Four Major Problems with Senator Romney’s Plan for Universal Child Allowances

My late friend Walter Williams was a first-rate economist, an important public intellectual, and a truly great American. He also was an amazing communicator, with an unparalleled ability to make important points in a succinct and easy-to-understand manner.

My favorite Walter quote is about how capitalism enabled positive-sum wealth creation.

Today, though, I want to share Walter’s quote about the simple rules for life that basically eliminate poverty.

Sadly, the current welfare state undermines those rules and instead lures many people into self-destructive behaviors. Choices that are bad for them and bad for society.

• Have kids out of wedlock? No problem, Uncle Sam will take care of you with a plethora of handouts.
• Watch TV on the sofa all day rather than work? No problem, Washington will provide you with benefits.

As an economist, I’m especially concerned that redistribution programs discourage employment. That’s bad for the economy. Even more important, it’s very bad for people who get trapped in lives of dependency.

Oh, and let’s not forget that the welfare state also is a big burden on taxpayers.

The reason for highlighting these problems is that Senator Mitt Romney has unveiled a plan (the “Family Security Act”) to have the federal government provide universal child allowances.

The good news is that his plan will mitigate some of the problems with the current system. The bad news is that his proposal will exacerbate other problems.

Here are some excerpts from the Senator’s summary of the proposal.

The Family Security Act would provide a monthly cash benefit for families, amounting to $350 a month for each young child, and $250 a month for each school-aged child. …Promoting marriage; Providing equal treatment for both working and stay-at-home parents; and Reforming and consolidating outmoded federal programs, including by fully paying for the new proposal….a new national commitment to American families by modernizing and streamlining antiquated federal policies into a monthly cash benefit. …The bill consolidates overlapping and often duplicative federal policies into direct support for families. …deficit-neutral.

That description sounds nice, and the proposal would be beneficial in some ways.

Most notably, there would not be high implicit marginal tax rates on work (a big problem in the current system) since people would get the child allowances regardless of employment status.

But there are some serious drawbacks to the plan. Here are four things that cause concern.

First, it increases the burden of government.

Senator Romney (as well as proponents of the plan such as the Niskanen Center) highlight the fact that the plan is “deficit neutral.” But that doesn’t tell us whether the plan increases or reduces the size and scope of the federal government.

Unfortunately, if you take a close look at the Senator’s summary, it’s clear the proposal would be a net increase in the burden of spending.

Here’s the relevant table, which ostensibly shows Romney’s new spending along with the “spending offsets” that make the plan deficit neutral.

For what it’s worth, I’m disappointed that the Senator (his staff?) chose to be dishonest. Three of the “spending offsets” are actually measures that would increase tax revenue (circled in red).

And when you fix that dodgy bit of accounting, Romney’s plan would add more than $45 billion per year to America’s fiscal burden.

Second, why would anyone think it’s a good idea to copy Europe?

According to an article from HuffPost, “The U.S. is one of the only developed countries that doesn’t pay parents a child benefit or child allowance. Romney’s proposal shows there is bipartisan support for the policy.”

This is an accurate observation, but it’s hardly persuasive. Yes, European nations generally send people money simply because they have children.

But why on earth would we want to copy nations where living standards are far below American levels? Heck, poor people in America tend to be more prosperous than middle-class people in Europe.

By the way, some like Romney’s plan because they think it will boost marriage rates and fertility rates (i.e., lure people into having more children). Seems like that might be theoretically true, but the data show that European birth rates are very low, significantly below American levels.

In other words, don’t hold your breath waiting for more marriages and more children.

Third, it undermines federalism by giving Washington a bigger role rather than smaller role.

I’ve argued that the so-called War on Poverty has been very bad news. We have a Byzantine system of handouts that require an army of bureaucrats to administer dozens of handouts that subsidize bad behavior.

It’s created dependency and the data show it actually has had a negative impact on the trend of poverty reduction and self sufficiency (same thing has happened in other nations as well).

The right approach is to get Washington out of the business of income redistribution. We’re far more likely to get good outcomes if we let states decide (and learn from each other on) how best to reduce poverty.

Fourth, it is akin to a “basic income” that may have a very corrosive impact on societal capital.

I was very opposed to Andrew Yang’s plan to provide universal handouts, in large part because I feared it would undermine personal independence, the work ethic, the spirit of self reliance, and other traits that are critical for a successful society. And I also didn’t trust (for good reason) Yang’s claim that his scheme would replace other redistribution programs.

