’d like those numbers to increase, which is why I’m always advocating pro-market policies. Capitalism is not only superior to socialism, it’s also better than other alternatives (social justice, redistributionism, state planning, etc).

As Walter Williams reminds us, capitalism is a wonderful system in part because people can only become rich by providing value to others.

That means investment, entrepreneurship, innovation, competition and other behaviors that make the rest of us better off – even if we never become millionaires ourselves.

Remember, the normal state of humanity is grinding poverty and material deprivation. It’s only in the past few hundred years that many of us have escaped that fate – thanks to a system of free enterprise that channeled human greed in a productive direction.

The bottom line is that I don’t hate rich people or resent their success. Indeed, I applaud them for improving my life.

Though there are 83 exceptions, at least according to this BBC report.

Some of the world’s richest people have urged governments to raise taxes on the wealthy to help pay for measures aimed at tackling the coronavirus pandemic. A group of 83 millionaires called for “permanent” change… Signatories include heiress Abigail Disney and Ben & Jerry’s co-founder Jerry Greenfield. The letter says: “…we do have money, lots of it. Money that is desperately needed now and will continue to be needed in the years ahead… Government leaders must take the responsibility for raising the funds we need and spending them fairly.”

I’ve actually gone on TV in the past to debate “neurotic” and “guilt-ridden” rich people like this.

My best suggestion is that if they they have too much money, they give their excess cash to me.

But since that doesn’t seem to be a persuasive argument, I now remind them that they don’t have to wait for politicians to impose a tax increase.

They Treasury Department actually has a website for people who want to voluntarily give extra money to Washington.

So they can put their money where their mouths are.

Though you probably won’t be surprised to learn that they don’t take advantage of that opportunity, even when people have shown them exactly how it can be done.

P.S. While they’ve made similar arguments in the past, Warren Buffett and Bill Gates did not sign the letter. It’s unclear if this is a sign they’re becoming more rational.

P.P.S. Leftist politicians may be even worse than guilt-ridden rich people. Not only do they fail to voluntarily pay higher taxes, they do everything they can to minimize their tax burdens. Just look at the Clintons. And John Kerry. And Obama’s first Treasury Secretary. And Obama’s second Treasury Secretary. And Governor Pritzker of Illinois.

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The good news is that Joe Biden has not embraced many of Bernie Sanders’ worst tax ideas, such as imposing a wealth tax or hiking the top income tax rate to 52 percent..

The bad news is that he nonetheless is supporting a wide range of punitive tax increases.

  • Increasing the top income tax rate to 39.6 percent.
  • Imposing a 12.4 percent payroll tax on wages above $400,000.
  • Increasing the double taxation of dividends and capital gains from 23.8 percent to 43.4 percent.
  • Hiking the corporate tax rate to 28 percent.
  • Increasing taxes on American companies competing in foreign markets.

The worst news is that Nancy Pelosi, et al, may wind up enacting all these tax increases and then also add some of Crazy Bernie‘s proposals.

This won’t be good for the U.S. economy and national competitiveness.

Simply stated, some people will choose to reduce their levels of work, saving, and investment when the tax penalties on productive behavior increase. These changes give economists the information needed to calculate the “elasticity of taxable income”.

And this, in the jargon of economists, is a measure of “deadweight loss.”

But now there’s a new study published by the Federal Reserve which suggests that these losses are greater than traditionally believed.

Authored by Brendan Epstein, Ryan Nunn, Musa Orak and Elena Patel, the study looks at how best to measure the economic damage associated with higher tax rates. Here’s some of the background analysis.

The personal income tax is one of the most important instruments for raising government revenue. As a consequence, this tax is the focus of a large body of public finance research that seeks a theoretical and empirical understanding of the associated deadweight loss (DWL). …Feldstein (1999) demonstrated that, under very general conditions, the elasticity of taxable income (ETI) is a sufficient statistic for evaluating DWL. …It is well understood that, apart from rarely employed lump-sum taxes and…Pigouvian taxes, revenue-raising tax systems impose efficiency costs by distorting economic outcomes relative to those that would be obtained in the absence of taxation… ETI can potentially serve as a perfect proxy for DWL…this result is consistent with the ETI reflecting all taxpayer responses to changes in marginal tax rates, including behavioral changes (e.g., reductions in hours worked) and tax avoidance (e.g., shifting consumption toward tax-preferred goods). …a large empirical literature has provided estimates of the individual ETI, identified based on variation in tax rates and bunching at kinks in the marginal tax schedule.

And here are the new contributions from the authors.

… researchers have fairly recently come to recognize an important limitation of the finding that the ETI is a sufficient statistic for deadweight loss… we embed labor search frictions into the canonical macroeconomic model…and we show that within this framework, a host of additional information beyond the ETI is needed to infer DWL …once these empirically observable factors are controlled for, DWL can be calculated easily and in a straightforward fashion as the sum of the ETI and additional terms involving these factors. … We find that…once search frictions are introduced, …DWL can be between 7 and 38 percent higher than the ETI under a reasonable calibration.

To give you an idea of what this means, here are some of their estimates of the economic damage associated with a 1 percent increase in tax rates.

As you peruse these estimates, keep in mind that Biden wants to increase the top income tax rate by 2.6 percentage points and the payroll tax by 12.4 percentage points (and don’t forget he wants to nearly double tax rates on dividends, capital gains, and other forms of saving and investment).

Those are all bad choices with traditional estimates of deadweight loss, and they are even worse choices with the new estimates from the Fed’s study.

So what’s the bottom line?

The political impact will be that “the rich” pay more. The economic impact will be less capital formation and entrepreneurship, and those are the changes that hurt the vast majority of us who aren’t rich.

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Do you want to understand the International Monetary Fund’s (IMF) pernicious role in the global economy?

Here’s a simple analogy that will tell you everything you need to know. Let’s say you have two friends.

  • Friend A, who continuously gets in financial trouble because of compulsive gambling and alcoholism.
  • Friend B, who continuously gets in financial trouble because he loses money by giving loans to Friend A.

Assuming you’re a good person, you will scold both your friends for irresponsible and imprudent behavior. And you certainly won’t aid and abet their recklessness.

But if that’s your attitude, you’ll never get a lucrative (and tax-free!) job at the IMF.

That’s because the role of the IMF is enabling bad fiscal policy by governments (i.e., Friend A) and then providing bailouts so that the institution that lend money to those governments (i.e., Friend B) are insulated from their foolish choices.

To make matters worse, the IMF usually imposes “conditionality” on bailouts so that governments – for all intents and purposes – are bribed or extorted to impose higher taxes. Sort of akin to giving Friend A (the alcoholic gambler) access to more cash.

All of which explains why we see a lather-rinse-repeat cycle of nations making the same mistakes over and over again.

It’s so predictably destructive that I was only half joking when I told an audience in El Salvador that they should ban all flights containing IMF bureaucrats.

In an article for National Review, Professor Steve Hanke explains why the IMF should be shuttered. But what makes his column especially interesting is that he digs into the history of the bureaucracy.

We learn, for instance, that the IMF supposedly existed to help countries abide by the post-WWII system of fixed exchange rates. So when that system disappeared in the early 1970s, the IMF should have gone away as well.

Established as part of the 1944 Bretton Woods agreement, the IMF was designed to be primarily responsible for extending short‐​term, subsidized credits to countries experiencing balance‐​of‐​payments problems under the post-war, international, pegged‐​exchange-rate system. In 1971, however, Richard Nixon, then U.S. president, closed the gold window, triggering the 1973 collapse of the Bretton Woods agreement and, logically, the demise of the IMF. It was then that the IMF should have been mothballed.

Like any self-interested bureaucracy, the IMF figured out new reasons to exist.

And new reasons to expand.

The oil crises of the 1970s were the first to allow the IMF to reinvent itself. Those shocks were deemed to “require” more IMF lending to facilitate, yes, balance‐​of‐​payments adjustments. …with the onset of the Mexican debt crisis, more IMF lending was “required” to contain the crisis and prevent U.S. bank failures. …Then came the collapse of the Soviet Union. What a “jobs for the boys” bonanza that was! And, the list goes on and on with every crisis providing yet another opportunity for the ineffective IMF to pump out more credit… Today, things have become so politicized that even an international organization, like the IMF, has been able to grant itself a license to meddle in what used to be none of its business… While the IMF’s protean attributes are truly breathtaking, its most recent meddling gives yet another reason to put an end to it.