Well, Romney’s proposal is like a starter version of a basic income, but with the handouts based on the number of children.

I fear this will enable some people to decide they can drop out of the labor force.

Scott Winship of the American Enterprise Institute shares my concerns.

The Romney proposal would take us back to the bad old days in key ways, and policymakers are playing Russian roulette with low-income families’ wellbeing. …some people (including future people) who would choose single parenthood or non-work except that the current safety net makes it unaffordable would be able to afford these choices under child allowances. For them, child allowances are allowances for behavior that would be expected to hurt their own long-term prospects and, more importantly, the wellbeing of their children.

I’ll conclude by observing that Romney’s plan is nowhere near as bad as Congresswoman Ocasio-Cortez’s scheme for universal handouts.

But that’s hardly the test for good legislation. For those who prefer smaller government, less dependency, and less centralization, Romney’s plan is bad news.

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Romney is Right that You Can Lower Tax Rates and Reduce Tax Preferences without Hurting the Middle Class

Even though I’m not a Romney fan, I sometimes feel compelled to defend him against leftist demagoguery.

But instead of writing about tax havens, as I’ve done in the past, today we’re going to look at incremental tax reform.

The left has been loudly asserting that the middle class would lose under Mitt Romney’s plan to cut tax rates by 20 percent and finance those reductions by closing loopholes.

That class-warfare accusation struck me as a bit sketchy because when I looked at the data a couple of years ago, I put together this chart showing that rich people, on average, enjoyed deductions that were seven times as large as the deductions of middle-income taxpayers.

And the chart includes only the big itemized deductions. There are dozens of other special tax preferences, as shown in this depressing image, and you can be sure that rich people are far more likely to have the lawyers, lobbyists, and accountants needed to exploit those provisions.

But that’s not a surprise since the internal revenue code has morphed into a 72,000-page monstrosity (this is why I sometimes try to convince honest leftists that a flat tax is a great way of reducing political corruption).

But this chart doesn’t disprove the leftist talking point, so I’m glad that Martin Feldstein addressed the issue in today’s Wall Street Journal. Here’s some of what he wrote.

The IRS data show that taxpayers with adjusted gross incomes over $100,000 (the top 21% of all taxpayers) made itemized deductions totaling $636 billion in 2009. Those high-income taxpayers paid marginal tax rates of 25% to 35%, with most $200,000-plus earners paying marginal rates of 33% or 35%. And what do we get when we apply a 30% marginal tax rate to the $636 billion in itemized deductions? Extra revenue of $191 billion—more than enough to offset the revenue losses from the individual income tax cuts proposed by Gov. Romney. …Additional revenue could be raised from high-income taxpayers by limiting the use of the “preferences” identified for the Alternative Minimum Tax (such as excess oil depletion allowances) or the broader list of all official individual “tax expenditures” (such as tax credits for energy efficiency improvements in homes), among other credits and exclusions. None of this base-broadening would require taxing capital gains or making other changes that would reduce the incentives for saving and investment. …Since broadening the tax base would produce enough revenue to pay for cutting everyone’s tax rates, it is clear that the proposed Romney cuts wouldn’t require any middle-class tax increase, nor would they produce a net windfall for high-income taxpayers. The Tax Policy Center and others are wrong to claim otherwise.

In other words, even with a very modest assumption about the Laffer Curve, it would be quite possible to implement something akin to what Romney’s proposing and not “lose” tax revenue.

This doesn’t mean, of course, that Romney seriously intends to push for good policy. I’m much more concerned, for instance, that he’ll wander in the wrong direction and propose something very bad such as a value-added tax.

But Romney certainly can do the right thing if he wins. Assuming that’s what he wants to do.

Just like he can fulfill his promise the reduce the burden of government spending by implementing Paul Ryan’s entitlement reforms. But don’t hold your breath waiting for that to happen.

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Is Mitt Romney a Keynesian?

What is it about Mitt Romney? The United States desperately needs smaller government, lower taxes, and less intervention, yet his comments and track record on issues such as the  value-added tax, healthcare, Social Security reform, budget savings, ethanol subsidies, and the minimum wage leave a lot to be desired.

We can now add something else to the list. The former Massachusetts governor has come out of the closet as a Keynesian.

This is worrisome, particularly since he is speaking extemporaneously and thus more likely to be letting us see his real views.

To be fair, Romney’s statement doesn’t automatically make him a big-spending Keynesian. Even I have written that, in the short run, “there will be transitional costs when the burden of public spending is reduced.”

But when I say something like that, it is also in the context of explaining the myriad ways that the economy benefits when a bloated public sector is pared back.

And I like to think that I’m second to none in disseminating the medium-term and long-term advantages of less government.

Mitt Romney, needless to say, doesn’t seem to fully share those views.

For more information on this issue, here’s my take on Keynesianism.

I made a snarky comment in a previous post that, “If the answer is bigger government, you’ve asked a very strange question.” I’m worried, though, that Romney doesn’t think that’s a joke.

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Debating at U.S. News & World Report, I Explain Double Taxation to the Economic Heathens

Never let it be said I back down from a fight, even when it’s the other team’s game, played by the other team’s rules, and for the benefit of the wrong person.

And that definitely went through my mind when U.S. News & World Report asked me to contribute to their “Debate Club” on the topic of “Should Mitt Romney pay higher taxes?”

I’m not a Romney fan, and it irks me to defend good tax policy on behalf of someone who is incapable and/or unwilling to make the same principled arguments.

But my job is to do the right thing and bring truth to the economic heathens, so I agreed to participate. And I’m glad I did, because it gave me a chance to try out a new argument that I hope will educate more people about the perverse impact of double taxation.

Let me know what you think of this approach, which asks people whether they would think it would be fair if they couldn’t take credit for withheld taxes when filling out their 1040 tax return.

Capital gains taxes and dividend taxes are both forms of double taxation. That income already is hit by the 35 percent corporate income tax. So the real tax rate for people like Mitt Romney is closer to 45 percent. And if you add the death tax to the equation, the effective tax rate begins to approach 60 percent.  Here’s a simply analogy. Imagine you make $50,000 per year and your employer withholds $5,000 for personal income tax. How would you feel if the IRS then told you that your income was $45,000 and you had to pay full tax on that amount, and that you weren’t allowed to count the $5,000 withholding when you filled out your 1040 form? You would be outraged, correctly yelling and screaming that you should be allowed to count those withheld tax payments.  Welcome to the world of double taxation.

By the way, if you like my argument, feel free to vote for my entry, which you can do on this page.

I won my previous debate for U.S. News, so I’m hoping the keep a good thing going. As they say in Chicago, vote early and vote often.

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Clever Left-Wing Satire vs. Stupid Left-Wing Satire

I’m perfectly willing to give my opponents credit when they do something clever and/or effective.

I posted this video making fun of libertarians, for instance, because it is genuinely funny. People like me, I will confess, sometimes are so allergic to government that we do things that make us easy targets for satire.

Well, here’s a video parody of Mitt Romney and the Cayman Islands, obviously designed to resemble the Corona beer commercials. I’m not impressed.

My tepid reaction is not because I recently defended Romney’s use of Cayman-based investment vehicles.

Indeed, here’s an old video attacking tax havens, and I think it’s sufficiently amusing that I just uploaded it onto my Youtube channel because it’s worth sharing and I couldn’t find it online.

Both of these leftist videos make silly and inaccurate points, but the anti-Romney video is simplistic and the entire premise is false. He’s not hiding anything. Intelligent satire uses the truth as a starting point. This video doesn’t.

The anti-Cheney video, by contrast, has some big mistakes, but at least it is based on the accurate premise that companies legally try to reduce their taxes. Moreover, the Jimmy Buffett music is a nice touch.

Since I’ve share a couple of anti-tax haven videos, I feel compelled to post one of mine for some balance. And since I recently posted my video on the economic case for tax havens, here’s my video on the moral case for tax havens.

And if you want to really understand these issues, I humbly suggest you look at the paper I wrote for the UK-based Adam Smith Institute.

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ABC News Produces Empty and Biased Story on Mitt Romney and Tax Havens

Exactly 10 days ago, I predicted that the press would attack Mitt Romney for using tax havens. In that post, I wrote that, “…based on the questions, it appears that the establishment media wants to hit Romney for utilizing tax havens… As far as I can tell, none of these reporters have come out with a story. …But I think it’s just a matter of time.”

Sure enough, like the swallows returning to Capistrano, it’s happened. Two hacks at ABC News, Brian Ross and Megan Chuchmach, revealed (brace yourself for a real scoop) that Mitt Romney is a rich guy and some of his investments are based in funds domiciled in the Cayman Islands (gasp!).

Wow, what a revelation! This must be Pulitzer Prize material. Pray tell, what wrongdoing did the story uncover? Well, let’s excerpt the key passages from the article.