Steve is right.

But let’s conclude by contemplating the biggest reason to support his conclusion.

Should we abolish the IMF because it’s repugnant that big banks and other lenders are the main beneficiaries of the bailouts?

Should we abolish the IMF because it’s disgusting that corrupt politicians in poor nations get more opportunities to impose bad policy?

Should we abolish the IMF because it’s tragic that the bureaucracy lowers global growth by enabling the misallocation of capital?

Those are all good reasons, but I think the strongest argument for abolishing the IMF is that the bureaucracy perpetuates poverty. Look at this table, also prepared by Professor Hanke, which shows the nations that have received the most bailouts.

Are any of these nations economic success stories?

Hardly.

Instead, this is primarily a list of nations that have been mired in a sad cycle of poverty thanks in part to wasteful and corrupt governments that were aided and abetted by the IMF.

The bottom line is that the people of the United States should no longer be underwriting this awful organization.

P.S. The IMF is an equal-opportunity dispenser of bad advice. Relying on incredibly shoddy analysis and zero-sum thinking, the bureaucrats are encouraging higher taxes in developed nations as well.

P.P.S. No wonder I’ve referred to the IMF as the “Dr Kevorkian of Global Economic Policy” and the “Dumpster Fire of the Global Economy.”

P.P.P.S. Though there was a brief period when the IMF was semi-sympathetic to good policy advice.

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Last year, I said the nation’s most important referendum was the proposal to emasculate Colorado’s Taxpayer Bill of Rights (I was delighted when voters said no to the pro-spending lobbies and preserved TABOR).

This year’s most important referendum is taking place in November in Illinois, where pro-spending lobbies are very anxious to repeal the state’s flat tax.

If they succeed, the steady flow of taxpayers out of Illinois will become a torrent.

That’s because the flat tax is the only semi-decent feature of the state’s fiscal policy. If it goes, there won’t be any hope.

My buddy from the Illinois Policy Institute, Orphe Divounguy, has a column in today’s Wall Street Journal about the dismal fiscal and economic outlook in the Land of Lincoln.

Long the economic hub of the Midwest, Illinois has lost more than 850,000 residents to other states during the past decade. The state has been shrinking for six consecutive years and suffered the largest raw population decline of any state in the 2010s. …Growing government debt and a crushing tax burden are depressing economic growth. State spending is up, but personal-income growth is lagging. Since 2000, Illinois’s per capita personal income growth has been 21% lower than the national average. …ratings firms are paying attention. Illinois’s credit rating is one notch above junk. …Illinois’s public pension payments already consume nearly a third of the state budget, yet the unfunded liability—which the state currently pegs at $137 billion, though others put the figure much higher—continues to rise. …Since 2000, Illinois has increased pension spending by more than 500%.

Orphe then points out that politicians in the state have been raising taxes with depressing regularity.

Needless to say, that never seems to solve the problem (a point I recently made when looking at fiscal policy in Washington).

Illinois has a culture of trying—and failing—to tax its way out of its problems. In 2011 then-Gov. Pat Quinn approved a temporary tax hike aimed at making a dent in the state’s $8 billion in unpaid bills. By 2014, Illinois still had a $6.6 billion bill backlog, and lawmakers were calling for families and businesses to give up more money. Another permanent income-tax increase came in 2017, but again more taxes failed to solve Illinois’s problems. The problems, in fact, got worse. In his freshman year, Gov. J.B. Pritzker signed into law 20 new taxes and fees totaling nearly $4.6 billion, including a doubling of the gasoline tax. Now Mr. Pritzker wants a progressive income tax he claims will really solve the issue.

The bottom line is that politicians in Illinois want ever-increasing taxes to finance ever-increasing pensions for state and local bureaucrats.

This cartoon from Eric Allie nicely summarizes the attitude of the state’s corrupt political class.

To be sure, there are plenty of states that have big fiscal holes because politicians have showered bureaucrats with overly generous compensation packages.

What presumably makes Illinois unique, Orphe explains, is that retired government workers get annual adjustments that are much greater than inflation.

Which means that there’s a simple and fair solution.

Illinois taxpayers can save $50 billion over 25 years, and dollars can be freed to support their eroding public services. Policy makers can finally shrink Illinois’s pension liability by reducing the main driver of its growth: the cost-of-living adjustment, or COLA. Currently, the COLA doesn’t reflect any actual cost-of-living increase, since it isn’t pegged to inflation. By simply replacing the existing guaranteed 3% compounding postretirement raise with a true COLA pegged to inflation, among other modest changes, Illinois can save $2.4 billion in the first year alone. No current retiree would see a decrease in his pension check. Current workers would preserve their core benefit.

P.S. I don’t know how long this policy has existed. If it’s a long-standing policy, Illinois bureaucrats actually were net losers in the pre-Reagan era when the U.S. suffered from high inflation.

P.P.S. The ultimate solution is to shift bureaucrats to “defined contribution” retirement plans, akin to the IRAs and 401(K)s that exist in the private sector.

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This video from the Center for Freedom and Prosperity is nearly 10 years old, so some of the numbers are outdated, but the seven reasons to reject tax increases are still very relevant.

I’m recycling the video because the battle over tax increases is becoming more heated.

Indeed, depending on what happens in November, we may be fighting against major tax-hike proposals in less than one year.

Every single candidate seeking the Democratic nomination (such as Joe Biden, Bernie Sanders, Elizabeth Warren, Michael Bloomberg, Pete Buttigieg, etc) wants Washington to have much more of our money.

And there are plenty of cheerleaders for a bigger welfare state who favor this outcome. Some of them urge class-warfare tax increases. Other admit that lower-income and middle-class people will need to be pillaged to finance bigger government.

The one unifying principle on the left, as illustrated by this column for The Week by Paul Waldman, is the belief that Americans are under-taxed.

…as an American, when it comes to taxes you’ve got it easy. …we pay much lower taxes than most of our peer countries. In the United States, our tax-to-GDP ratio is about 26 percent, far below the 34 percent average of the advanced economies in the Organisation for Economic Co-operation and Development (OECD), and drastically less than some European countries (Denmark tops the list at 46 percent). …We have chosen — whether we did it consciously or not — to create a system that makes it easier for a small number of people to get super-rich, but also makes life more cruel and difficult for everyone else. …We could all pay more, and in return get more from government than we’re getting now. We just have to decide to do it.

This is a very weak argument since a cursory investigation quickly reveals that Americans have much higher living standards than people in other developed nations.

That’s a good thing, not a “cruel and difficult” consequence, though I’m not surprised that folks on the left are impervious to real-world evidence.

However, I am surprised when otherwise sensible people throw in the towel and say it’s time to surrender on the issue of taxes.

The latest example is James Capretta of the American Enterprise Institute.

Here’s some of what he wrote on the topic.

…the GOP commitment, implied and explicit at the same time, to never, ever support a net tax increase, under any circumstance, is making sensible lawmaking far more difficult than it should be. It’s time to break free of this counterproductive constraint. …The no tax hike position got its start in the 1986 tax reform effort. Several business and policy advocacy organizations began asking members of the House and Senate, as well as candidates for seats in those chambers, to sign a pledge opposing a net increase in income tax rates. …The pledge became politically salient in 1992, when then President George H.W. Bush lost his bid for reelection. His loss is widely assumed to have been caused, at least in part, by his acceptance of a large tax hike…after having pledged never to increase taxes… Retaining the GOP’s absolutist position on taxes might be defensible if the party were advancing an agenda that demonstrated it could govern responsibly without new revenue. Unfortunately, Republicans have proved beyond all doubt that they have no such agenda. In fact, the party has gladly gone along with successive bipartisan deals that increased federal spending by hundreds of billions.

For what it’s worth, I don’t think Jim is theoretically wrong.

Heck, even I offered up three scenarios where a tax increase could be an acceptable price in order to achieve much-needed spending reforms. And I’ll even add a fourth scenario by admitting that I would trade a modest tax increase for a Swiss-style spending cap.