Mitt Romney has millions of dollars of his personal wealth in investment funds set up in the Cayman Islands, a notorious Caribbean tax haven. A spokesperson for the Romney campaign says Romney follows all tax laws and he would pay the same in taxes regardless of where the funds are based.  …Romney has as much as $8 million invested in at least 12 funds listed on a Cayman Islands registry. Another investment, which Romney reports as being worth between $5 million and $25 million, shows up on securities records as having been domiciled in the Caymans.  …Romney campaign officials and those at Bain Capital tell ABC News that the purpose of setting up those accounts in the Cayman Islands is to help attract money from foreign investors, and that the accounts provide no tax advantage to American investors like Romney. Romney, the campaign said, has paid all U.S. taxes on income derived from those investments. …Bain officials called the decision to locate some funds offshore routine, and a benefit only to foreign investors who do not want to be subjected to U.S. taxes.

You’re probably thinking you missed something, because there’s nothing to the story. But that’s because the reporters don’t have anything. And if you think I excerpted unfairly, feel free to read the whole article.

The only thing you’ll discover is that Ross and Chuchmach are biased hacks. Because not only did they write a story about nothing, they also quoted two left-wingers, Jack Blum and Rebecca Wilson, and failed to give the other side even an inch of column space.

Blum is a former John Kerry staffer who is most famous for making unsubstantiated claims (which he later admitted were fabricated) that tax havens resulted in $100 billion of lost revenue to the Treasury each year.

And Rebecca Wilson works for Citizens for Tax Justice, a union-funded group so radical that even congressional Democrats usually are reluctant to work with them.

But what about the other side of the story?

1. Did the article quote me, since I’ve been working on these issues for more than a decade? No.
2. Did the article quote anybody from the Center for Freedom and Prosperity, the organization most active in the fight to defend low-tax jurisdictions? No.
3. Did the article quote Richard Rahn, the Cato Institute Fellow who was a Board Member of the Cayman Islands Monetary Authority? No.
4. Did the article quote any of the academic scholars who have written about so-called tax havens, such as Jim Hines of the University of Michigan or Andrew Morriss of the University of Alabama? No.
5. Did the article quote Bob Bauman, the former Congressman and offshore expert who serves as Legal Counsel of the Sovereign Society? No.

Fair and competent journalists would have done those things, but not the dynamic duo from ABC News.

Instead, they quote two hard-core lefts. And in a gross display of editorializing, they also referred to the Cayman Islands as a “notorious tax haven.”

Yet what is “notorious” about being a prosperous multiracial society with living standards considerably above American levels?

Moreover, Cayman has a tax treaty with the United States and an overwhelming share of the investment in the jurisdiction is completely legal institutional money – just like the Romney investment funds.

But I guess a place like the Cayman Islands must be bad, at least to biased people from the press. After all, a place with no income taxes, no capital gains taxes, no payroll taxes, and no death taxes must be condemned.

I’m not a Romney fan, as you can see by reading this post, but I believe in honest and intelligent debate. Too bad ABC doesn’t.

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Mitt Romney and Bain Capital Were Right to Utilitize So-Called Tax Havens

I’m not a big fan of Mitt Romney. I hammered him the day before Christmas for being open to a value-added tax, and criticized him in previous posts for his less-than-stellar record on healthcare, his weakness on Social Security reform, his anemic list of proposed budget savings, and his reprehensible support for ethanol subsidies.

But I also believe in being intellectually honest, so I’ll defend a politician I don’t like (even Obama) when they do the right thing or when they get attacked for the wrong reason.

In the case of Romney, some of his GOP opponents are criticizing him for job losses and/or bankruptcies at some of the companies in which he invested while in charge of Bain Capital. But I don’t need to focus on that issue, because James Pethokoukis of AEI already has done a great job of debunking that bit of anti-Romney demagoguery.

In this post, I want to focus on the issue of tax havens.

Regular readers know that I’m a big defender of these low-tax jurisdictions, for both moral and economic reasons, and I guess that reporters must know that as well because I’ve received a couple of calls from the press in recent weeks. But I suspect I”m not being called because reporters want to understand international tax policy. Instead, based on the questions, it appears that the establishment media wants to hit Romney for utilizing tax havens as part of his work at Bain Capital.

As far as I can tell, none of these reporters have come out with a story. And I’m also not aware that any of Romney’s political rivals have tried to exploit the issue.

But I think it’s just a matter of time, so I want to preemptively address this issue. So let’s go back to 2007 and look at some excerpts from a story in the Los Angeles Times about the use of so-called tax havens by Romney and Bain Capital.