But every one of my options is a meaningless fantasy.

In the real world, those acceptable scenarios are not part of the discussion. Instead, two very bad things inevitably happen when tax increases are on the table.

  1. The automatic default assumption is that tax increases should be 50 percent of any budget deal. That’s bad news, but the worse news is that the other 50 percent of the budget deal isn’t even genuine spending cuts. Instead, all we get is reductions (often illusory or transitory) in previously planned increases. The net result is bigger government (and it’s even worse in Europe!). This is why every budget deal in recent history has backfired – except the one that cut taxes in 1997.
  2. Budget deals result in the worst types of tax increases for the simple reason that budget deals get judged by their impact on “distribution tables.” And since the make-believe spending cuts ostensibly will reduce benefits for lower-income and middle-class people, the crowd in Washington demands that the tax increases should target investors, entrepreneurs, business owners, and others with above-average incomes. Yet these are the tax hikes that disproportionately hinder growth.

The bottom line is that tax increases should be a no-go zone. If Washington gets more of our money, that will “feed the beast.”

At the risk of under-statement, Grover Norquist’s no-tax-hike pledge is good policy (and good politics for the GOP). Americans for Tax Reform should double down in its opposition to tax increases.

P.S. I’ve shared five previous “Fiscal Fights with Friends”:

  • In Part I, I defended the flat tax, which had been criticized by Reihan Salam
  • In Part II, I explained why I thought a comprehensive fiscal package from the American Enterprise Institute was too timid.
  • In Part III, I disagreed with Jerry Taylor’s argument for a carbon tax.
  • In Part IV, I highlighted reasons why conservatives should reject a federal program for paid parental leave.
  • In Part V, I warned that “Hauser’s Law” would not protect America from higher taxes and bigger government.

P.P.S. There’s great wisdom on tax policy from these four presidents.

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The most important referendum in 2019 was the effort to get Colorado voters to eviscerate the Taxpayer Bill of Rights. Fortunately, the people of the Centennial State comfortably rejected the effort to bust the state’s successful spending cap.

The most important referendum in 2020 will ask voters in Illinois whether they want to get rid of the state’s flat tax and give politicians the leeway to arbitrarily impose higher rates on targeted taxpayers.

I’ve written many times about how a flat tax is far less destructive than so-called progressive taxation.

And I’ve also written that Illinois’ flat tax, enshrined in the state constitution, is the only decent feature of an otherwise terrible fiscal system.

So if the politicians convince voters to get rid of the flat tax, it will hasten the state’s economic decline (if you want more information, I strongly recommend perusing the numerous reports prepared by the Illinois Policy Institute).

Today, though, I want to focus on politics rather than economics.

To be more specific, I want to expose how supporters of higher taxes are using disingenuous tactics.

For instance, the state’s governor, J.B. Pritzker, warns that he’ll have to impose big spending cuts if voters don’t approve the referendum.

Gov. J.B. Pritzker said the state’s next budget will be balanced, but said if voters don’t approve a progressive income tax in November, he would have to reduce state spending across the board in future years. …the governor said 15 percent cuts in state spending would be needed across the board. …Illinois’ most recent budget called for spending about $40 billion dollars in state money. The state spends another $40 billion of federal tax money. …Pritzker is set to deliver his budget address on Feb. 19. He said he will propose a balanced budget to begin in July without relying on revenue from the proposed progressive income tax.

For what it’s worth, I actually think it would be good news if the state was forced to reduce the burden of government spending.

But that’s actually not the case.

How do I know Pritzker is lying?

Because his own budget documents project that state revenues (highlighted in red) are going to increase by nearly 2 percent annually under current law.

In other words, he wants a tax increase so he can increase overall spending at an even faster pace.

Of course, his tax increase also will increase the pace of taxpayers fleeing the state, which is why the referendum is actually a form of slow-motion fiscal suicide.

But let’s set that aside and examine another lie. Or, to be more accurate, a delayed lie.

The politicians in Illinois already have approved legislation to impose tax increases on the state’s most successful taxpayers, though the higher rates won’t actually become law until and unless the referendum is approved.

In hopes of bribing voters to approve the referendum, supporters assert that the other 97 percent of state taxpayers will get a cut.

That’s true. Most taxpayers will get a tiny reduction compared to the current 4.95 percent tax rate.

But how long will that last? Especially considering that the state’s long-run fiscal outlook is catastrophically bad?

The bottom line is that approving the referendum is like unlocking all the cars in a crime-ridden neighborhood. The expensive models will be the immediate targets, but it’s just a matter of time before everyone’s vehicle gets hit.

Indeed, this warning has such universal application that I’m going to make it my sixth theorem.

By the way, this theorem also applies when an income tax gets imposed, as happened with the United States in 1913 (and also a lesson that New Jersey residents learned in the 1970s and Connecticut residents learned in the 1990s).

P.S. Here are my other theorems.

  • The “First Theorem” explains how Washington really operates.
  • The “Second Theorem” explains why it is so important to block the creation of new programs.
  • The “Third Theorem” explains why centralized programs inevitably waste money.
  • The “Fourth Theorem” explains that good policy can be good politics.
  • The “Fifth Theorem” explains how good ideas on paper become bad ideas in reality.

P.P.S. Pritzker is a hypocrite because he does everything he can to minimize his own tax burden while asking for the power to take more money from everyone else.

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Assuming he was able to impose his policy agenda, I think Bernie Sanders – at best – would turn America into Greece. In more pessimistic moments, I fear he would turn the U.S. into Venezuela.

The Vermont Senator and his supporters say that’s wrong and that the real goal is to make America into a Nordic-style welfare state.

Since those nations mitigate the damage of their large public sectors with very pro-market policies on regulation, trade, and property rights, that wouldn’t be the worst outcome.

Though “Crazy Bernie” is still wrong to view Denmark and Sweden as role models. Why adopt the policies of nations that have less income, lower living standards, and slower growth?

Is Finland a better alternative?

The answer is yes, according to Ishaan Tharoor’s WorldView column in the Washington Post.

Sanders and some of his Democratic competitors are clear about what they want to change in the United States. They call for the building of a robust social democratic state, including programs such as universal healthcare, funded in large part by new taxation on the ultrarich and Wall Street. …Sanders is particularly fond of the “Nordic model” — the social plans that exist in countries such as Denmark, Sweden, Norway and Finland, which deploy higher taxation to provide quality public services and keep inequality at rates lower than the United States. …Across the Atlantic, at least one leading proponent of the Nordic model welcomed its embrace by U.S. politicians. “We feel that the Nordic Model is a success story,” said Finnish Prime Minister Sanna Marin… “I feel that the American Dream can be achieved best in the Nordic countries, where every child no matter their background or the background of their families can become anything, because we have a very good education system,” she said.

I prefer the analysis of a previous Prime Minister, though it’s hard to fault Ms. Marin for extolling the virtues of her nation.

But is Bernie Sanders really talking about turning America into Finland?

Tharoor correctly notes that the Nordic nation tell a very mixed story.

Sanders’s ascent in the past five years has spurred considerable debate over what lessons should be learned from the Nordic countries he celebrates. A cast of centrist and conservative critics note, first, that these Nordic countries are more capitalist than Sanders concedes, with generous pro-business policies and their own crop of billionaires; and, second, that the welfare states in Nordic countries are largely financed by extensive taxes on middle-class wages and consumption.

The last excerpt is key.

The big welfare states in Europe – and specifically in Nordic nations such as Finland – are financed with big burdens on lower-income and middle-class taxpayers.

According to data from the Tax Foundation and OECD, middle-income Finnish taxpayers are forced to surrender about 15 percent more of their income to government.

Why such a big difference?

Because Finland has an onerous value-added tax, punitive payroll taxes, and their income tax imposes high rates on people with modest incomes.

In other words, it’s not the rich who are financing the welfare state. Yet Bernie Sanders never mentions that point.

I’ll close by simply noting that Finland (like other Nordic nations) is not a statist hellhole. As I wrote just two months ago, the nation has some very attractive policies.

Indeed, the country is almost as market-oriented as the United States according to Economic Freedom of the World (and actually ranked above America as recently as 2011).

Bernie Sanders, though, wants to copy the bad features of Finland.

He wants America to have a big welfare state, but doesn’t want Finland’s very strong rule of law or robust property rights for people in the private sector. Nor does he want Finland’s 20 percent corporate tax rate.

And I suspect he doesn’t realize that Finland just learned an important lesson about the downsides of giving people money for nothing.

Most important of all, I’m very confident he doesn’t understand why Americans of Finnish descent generate 47 percent more national income than Finns who stayed home.

P.S.S. Researchers at Finland’s central bank seem to agree with my concern about excessive government spending.

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Given their overt statism, I’ve mostly focused on the misguided policies being advocated by Bernie Sanders and Elizabeth Warren.

But that doesn’t mean Joe Biden’s platform is reasonable or moderate.

Ezra Klein of Vox unabashedly states that the former Vice President’s policies are “far to Obama’s left.”

This is an issue where folks on both ends of the spectrum agree.

In a column for the right-leaning American Spectator, George Neumayr also says Biden is not a moderate.

Biden likes to feed the mythology that he is still a moderate. …This is, after all, a pol who giddily whispered in Barack Obama’s ear that a massive government takeover of health care “was a big f—ing deal,”…and now pronouncing Obamacare only a baby step toward a more progressive future. It can’t be repeated enough that “Climate Change” Joe doesn’t give a damn about the ruinous consequences of extreme environmentalism for Rust Belt industries. His Climate Change plans read like something Al Gore might have scribbled to him in a note. …On issue after issue, Biden is taking hardline liberal stances. …“I have the most progressive record of anybody running.” …He is far more comfortable on the Ellen show than on the streets of Scranton. He has given up Amtrak for private jets, and, like his lobbyist brother and grifter son, has cashed in on his last name.

If you want policy details, the Wall Street Journal opined on his fiscal plan.

Mr. Biden has previously promised to spend $1.7 trillion over 10 years on a Green New Deal, $750 billion on health care, and $750 billion on higher education. To pay for it all, he’s set out $3.4 trillion in tax increases. This is more aggressive, for the record, than Hillary Clinton’s proposed tax increases in 2016, which totaled $1.4 trillion, per an analysis at the time from the left-of-center Tax Policy Center. In 2008 Barack Obama pledged to raise taxes on the rich while cutting them on net by $2.9 trillion. Twice as many tax increases as the last presidential nominee: That’s now the “moderate” Democratic position. …raising the top rate for residents of all states. …a huge increase on today’s top capital-gains rate of 23.8%… This would put rates on long-term capital gains at their highest since the 1970s. …Raise the corporate tax rate to 28% from 21%. This would…vault the U.S. corporate rate back to near the top in the developed world. …the bottom line is big tax increases on people, capital and businesses. There’s nothing pro-growth in the mix.

And the ever-rigorous Peter Suderman of Reason wrote about Biden’s statist agenda.

Biden released a proposal to raise a slew of new taxes, mostly on corporations and high earners. He would increase tax rates on capital gains, increase the tax rate for households earning more than $510,000 annually, double the minimum tax rate for multinational corporations, impose a minimum tax on large companies whose tax filings don’t show them paying a certain percentage of their earnings, and undo many of the tax cuts included in the 2017 tax law. …as The New York Times reports, Biden’s proposed tax hikes are more than double what Hillary Clinton called for during the 2016 campaign. …Hillary Clinton…pushed the party gently to the left. Four years later, before the campaign is even over, the party’s supposed moderates are proposing double or even quadruple the new taxes she proposed.

The former Veep isn’t just a fan of higher taxes and more spending.

He also likes nanny-state policies.

Joe Biden says he is 100% in favor of banning plastic bags in the U.S. …let’s take a quick walk through the facts about single-use plastic bags at the retail level. …the plastic bags typically handed out by retailers make up only 0.6% of visible litter. Or put another way, for every 1,000 pieces of litter, only six are plastic bags. …They make up less than 1% of landfills by weight… 90% of the plastic bags found at sea streamed in from eight rivers in Asia and two in Africa. Only about 1% of all plastic in the ocean is from America. …Thicker plastic bags have to be used at least 11 times before they yield any environmental benefits. This is much longer than their typical lifespans. …Though it might seem almost innocuous, Biden’s support for a bag ban is symptom of a greater sickness in the Democratic Party. It craves unfettered political power.

Let’s not forget, by the way, that Biden (like most politicians in Washington) is corrupt.

Here are some excerpts from a Peter Schweizer column in the New York Post.

Political figures have long used their families to route power and benefits for their own self-enrichment. …one particular politician — Joe Biden — emerges as the king of the sweetheart deal, with no less than five family members benefiting from his largesse, favorable access and powerful position for commercial gain. …Joe Biden’s younger brother, James, has been an integral part of the family political machine… HillStone announced that James Biden would be joining the firm as an executive vice president. James appeared to have little or no background in housing construction, but…the firm was starting negotiations to win a massive contract in war-torn Iraq. Six months later, the firm announced a contract to build 100,000 homes. …A group of minority partners, including James Biden, stood to split about $735 million. …With the election of his father as vice president, Hunter Biden launched businesses fused to his father’s power that led him to lucrative deals with a rogue’s gallery of governments and oligarchs around the world. …Hunter’s involvement with an entity called Burnham Financial Group…Burnham became the center of a federal investigation involving a $60 million fraud scheme against one of the poorest Indian tribes in America, the Oglala Sioux. …the firm relied on his father’s name and political status as a means of both recruiting pension money into the scheme.

I only excerpted sections about Biden’s brother and son. You should read the entire article.

And even the left-leaning U.K.-based Guardian has the same perspective on Biden’s oleaginous behavior.

Biden has a big corruption problem and it makes him a weak candidate. …I can already hear the howls: But look at Trump! Trump is 1,000 times worse! You don’t need to convince me. …But here’s the thing: nominating a candidate like Biden will make it far more difficult to defeat Trump. It will allow Trump to muddy the water, to once again pretend he is the one “draining the swamp”, running against Washington culture. …With Biden, we are basically handing Trump a whataboutism playbook. …his record represents the transactional, grossly corrupt culture in Washington that long precedes Trump.

I’ll close by simply sharing some objective data about Biden’s voting behavior when he was a Senator.

According to the National Taxpayers Union, he finished his time on Capitol Hill with eleven-consecutive “F” scores (hey, at least he was consistent!).

And he also was the only Senator who got a lifetime rating of zero from the Club for Growth.

Though if you want to be generous, his lifetime rating was actually 0.025 percent.

Regardless, that was still worse than Barack Obama, Bernie Sanders, and Elizabeth Warren.

So if Biden become President, it’s safe to assume that America will accelerate on the already-baked-in-the-cake road to Greece.

P.S. Of course, we’ll be on that path even if Biden doesn’t become President, so perhaps the moral of the story is to buy land in Australia.

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I want more people to become rich. That’s why I support free markets.

But a few already-rich people say such silly things that I wonder whether a big bank account somehow can lead to a loss of common sense.

For background information on this issue, there’s a Politico article on some of the recent statements by Bill Gates.

It appears he’s embracing the horribly unworkable notion of taxing unrealized capital gains, and he definitely wants more double taxation of capital gains, a more punitive death tax, and a higher tax rate on capital gains that are part of “carried interest” (even though that becomes irrelevant if the regular capital gains rate is being increased).

And he’s getting closer to endorsing a wealth tax, which – to be fair – would address one of my criticisms in the interview.

Bill Gates…is echoing Democrats’ calls for higher taxes on the rich. …the Microsoft co-founder and philanthropist cites a litany of ways the rich ought to be paying more. …he favors “taxing large fortunes that have been held for a long time (say, ten years or more).” …Capital gains taxes should go up too, “probably to the same level as” ordinary income, he said. The estate tax should be hiked, and loopholes used to duck it ought to be shut down. People should also pay more on “carried interest,” Gates said. He also called for higher state taxes, including the creation of an income tax in his home state of Washington.

An income tax in the state of Washington would be particularly misguided. At least if the state hopes to be competitive and not drive away wealth and entrepreneurship.