While in private business, Mitt Romney utilized shell companies in two offshore tax havens to help eligible investors avoid paying U.S. taxes, federal and state records show. Romney gained no personal tax benefit from the legal operations in Bermuda and the Cayman Islands. But aides to the Republican presidential hopeful and former colleagues acknowledged that the tax-friendly jurisdictions helped attract billions of additional investment dollars to Romney’s former company, Bain Capital, and thus boosted profits for Romney and his partners. …Romney was listed as a general partner and personally invested in BCIP Associates III Cayman, a private equity fund that is registered at a post office box on Grand Cayman Island and that indirectly buys equity in U.S. companies. The arrangement shields foreign investors from U.S. taxes they would pay for investing in U.S. companies. …In Bermuda, Romney served as president and sole shareholder for four years of Sankaty High Yield Asset Investors Ltd. It funneled money into Bain Capital’s Sankaty family of hedge funds, which invest in bonds and other debt issued by corporations, as well as bank loans. Like thousands of similar financial entities, Sankaty maintains no office or staff in Bermuda. Its only presence consists of a nameplate at a lawyer’s office in downtown Hamilton, capital of the British island territory. … Investing through what’s known as a blocker corporation in Bermuda protects tax-exempt American institutions, such as pension plans, hospitals and university endowments, from paying a 35% tax on what the Internal Revenue Service calls “unrelated business income” from domestic hedge funds that invest in debt, experts say. …Brad Malt, who controls Romney’s financial trust, said Bain Capital organized the Cayman fund to attract money from foreign institutional investors. “This is not Mitt trying to do something strange,” he said. “This is Bain trying to raise some number of billions from investors around the world.”

There are a couple of things worth noting about these excerpts.

1. Nobody has hinted that Romney did anything illegal for the simple reason that using low-tax jurisdictions is normal, appropriate, and intelligent for any business or investor. Criticizing Romney for using tax havens would be akin to attacking me for living in Virginia, which has lower taxes than Maryland.

2. Jurisdictions such as Bermuda and the Cayman Islands are good platforms for business activity, which is no different than a state like Delaware being a good platform for business activity. Indeed, Delaware has been ranked as the world’s top tax haven by one group (though American citizens unfortunately aren’t able to benefit).

3. America’s corporate tax system is hopelessly anti-competitive, so it is quite fortunate that both investors and companies can use tax havens to profitably invest in the United States. This helps protect the American economy and American workers by attracting trillions of dollars to the U.S. economy.

These three points are just the tip of the iceberg. Watch this video for more information about the economic benefit of tax havens.

Last but not least, here’s a prediction. I think it’s just a matter of time until Romney gets attacked for utilizing tax havens, though the press may wait until after he gets the GOP nomination.

But when those attacks occur, I’m extremely confident that the stories will fail to mention that prominent Democrats routinely utilize tax havens for business and investment purposes, including as Bill Clinton, John Kerry, John Edwards, Robert Rubin, Peter Orszag, and Richard Blumenthal.

It’s almost enough to make you think this cartoon is correct and that the establishment press is biased.

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Mitt Romney, the Value-Added Tax, and America’s European Future

My Iowa caucus predictions from yesterday were hopelessly wrong, probably because I was picking with my heart rather than my head. As I noted a couple of weeks ago, Mitt Romney’s openness to a value-added tax makes him a dangerously flawed candidate, and I hoped Iowa voters shared my concern.

In a column for today’s Wall Street Journal, I elaborated on those concerns, explaining why a VAT is bad fiscal policy. I had three main points. First, I noted that the big spenders need a VAT in order to achieve a European-sized welfare state in America.

… the left needs a VAT. It is the only realistic way to collect the huge amount of revenue that will be necessary to finance the mountainous benefits promised by our entitlement programs. Which is exactly what happened in Europe, where welfare-state policies only became feasible after VATs were adopted, beginning in the late 1960s.

Second, I explained that the left favors this giant tax on the middle class because they want more money and soak-the-rich taxes don’t generate much revenue.

First, there aren’t enough wealthy people to finance big government. According to IRS data from before the recession, when we had the most rich people with the most income, there were about 321,000 households with income greater than $1 million, and they had aggregate taxable income of about $1 trillion. That’s a lot of money, but it wouldn’t balance the budget even if the government confiscated every penny—and if it did, how much income do you suppose would be available in year two? Second, higher tax rates don’t raise as much revenue as expected. Upper-income individuals are far more likely to rely on interest, dividends and capital gains—and it is much easier to control the timing, level and composition of capital income, so as to avoid exposing it to the tax man.