A few months ago, Gates was in the news for the same reason.

At the time, I suggested that he should simply write a check to the federal government. After all, there’s nothing to stop him – and other guilt-ridden rich people – from paying extra tax.

But he conveniently says this wouldn’t suffice. To make matters worse, Gates apparently thinks government should be bigger, that there’s more it “needs to do.”

Gates rejected the notion that the wealthy could simply volunteer to pay more. …”Additional voluntary giving will never raise enough money for everything the government needs to do.”

I guess he’s not familiar with the Rahn Curve.

In any event, Bill Gates isn’t the only rich person who feels guilty about their wealth (or strategically pretends to feel guilty in order to either virtue signal or appease the class-warfare crowd).

The New Yorker has an article on the so-called Patriotic Millionaires, a group of masochists who want more of their money confiscated by Washington.

Abigail Disney…is the granddaughter of Roy O. Disney, who founded the Disney company with his younger brother, Walt, in 1923, and her father was a longtime senior executive there. …In 2011, she joined an organization called the Patriotic Millionaires… She began to make public appearances and videos in which she promoted higher taxes on the wealthy. She told me that she realized that the luxuries she and her family enjoyed were really a way of walling themselves off from the world, which made it easier to ignore certain economic realities. …Patriotic Millionaires…now has more than two hundred members in thirty-four states…the group’s mission was initially a simple idea endorsed by a half-dozen rich people: “Please raise our taxes.”

The good news is that only a tiny fraction of the nation’s millionaires have signed up for this self-loathing organization.

To qualify for the group, members must have an annual income of at least a million dollars, or assets worth more than five million dollars. That could include many families who would describe themselves as upper middle class—who, for instance, own homes in cities with hot real-estate markets. When I asked Payne how hard it was to persuade rich people to join, she said, “I think the last time I checked there were about three hundred and seventy-five thousand taxpayers in the country who make a million dollars a year in income”—there are now almost half a million—“and we have a couple hundred members.” She laughed. “If you ever needed a back-of-the-envelope calculation of how many of America’s élite are concerned about the basic well-being of their fellow-citizens, that should give you a rough estimate.”

I’m also happy to see that the article acknowledges a very obvious criticism of Ms. Disney and her fellow travelers.

At a time when political activists are expected to live according to their values, Disney’s role as an ultra-wealthy spokesperson for the underclass makes her a target of vitriol. In late September, someone tweeted at her, “Boy do I despise virtue signaling rich liberal hypocrites living off the money earned by their far better ancestors. Bet you live in a luxury apt in NYC! Why don’t you renounce your corporate grandad’s money and give it ALL away! You never will . . . HYPOCRITE!”

And she is a hypocrite.

Just like the other guilt-ridden rich people I’ve had to debate over the years.

If you want to see hypocrisy in action, there’s a very amusing video showing rich leftists being offered the opportunity to fill out this form and pay extra tax – and therefore atone for their guilt without hurting the rest of us. Needless to say, just like Abigail Disney and Bill Gates, they’re all talk and no action.

P.S. I wasn’t fully responsive in the interview since I was also asked how higher taxes on the rich would affect the economy. I should have pointed out that class-warfare taxes are the most destructive, on a per-dollar-collected basis, because they impose heavy penalties on saving, investment, and entrepreneurship. And that’s very bad news for workers since less innovation translates into lower wages.

P.P.S. Guilt-ridden rich people also exist in Germany.

P.P.P.S. I’m especially nauseated by rich politicians who advocate for higher taxes, yet refuse to put their money where their mouths are. A partial list includes Senator Elizabeth Warren, Senator John Kerry, Bill and Hillary Clinton, Congressman Alan Grayson, Governor J.B. Pritzker, and Tom Steyer.

P.P.P.P.S. If you’re a rich leftist, you can even be a super-hypocrite and utilize tax havens to protect your money.

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I’m currently in London for discussions about public policy, particularly the potential for the right kind of free-trade pact between the United States and United Kingdom.

I deliberately picked this week for my visit so I also could be here for the British election. As a big fan of Brexit, I’m very interested in seeing whether the U.K. ultimately will escape the slowly sinking ship otherwise known as the European Union.

But the election also is an interesting test case of whether people are willing to vote for socialism. The Brits actually made this mistake already, voting for Clement Attlee back in 1945. That led to decades of relative decline, culminating in a bailout from the International Monetary Fund.

Margaret Thatcher then was elected in 1979 to reverse Attlee’s mistakes and she did a remarkable job of restoring the British economy.

But do voters understand this history?

We’ll find out on Thursday because they’ll have the opportunity to vote for the Labour Party, led by Jeremy Corbyn, who is the British version of Bernie Sanders.

And he doesn’t hide his radical vision for state control of economic life. Here’s how the Economist describes Corbyn’s agenda.

…the clear outlines of a Corbyn-led government emerged in the manifesto. Under Labour, Britain would have a larger, deeper state… Its frontiers would expand to cover everything from water supply to broadband to how much a landlord may charge a tenant. Where the state already rules, such as in education or health, the government would go deeper, with the introduction of free child-care for pre-schoolers and a “National Care Service” for the elderly. …The government would spend £75bn on building 100,000 council homes per year, paid for from a £150bn “transformation fund”, a pot of money for capital spending on public services. Rent increases would be capped at inflation. The most eye-catching proposal, a plan to nationalise BT’s broadband operations and then offer the service free of charge… Surviving policies from 2017 include a plan to nationalise utilities, alongside Royal Mail and the rail network, and a range of new rights for workers, from a higher minimum wage to restored collective-bargaining rights. All told, government spending would hit 45.1% of GDP, the highest ratio in the post-war era outside of a recession and more than in Germany… To pay for it all, very rich people and businesses would be clobbered. Corporation tax would rise to 26% (from 19% now), which Labour believes, somewhat optimistically, would raise another £24bn by 2024.

As reported by City A.M., the tax increases target a small slice of the population.

Jeremy Corbyn…is planning to introduce a new 45 per cent income tax rate for those earning more than £80,000 and 50 per cent on those with incomes of £125,000 or more. The IFS…estimates that would affect 1.6m people from the outset, rising to 1.9m people by 2023-24. Labour’s policy would add further burden to the country’s biggest tax contributors, with the top five per cent of income tax payers currently contributing half of all income tax revenues, up from 43 per cent just before the financial crisis.  But the IFS warned the amount this policy would raise was “highly uncertain”, with estimates ranging from a high of £6bn to an actual cost of around £1bn, if the policy resulted in a flight of capital from the UK. Lawyers have previously warned that high net worth individuals are poised to shift billions out of the country in the event of a Corbyn government.

Is that a smart idea?

We could debate the degree to which upper-income taxpayers will have less incentive to be productive.

But the biggest impact is probably that the geese with the golden eggs will simply fly away.

Even the left-leaning Guardian seems aware of this possibility.

The super-rich are preparing to immediately leave the UK if Jeremy Corbyn becomes prime minister, fearing they will lose billions of pounds if the Labour leader does “go after” the wealthy elite with new taxes, possible capital controls and a clampdown on private schools. Lawyers and accountants for the UK’s richest families said they had been deluged with calls from millionaire and billionaire clients asking for help and advice on moving countries, shifting their fortunes offshore and making early gifts to their children to avoid the Labour leader’s threat to tax all inheritances above £125,000. …Geoffrey Todd, a partner at the law firm Boodle Hatfield, said many of his clients had already put plans in place to transfer their wealth out of the country within minutes if Corbyn is elected. …“There will be plenty of people on the phone to their lawyers in the early hours of 13 December if Labour wins. Movements of capital to new owners and different locations are already prepared, and they are just awaiting final approval.” …On Thursday, Corbyn singled out five members of “the elite” that a Labour government would go after in order to rebalance the country. …The shadow Treasury minister Clive Lewis went further than the Labour leader, telling the BBC’s Newsnight programme: “Billionaires shouldn’t exist. It’s a travesty that there are people on this planet living on less than a dollar a day.

Some companies also are taking steps to protect shareholders.

National Grid (NG.) and SSE (SSE) are certainly not adopting a wait-and-see approach to the general election. Both companies have moved ownership of large parts of their UK operations overseas in a bid to soften the blow of potential nationalisation. With the Labour manifesto reiterating the party’s intention to bring Britain’s electricity and gas infrastructure back into public ownership, energy companies (and their shareholders) face the threat of their assets being transferred to the state at a price below market value.

The Corbyn agenda violates the laws of economics.

It also violates the laws of math. The Labour Party, for all intents and purposes, wants a big expansion of the welfare state financed by a tiny slice of the population.

That simply doesn’t work. The numbers don’t add up when Elizabeth Warren tries to do that in the United States. And an expert for the Institute for Fiscal Studies notes that it doesn’t work in the United Kingdom.

The bottom line is that Corbyn and his team are terrible.

That being said, Boris Johnson and the current crop of Tories are not exactly paragons of prudence and responsibility.

They’re proposing lots of additional spending. And, as City A.M. reports, Johnson also is being criticized for promising company-specific handouts and protectionist rules for public procurement.

In a press conference today, Johnson promised to expand Britain’s state aid regime once the UK leaves the EU. “We will back British businesses by introducing a new state aid regime which makes it faster and easier for the government to intervene to protect jobs when an industry is in trouble,” a briefing document said. Head of regulatory affairs at the Institute of Economic Affairs (IEA) Victoria Hewson said support for state aid was “veiled support for cronyism.” …A spokesperson for the Institute of Directors said: “It’s not clear how these proposals will fit with ambitions of a ‘Global Britain’. The Conservatives must be wary of opening a can of worms on state aid, it’s important to have consistent rules in place to resist the impulse of unwarranted protectionism.” Johnson also promised to introduce a buy British rule for public procurement. …IEA economics fellow Julian Jessop said: “A ‘Buy British’ policy is pure protectionism, and it comes with heavy costs.

Perhaps this is why John O’Connell of the Taxpayers Alliance has a rather pessimistic view about future tax policy. Here are excerpts of a column he wrote for CapX.

Theresa May’s government implemented a series of big state, high tax policies. Promises of no strings attached cash for the NHS; new regulations on net zero; tax cuts shelved and the creation of more quangos. After his surprise non-loss in the election, Corbyn shifted even further to the political left, doubling down on his nationalisation plans. All in all, the 2017 election result was terrible for people who believe in a small state. …A report from the Resolution Foundation found that government spending is rising once again, and likely to head back towards the heights of the 1970s over the coming years. The Conservatives’ recent spending review suggests state spending could be 41.3% of GDP by 2023, while Labour’s spending plans could take it to 43.3%. This compares to the 37.4% average throughout the noughties. Based on the manifestos, Labour are working towards a German-sized state, while the Tories’ plan looks more Dutch. Unsurprisingly we see this mirrored by the tax burden, which at 34.6% of GDP has already reached a fifty-year high. It is likely to increase further. …British taxpayers are presented with something of a Hobson’s choice: Boris Johnson will see taxes increase and spending shoot up, while Jeremy Corbyn has £1.2 trillion worth of unfunded spending rises just waiting to become unimaginable tax hikes for everyone. Whoever you vote for, you’ll get higher taxes, the question is just about how high.

Let’s close by looking at the big picture.

Here’s a chart showing the burden of government spending in the United Kingdom since 1900. I’ve augmented the chart to show the awful trend started by Attlee (in red) and then the positive impact of Thatcher (in green).

You can also see that Tony Blair and Gordon Brown did a bad job early this century, followed by a surprisingly good performance by David Cameron.

Now it appears that British voters have to choose between a slow drift in the wrong direction under Boris Johnson or a rapid leap in the wrong direction under Jeremy Corbyn.

Normally I would be rather depressed by such a choice. I’m hoping, however, that Brexit (assuming it actually happens!) will cause Boris Johnson to make smart choices even if he is otherwise tempted to make bad choices.

P.S. Unsurprisingly, Corbyn has been an apologist for thugs and dictators.

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Arthur Okun was a well-known left-of-center economist last century. He taught at Yale, was Chairman of the Council of Economic Advisors for President Lyndon Johnson, and also did a stint at Brookings.

In today’s column, I’m not going to blame him for any of LBJ’s mistakes (being a big spender, creating Medicare and Medicaid).

Instead, I’m going to praise Okun for his honesty. Is his book, Equality and Efficiency: The Big Trade Off, he openly acknowledged that higher taxes and bigger government – policies he often favored – hindered economic performance.

Sadly, some folks on the left today are not similarly honest.

A column in the New York Times by Jim Tankersley looks at the odd claim, put forth by Elizabeth Warren and others, that class-warfare taxes are good for growth.

Elizabeth Warren is leading a liberal rebellion against a long-held economic view that large tax increases slow economic growth… Generations of economists, across much of the ideological spectrum, have long held that higher taxes reduce investment, slowing economic growth. …Ms. Warren and other leading Democrats say the opposite. …that her plans to tax the rich and spend the revenue to lift the poor and the middle class would accelerate economic growth, not impede it. …That argument tries to reframe a classic debate…by suggesting there is no trade-off between increasing the size of the pie and dividing the slices more equitably among all Americans.

Most people, when looking at why some nations grow faster and become more prosperous, naturally recognize that there’s a trade-off.

So what’s the basis of this counter-intuitive and anti-empirical assertion from Warren, et al?

It’s partly based on their assertion that more government spending is an “investment” that will lead to more growth. In other words, politicians ostensibly will allocate new tax revenues in a productive manner.

Ms. Warren wrote on Twitter that education, child care and student loan relief programs funded by her tax on wealthy Americans would “grow the economy.” In a separate post, she said student debt relief would “supercharge” growth. …Ms. Warren is making the case that the economy could benefit if money is redistributed from the rich and corporations to uses that she and other liberals say would be more productive. …a belief that well-targeted government spending can encourage more Americans to work, invest and build skills that would make them more productive.

To be fair, this isn’t a totally absurd argument.

The Rahn Curve, for instance, is predicated on the notion that some spending on core public goods is correlated with better economic performance.

It’s only when government gets too big that the Rahn Curve begins to show that spending has a negative impact on growth.

For what it’s worth, modern research says the growth-maximizing size of government is about 20 percent of economic output, though I think historical evidence indicates that number should be much lower.

But even if the correct figure is 20 percent of GDP, there’s no support for Senator Warren’s position since overall government spending currently consumes close to 40 percent of U.S. economic output.

Warren and others also make the discredited Keynesian argument about government spending somehow kick-starting growth, ostensibly because a tax-and-spend agenda will give money to poor people who are more likely to consume (in the Keynesian model, saving and investing can be a bad thing).

Democrats cite evidence that transferring money to poor and middle-class individuals would increase consumer spending…liberal economists say taxes on high-earners could spur growth even if the government did nothing with the revenue because the concentration of income and wealth is dampening consumer spending.

This argument is dependent on the notion that consumer spending drives the economy.

But that’s not the case. As I explained two years ago, consumer spending is a reflection of a strong economy, not the driver of a strong economy.

Which helps to explain why the data show that Keynesian stimulus schemes routinely fail.

Moreover, the Keynesian model only says it is good to artificially stimulate consumer spending when trying to deal with a weak economy. There’s nothing in the theory (at least as Keynes described it) that suggests it’s good to endlessly expand the public sector.

The bottom line is that there’s no meaningful theoretical or empirical support for a tax-and-spend agenda.

Which is why I think this visual very succinctly captures what Warren, Sanders, and the rest (including international bureaucracies) are proposing.

P.S. By the way, I think Tankersley’s article was quite fair. It cited arguments from both sides and had a neutral tone.

But there’s one part that rubbed me the wrong way. He implies in this section that America’s relatively modest aggregate tax burden somehow helps the left’s argument.

Fueling their argument is the fact that the United States now has one of the lowest corporate tax burdens among developed nations — a direct result of President Trump’s 2017 tax cuts. Tax revenues at all levels of government in the United States fell to 24.3 percent of the economy last year, the Organization for Economic Cooperation and Development reported on Thursday, down from 26.8 percent in 2017. America is now has the fourth lowest tax burden in all of the O.E.C.D.