Third, I debunked the foolish notion that a VAT creates a “level playing field” for American exporters.

…some manufacturers are willing to overlook the VAT’s flaws because the tax is “border adjusted.” This means that there is no VAT on exports, while the tax is imposed on imports. For mercantilists worried about trade deficits, this is a positive feature that they claim will put America on a “level playing field.” But that misunderstands how a VAT works. Under our current tax system, American goods sold in America don’t pay a VAT—but neither do German-produced goods or Japanese-produced goods that are sold in America because their VAT tax is rebated on exports. Meanwhile, any American-produced goods sold in Germany or Japan are hit by a VAT, as are all other goods. In other words, there already is a level playing field. To be sure, there will also be a level playing field if America adopts a VAT. But it won’t make any difference to international trade. All that will happen is that the politicians in Washington will get more money whenever any products are sold.

But I didn’t limit myself to economic analysis. I also warned that Mitt Romney might be an even greater threat on this issue than Barack Obama.

Unsurprisingly, President Obama is favorably inclined toward a VAT, having recently claimed that it is “something that has worked for other countries.” And yet it’s unlikely that the president would propose a VAT, in large part because he is fixated on class-warfare tax hikes. If he did, almost every Republican in Congress would be opposed, even if only for partisan reasons. But what if a VAT sympathizer like Mr. Romney wins next November and decides that his plan for a lower corporate tax rate is only possible if accompanied by a VAT? There will be quite a few Republicans who like that idea because they want to do something nice for their lobbyist friends in the business community. And there will be many Democrats drawn to the plan because they realize that they need this new source of revenue to enable bigger government. That’s a win-win deal for politicians and a terrible deal for taxpayers.

This point deserves some elaboration. Why is the VAT a do-or-die issue?

Simply stated, the United States is in grave danger of becoming a European-style welfare state. Indeed, that will automatically happen in the next few decades because of demographic changes and poorly designed entitlement programs.

This is why there is a desperate need to reform programs such as Medicare and Medicaid. But politicians almost certainly won’t adopt the needed reforms if they have the ability to instead confiscate more money from taxpayers – especially if they have a new tax like the VAT, which is a money machine for bigger government.

Ironically, it appears there’s more danger of that happening with Romney in the White House.

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Since Romney Is Willing to Consider a VAT, Should Libertarians and Conservatives Be Willing to Consider Him?

There’s been a lot of discussion about Mitt Romney’s appeal – or lack thereof – among supporters of limited government.

To put it mildly, many libertarians and conservatives are underwhelmed by his less-than-stellar record on healthcare, his weakness on Social Security reform, his anemic list of proposed budget savings, and his reprehensible support for ethanol subsidies.

Notwithstanding this dismal track record, some advocates of free markets argue that anybody would be better than Obama.

But that’s not necessarily the case. Economic history shows that the burden of government often expands the most under Republicans, with Nixon and Bush (either one) being obvious examples.

On the other hand, even a skeptic like me has admitted that Romney’s record in Massachusetts is difficult to assess because he was governor of a very left-wing state and he had to deal with a state legislature with heavy Democratic majorities.

That being said, there’s a new development that suggests Romney may be an unacceptable alternative to Obama. In an interview with the Wall Street Journal, he basically said he is willing to consider a value-added tax for the United States. Here’s the relevant passage.

He says he doesn’t “like the idea” of layering a VAT onto the current income tax system. But he adds that, philosophically speaking, a VAT might work as a replacement for some part of the tax code, “particularly at the corporate level,” as Paul Ryan proposed several years ago. What he doesn’t do is rule a VAT out.

For those who are not familiar with a VAT, it is a version of a national sales tax, but imposed at every stage in the production process and embedded in the price of goods and services. Perhaps more important, it is despised by everyone who wants to limit the size of government. This video explains how it works and why it is a money machine for big government.

Simply stated, this is an awful tax. If it ever gets implemented in the United States, the battle will be over. America will descend to European-style stagnation, eventually leading to fiscal crisis.

Any politician that supports a VAT (or even hints at supporting a VAT) should not be allowed anywhere near the White House. That applies to Mitt Romney. And it should be the rule for Paul Ryan as well.

But what about Barack Obama, you may be asking. Hasn’t he said nice things about a VAT?

Not surprisingly, he has been sympathetic, appointing VAT sympathizers to high office and remarking that a VAT is “something that has worked for other countries.”