Huh? How does the fact that we have lower taxes that other nations serve as “fuel” for the left?

Since living standards in the United States are considerably higher than they are in higher-taxed Europe, it’s actually “fuel” for those of us who argue against class-warfare taxation and bigger government.

Though maybe Tankersley is suggesting that America’s comparatively modest tax burden is fueling the greed of U.S. politicians who are envious of their European counterparts?

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I wrote yesterday about Japan’s experience with the value-added tax, mostly to criticize the International Monetary Fund.

The statist bureaucrats at the IMF are urging a big increase in Japan’s VAT even though the last increase was only imposed two months ago (in a perverse way, I admire their ability to stay on message).

Today, I want to focus on a broader lesson regarding the political economy of the value-added tax. Because what’s happened in Japan is further confirmation that a VAT would be a terrible idea for the United States.

Simply stated, the levy would be a recipe for bigger government and more red ink.

Let’s look at three charts. First, here’s a look at how politicians in Japan have been pushing the VAT burden ever higher.

What’s been the result? Have politicians used the money to lower other taxes? Have they used the money to reduce government debt?

Hardly. As was the case in Europe, the value-added tax in Japan is associated with an increase in the burden of spending.

Here’s a chart (based on the IMF’s own data) showing that government is now consuming almost 35 percent of economic output, up from about 30 percent of GDP when the VAT was first imposed.

I’ve added a trend line (automatically generated by Excel) to illustrate what’s been happening. It’s not a big effect, but keep in mind the VAT never climbed above 5 percent until 2014.

Now let’s look at some numbers that are very unambiguous.

Japan’s politicians imposed the VAT in part because they claimed it was a way of averting more red ink.

Yet our final chart shows what’s happened to both gross debt and net debt since the VAT was imposed.

To be sure, the VAT was only one piece of a large economic puzzle. If you want to finger the main culprits for all this red ink, look first at Keynesian spending binges and economic stagnation.

But we also know the politicians were wrong when they said a VAT would keep debt under control

I’ll close with a political observation.

The left wants a value-added tax for the simple reason that it’s the only way to finance European-type levels of redistribution (yes, they also want class-warfare taxes on the rich, but that’s mostly for reasons of spite since even they recognize that such levies don’t actually generate much revenue).

But it’s very unlikely that a VAT will be imposed on the United States by the left. At least not acting alone.

The real danger is that we’ll wind up with a VAT because some folks on the right offer their support. These people don’t particularly want European-type levels of redistribution, but they think that’s going to happen. So one of their motives is to figure out ways to finance a large welfare state without completely tanking the economy.

They are right that a VAT doesn’t impose the same amount of damage, on a per-dollar-collected basis, as higher income tax rates. Or increases in double taxation (though it’s important to realize that it would still penalize productive behavior by increasing the wedge between pre-tax income and post-tax consumption).

But their willingness to surrender is nonetheless very distressing.

The bottom line is that the most important fiscal issue facing America is the need for genuine entitlement reform. Achieving that goal is an uphill battle. But if politicians get a big new source of revenue, that uphill battle becomes an impossible battle.

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Free markets and limited government are a tried-and-true recipe for growth and prosperity.

Indeed, it’s the only way for a poor nation to become a rich nation. Those are the policies that helpd North America and Western Europe become rich in the 1800s and it’s how East Asia became rich in the second half of the 1900s.

By contrast, there’s no poor country that has implemented statist policies and then become rich (which is why none of my left-wing friends have ever come up with a good answer to my two-question challenge).

But that doesn’t stop some international bureaucracies from pushing bad policies on poor nations.

I wrote last year about the International Monetary Fund’s pernicious efforts to impose higher tax burdens in Africa.

Now the Organization for Economic Cooperation and Development is seeking to perpetuate poverty in the world’s poorest continent. The Paris-based bureaucracy actually is arguing that “urgent action” is need to impose higher taxes.

The average tax-to-GDP ratio for the 26 countries participating in the new edition of Revenue Statistics in Africa was…17.2% for the third consecutive year in 2017. …underlining the need for urgent action to enhance domestic revenue mobilisation in Africa. …Overall, the tax structure across participating countries has evolved over the past decade, with VAT and personal income tax (PIT) accounting for a higher proportion of revenue generation in 2017 relative to 2008, on average. However, PIT (15.4% of total tax revenues) and social security contributions (8.1% of total tax revenues) remain low in Africa. Reforms to broaden the personal tax base…and expand social insurance coverage can assist in domestic resource mobilisation efforts while contributing to inclusive growth. …Property taxes are shown to be much lower in Africa than in LAC and in the OECD but have the potential to play a key role.

Before explaining why the OECD’s analysis is wrong, here are a couple of charts for those who want some country-specific details.

Here’s a look at the aggregate tax burdens in various nations.

I’m not surprised that South Africa’snumbers are so bad.

And here’s a look at how tax burdens have changed over the past 10 years.

Kudos to Botswana.

The big question to consider, of course, is why the OECD is pushing for higher taxes in poor nations.

The real reason is that the OECD represents the interest of governments and politicians instinctively want more revenue.

The official reason, though, is that the bureaucrats want people to believe – notwithstanding reams of evidence – that higher taxes are good for prosperity. And it’s not just the OECD pushing this bizarre theory. It’s now routine for international bureaucracies to push this upside-down analysis, based on the anti-empirical notion that economies will prosper if governments can finance more spending.

P.S. Africa’s big economic challenge is not bad fiscal policy. If you peruse the data from Economic Freedom of the World, the continent has huge problems with excessive regulation and poor quality of governance. What’s tragic, though, is that the OECD doesn’t push for good reforms in those area. Instead, it wants to make fiscal policy worse.

P.P.S. To be fair, the OECD doesn’t discriminate. The bureaucrats also advocate higher taxes in other poor regions, such as Latin America and Asia.

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With their punitive proposals for wealth taxes, Bernie Sanders and Elizabeth Warren are leading the who-can-be-craziest debate in the Democratic Party.

But what would happen if either “Crazy Bernie” or “Looney Liz” actually had the opportunity to impose such levies?

At the risk of gross understatement, the effect won’t be pretty.

Based on what’s happened elsewhere in Europe, the Wall Street Journal opined that America’s economy would suffer.

Bernie Sanders often points to Europe as his economic model, but there’s one lesson from the Continent that he and Elizabeth Warren want to ignore. Europe has tried and mostly rejected the wealth taxes that the two presidential candidates are now promising for America. …Sweden…had a wealth tax for most of the 20th century, though its revenue never accounted for more than 0.4% of gross domestic product in the postwar era. …The relatively small Swedish tax still was enough of a burden to drive out some of the country’s brightest citizens. …In 2007 the government repealed its 1.5% tax on personal wealth over $200,000. …Germany…imposed levies of 0.5% and 0.7% on personal and corporate wealth in 1978. The rate rose to 1% in 1995, but the Federal Constitutional Court struck down the wealth tax that year, and it was effectively abolished by 1997. …The German left occasionally proposes resurrecting the old system, and in 2018 the Ifo Institute for Economic Research analyzed how that would affect the German economy. The authors’ baseline scenario suggests that long-run GDP would be 5% lower with a wealth tax, while employment would shrink 2%. …The best argument against a wealth tax is moral. It is a confiscatory tax on the assets from work, thrift and investment that have already been taxed at least once as individual or corporate income, and perhaps again as a capital gain or death tax. The European experience shows that it also fails in practice.

Karl Smith’s Bloomberg column warns that wealth taxes would undermine the entrepreneurial capitalism that has made the United States so successful.

…a wealth tax…would allow the federal government to undermine a central animating idea of American capitalism. …The U.S. probably could design a wealth tax that works. …If a country was harboring runaway billionaires, the U.S. could effectively lock it out of the international financial system. That would make it practically impossible for high-net-worth people to have control over their wealth, even if it they could keep the U.S. government from collecting it. The necessity of this type of harsh enforcement points to a much larger flaw in the wealth tax… Billionaires…accumulate wealth…it allows them to control the destiny of the enterprises they founded. A wealth tax stands in the way of this by requiring billionaires to sell off stakes in their companies to pay the tax. …One of the things that makes capitalism work is the way it makes economic resources available to those who have demonstrated an ability to deploy them effectively. It’s the upside of billionaires. …A wealth tax designed to democratize control over companies would strike directly at this strength. …a wealth tax would penalize the founders with the most dedication to their businesses. Entrepreneurs would be less likely to start businesses, in Silicon Valley or elsewhere, if they think their success will result in the loss of their ability to guide their company.