But there’s no way a VAT will happen if Obama gets reelected. Republicans will be overwhelmingly opposed, even if only for shallow reasons of partisanship.

But if Romney wins and decides to push a VAT, many Republicans will say yes because of loyalty (much as many GOPers went along with Bush’s statist agenda) and many Democrats will say yes in order to get a new source of revenue to expand government.

The consequences, as explained here, would be disastrous.

P.S. For a humorous – but accurate – perspective on the VAT, take a look at these clever cartoons (here, here, and here).

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Grading the Leading Presidential Candidates

In this interview for Newsmax TV, I was asked about the frontrunners for the GOP presidential race. As you can see, I bend over backwards to avoid being too mean to either Mitt Romney or Newt Gingrich.

I do make a meaningless prediction that Paul Ryan or Marco Rubio would jump to the top of the polls if they entered the race (I think my prediction is correct, but there’s no chance of anyone entering the contest this late).

Last but not least, I briefly talk about the payroll tax fight and the prospects (or lack thereof) for real entitlement reform.

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Social Security Demagoguery from Mitt Romney and Michele Bachmann: Economically Wrong, Politically Wrong

Governor Rick Perry of Texas is being attacked by two rivals in the GOP presidential race. His sin, if you can believe it, is that he told the truth (as acknowledged by everyone from Paul Krugman to Milton Friedman) about Social Security being a Ponzi scheme.

Here’s an excerpt from Philip Klein’s column in the Examiner, looking at how Mitt Romney is criticizing Perry.

Mitt Romney doubled down on his attack against Texas Gov. Rick Perry this afternoon, warning in an interview with Sean Hannity that his critique of Social Security amounted to “terrible politics” that would cost Republicans the election. Romney’s decision to pile on suggests that he’s willing to play the “granny card” against Perry if it will help him get elected, a tactic more becoming of the likes of DNC chairwoman Debbie Wasserman Schultz than a potential Republican nominee.

And here’s a Byron York column from the Examiner looking at how Michele Bachmann is taking the same approach.

…another Republican rival, Michele Bachmann, is preparing to hit Perry on the same issue. “Bernie Madoff deals with Ponzi schemes, not the grandparents of America,” says a Bachmann adviser.  “Clearly she feels differently about the value of Social Security than Gov. Perry does.  She believes Social Security needs to be saved, that it’s an important safety net for Americans who have paid into it all their lives.” … “She strongly disagrees with his position on that…”

Shame on Romney and Bachmann. With an inflation-adjusted long-run shortfall of about $28 trillion, Social Security is a Ponzi scheme on steroids.

But as I explain in this video, that’s just part of the problem. The program also is a terrible deal for workers, particularly young people and minorities.

Here’s what’s so frustrating. Romney and Bachmann almost certainly understand that Social Security is actuarially bankrupt. And they probably realize that personal retirement accounts are the only long-run answer.

But they’re letting political ambition lure them into saying things that they know are not true. Why? Because they think Perry will lose votes and they can improve their respective chances of getting the GOP nomination.

Sounds like a smart approach, assuming truth and morality don’t matter.

But here’s what’s so ironic. The Romney and Bachmann strategy is only astute if Social Security is sacrosanct and personal accounts are political poison.

But as I noted last year, the American public supports personal accounts by a hefty margin. And former President Bush won two elections while supporting Social Security reform. And election-day polls confirmed that voters supported personal accounts.

I’m not a political scientist, so maybe something has changed, but I wouldn’t be surprised if Perry benefited from the left-wing demagoguery being utilized by Romney and Bachmann.

P.S. This does not mean Perry has the right answer. As far as I know, he hasn’t endorsed personal accounts. But at least he’s telling the truth about Social Security being unsustainable.

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The Federal Government Has Been Bailing Out Romneycare, but Who Will Be Available to Bail Out Obamacare?

The Beacon Hill Institute in Massachusetts has just released a very good – but very depressing study. The research finds that costs have jumped under Romneycare, but that’s not surprising. After all, politicians always underestimate the cost of new entitlements.

The important revelation in this new research is the degree to which the system has been propped up by the federal government (i.e., taxpayers in the rest of the nation).

That’s probably good news for Bay State politicians, who get to shift a fiscal burden to people outside the state, And it’s probably good news for Mitt Romney, because it somewhat disguises the magnitude of the disaster he imposed on the taxpayers of his state.

But it doesn’t bode well for the United States. Who will be available to bail out Obamacare? The Chinese? Martians? The Federal Reserve creating money out of thin air?