The bottom line, given the importance of “super entrepreneurs” to a nation’s economy, is that wealth taxes would do considerable long-run damage.

Andy Kessler, in a column for the Wall Street Journal, explains that wealth taxes directly harm growth by penalizing income that is saved and invested.

Even setting comical revenue projections aside, the wealth-tax idea doesn’t stand up to scrutiny. Never mind that it’s likely unconstitutional. Or that a wealth tax is triple taxation… The most preposterous part of the wealth-tax plans is their supporters’ insistence that they would be good for the economy. …a wealth tax would suck money away from productive investments. …liberals in favor of taxation always trot out the tired trope that the poor drive growth by spending their money while the rich hoard it, tossing gold coins in the air in their basement vaults. …So just tax the rich and government spending will create great jobs for the poor and middle class. This couldn’t be more wrong. As anyone with $1 billion—or $1,000—knows, people don’t stuff their mattresses with Benjamins. They invest them. …most likely…in stocks or invested directly in job-creating companies… A wealth tax takes money out of the hands of some of the most productive members of society and directs it toward the least productive uses. …existing taxes on interest, dividends and capital gains discourage the healthy savings that create jobs in the economy. These are effectively taxes on wealth—and we don’t need another one.

Professor Noah Smith leans to the left. But that doesn’t stop him, in a column for Bloomberg, from looking at what happened in France and then warning that wealth taxes have some big downsides.

Studies on the effects of taxation when rates are moderate might not be a good guide to what happens when rates are very high. Economic theories tend to make a host of simplifying assumptions that might break down under a very high-tax regime. …One way to predict the possible effects of the taxes is to look at a country that tried something similar: France, where Piketty, Saez and Zucman all hail from. …France…shows that inequality, at least to some degree, is a choice. Taxes and spending really can make a big difference. But there’s probably a limit to how much even France can do in this regard. The country has experimented with…wealth taxes…with disappointing results. France had a wealth tax from 1982 to 1986 and again from 1988 to 2017. …The wealth tax might have generated social solidarity, but as a practical matter it was a disappointment. The revenue it raised was rather paltry; only a few billion euros at its peak, or about 1% of France’s total revenue from all taxes. At least 10,000 wealthy people left the country to avoid paying the tax; most moved to neighboring Belgium… France lost not only their wealth tax revenue but their income taxes and other taxes as well. French economist Eric Pichet estimates that this ended up costing the French government almost twice as much revenue as the total yielded by the wealth tax.

In other words, the much-maligned Laffer Curve is very real. When looking at total tax collections from the rich, the wealth tax resulted in less money for France’s greedy politicians.

And this chart from the column shows that French lawmakers are experts at extracting money from the private sector.

The dirty little secret, of course, is that lower-income and middle-class taxpayers are the ones being mistreated.

By the way, Professor Smith’s column also notes that President Hollande’s 75 percent tax rate on the rich also backfired.

Let’s close with a report from the Wall Street Journal about one of the grim implications of Senator Warren’s proposed tax.

Elizabeth Warren has unveiled sweeping tax proposals that would push federal tax rates on some billionaires and multimillionaires above 100%. That prospect raises questions for taxpayers and the broader economy… How might that change their behavior? And would investment and economic growth suffer? …The rate would vary according to the investor’s circumstances, any state taxes, the profitability of his investments and as-yet-unspecified policy details, but tax rates of over 100% on investment income would be typical, especially for billionaires. …After Ms. Warren’s one-two punch, some billionaires who generate pretax returns could pay annual taxes that would leave them with less money than they started with.

Here’s a chart from the story (which I’ve modified in red for emphasis) showing that investors would face effective tax rates of more than 100 percent unless they somehow managed to earn very high returns.

For what it’s worth, I’ve been making this same point for many years, starting in 2012.

Nonetheless, I’m glad to see it’s finally getting traction. Hopefully this will deter lawmakers from ever imposing such a catastrophically bad policy.

Remember, a tax that discourages saving and investment is a tax that results in lower wages for workers.

P.S. Switzerland has the world’s best-functioning wealth tax (basically as an alternative to other forms of double taxation), but even that levy is destructive and should be abolished.

P.P.S. Sadly, because their chief motive is envy, I don’t think my left-leaning friends can be convinced by data about economic damage.

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Candidates such as Elizabeth Warren and Bernie Sanders supposedly are competing for hard-left voters, while candidates such as Joe Biden and Pete Buttigieg are going after moderate voters. But a review of Buttigieg’s fiscal policy suggests he may belong in the first category.

In the interview, I focused on Buttigieg’s plan to subsidize colleges. Hopefully, I got across my main point is that students won’t be helped.

Based on what’s happened with the “third-party payer” subsidies that already exist, colleges and universities will simply jack up tuition and fees to capture the value of any new handouts.

I’m not the only person to speculate that Buttigieg is simply a watered down version of Warren.

The Wall Street Journal opined today on Mayor Pete’s statist agenda.

Mr. Buttigieg has risen steadily in the Real Clear Politics polling average to a solid fourth place, with about 7% support. …on Friday he released what he called “An Economic Agenda for American Families.” For a candidate who wants to occupy the moderate lane, Mr. Buttigieg’s policy details veer notably left. …$700 billion—presumably over 10 years, but the plan doesn’t specifically say—for “universal, high-quality, and full-day early learning.” …$500 billion “to make college affordable.” That means free tuition at public universities… $430 billion for “affordable housing.” …$400 billion to top off the Earned Income Tax Credit… A $15 national minimum wage.

At the risk of understatement, that’s not a moderate platform.

This isn’t an economic agenda, and there isn’t a pro-growth item anywhere. It’s a social-welfare spending and union wish list. …Don’t forget the billions more he has allocated to green energy, as well as his $1.5 trillion health-care public option, “Medicare for All Who Want It.” So far Mayor Pete’s agenda totals $5.7 trillion… Mayor Pete’s policy wish list is shorter and cheaper than Elizabeth Warren’s, but it still includes gigantic tax increases to finance a huge expansion of the welfare and entitlement state. Call it Warren lite.

Methinks John Stossel needs to update this video. With $5.7 trillion of new outlays, Buttigieg is definitely trying to win the big-spender contest.

No wonder he’s now embracing class-warfare tax policy. One of his giant tax increases, which I should have mentioned in the interview, is a version of Elizabeth Warren’s “nutty idea” to force people to pay taxes on capital gains even if they haven’t sold assets and therefore don’t actually have capital gains!

And the Washington Post reports that he also wants to increase the capital gains tax rate, even though that will make America less competitive.

By the way, Buttigieg is also a hypocrite. He’s joined with other Democratic candidates in embracing a carbon tax on lower-income and middle-class voters, yet the Chicago Tribune reports that he zips around the country on private jets.

Pete Buttigieg has spent roughly $300,000 on private jet travel this year, more than any other Democrat running for the White House, according to an analysis of campaign finance data. …his reliance on charter flights contrasts sharply with his image as a Rust Belt mayor who embodies frugality and Midwestern modesty. …Buttigieg’s campaign says the distance between its South Bend headquarters and major airports sometimes makes private jet travel necessary. “We are careful with how we spend our money, and we fly commercial as often as possible,” Buttigieg spokesman Chris Meagher said Wednesday. “We only fly noncommercial when the schedule dictates.”

In other words, one set of rules for ordinary people, but exemptions for the political elite.

Though at least he hasn’t proposed to ban hamburgers. At least not yet.

P.S. If you like this cartoon by Gary Varvel, I very much recommend this Halloween cartoon. And he is among the best at exposing the spending-cut hoax in DC, as you can see from this sequester cartoon and this deficit reduction cartoon. This cartoon about Bernie Madoff and Social Security, however, is probably my favorite.

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