While you ponder those questions, here are some key excerpts from the study.

In this study, the Beacon Hill Institute at Suffolk University (BHI) attempts to fill the gap by calculating the effect of health care reform on state and federal governments and the private health insurance markets, including employee contributions to their private insurance plans. We find that, under health care reform:

• State health care expenditures have risen by $414 million over the period;

• Private health insurance costs have risen by $4.311 billion over the period;

• The federal government has spent an additional $2.418 billion on Medicaid for Massachusetts.

• Over this period, Medicare expenditures increased by $1.426 billion;

• For a total cumulative cost of $8.569 billion over the period; and

• The state has been able to shift the majority of the costs to the federal government.

The federal government continues to absorb a significant cost of health care reform through enhanced Medicaid payments and the Medicare program. …We estimate the effects of health care reform by comparing the actual value of each variable with the value it would have had, based on recent trends, had health care reform not been implemented.

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Is Mitt Romney Trying to Become the Richard Nixon of the 21st Century?

I can’t say I’m surprised, but I’m nonetheless still nauseated to read that Mitt Romney has decided to endorse ethanol subsidies. Here’s a blurb from Fox in DC.

“I support the subsidy of ethanol,” Romney told an Iowa voter. “I believe ethanol is an important part of our energy solution for this country.” …Romney’s renewed support came just days after former Minnesota Gov. Pawlenty officially announced his candidacy and said the nation could no longer afford to subsidize ethanol, a position that he said backed up his claim to be the truth teller in the race.

I’ve written about ethanol subsidies before, noting that they rank as one of the most corrupt and inefficient special-interest programs in Washington. By endorsing ethanol, Romney demonstrates that he is a profoundly flawed candidate.

Indeed, he seems eerily similar to Richard Nixon. Not in the sense of being corrupt, but in his totally amoral approach to public policy.

From a policy perspective, Nixon was a terrible president. He raised taxes, created new government agencies and programs, imposed wage and price controls, and implemented many other policies to expand the burden of government. But he did those things for reasons of political expediency, not because of any set of beliefs.

Romney seems to have the same shallow approach. It appears that he will say anything and do anything to advance his own political ambition. Doing what’s right for America doesn’t seem to be a factor when he makes decisions.

By imposing Romneycare on Massachusetts, Romney paved the way for Obama to impose a similar policy on the entire nation. Now Romney has embraced one of the sleaziest scams in Washington, one that lines the pockets of a rich special interest and screws over taxpayers and consumers.

That does not bade well. If he makes it to the White House, I will predict right now that he would destroy America’s fiscal future with a value-added tax.

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Mitt Romney’s Frankenstein Monster

I’m delighted that Mitt Romney is floundering because of the government-run healthcare scheme he imposed on Massachusetts. Not only did it pave the way for Obamacare, but it’s also a good indicator of the awful, statist, big-government policies he would impose on all of us if he ever entered the White House.

This Henry Payne cartoon from the Detroit News is a pretty good summary of Mitt’s self-inflicted (and much-deserved) political problem.

(h/t: The Corner at Nationalreview.com)

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Mitt Romney: The Obama Republican

I’ve already kicked Newt Gingrich in the knees and pushed Mitch Daniels into traffic (oops, sorry for the violent eliminationist rhetoric), so let’s now turn our attention to Mitt Romney. All you really need to know about Romney can be found in this USA Today interview with David Axelrod, a top Obama political adviser. Axelrod correctly (and presumably with malicious glee) notes that Obamacare was modeled after the statist government-run system that Romney imposed on Massachusetts. And if I was to pick the Republican most likely to impose a VAT on America, it would be a corporatist GOPer like Romney.

Axelrod, one of Obama’s most trusted aides and a key strategist of his 2008 campaign, described a 2012 campaign that in some ways will be fundamentally different from the one in 2008, when the freshman Illinois senator rode a wave of discontent against the outgoing Republican president. As the incumbent, Obama will run on his record, particularly his stewardship of a slowly recovering economy. …”This is the most unfathomable Republican field in my lifetime,” Axelrod said. “I don’t think anybody in the media or in either party can tell you with any degree of certainty who the Republican nominee will be.” He pointedly praised one of the leading contenders, former Massachusetts governor Mitt Romney, in a way that spotlighted Romney’s vulnerability within the GOP for signing a state health care law that parallels the new federal law in some ways. Romney “did some interesting things there on health care, you know,” Axelrod said. “We got some good ideas from him.”

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