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Posts Tagged ‘Tax Increase’

I don’t like it when voters support tax increases.

Needless to say, voters rarely if ever vote to raise their own taxes. Instead, they get seduced into robbing their neighbors in exchange for the promise of new goodies from politicians.

Regardless, it’s still very unfortunate when it happens because it shows an erosion in the American spirit (we should be more like Switzerland!).

I raise this issue because the people of Oregon just gave fairly strong support to a tax-hike referendum. Here are some of the details.

…voters approved hundreds of millions of dollars in health care taxes in a special election. Measure 101, which led 62 percent to 38 percent with returns partially tallied, was the only issue on the ballot. It will raise $210 million to $320 million in taxes on Oregon’s largest hospitals and many health insurance policies by 2019.

At first glance, this is just another example of Oregon voters voting for bigger government and more class warfare.

But as you read further in the story, you’ll find something remarkable.

…the tax deal was a victory for…the health care industry, which bankrolled the “yes” campaign. …The largest contributor to the campaign to pass the taxes was the association that represents Oregon hospitals. Other health care companies also spent heavily to pass the measure.

Huh? Why would an industry support and bankroll an initiative to give more of their money to government?!?

It turns out that the industry isn’t filled with masochists (like the neurotic trust fund leftists who posture in favor of higher taxes). Instead, the special interests such as the hospital lobby viewed a couple of hundred million of taxes as an “investment” that will generate about $1 billion of taxpayer-financed loot.

…the health care industry…will benefit from the resulting $1 billion-plus that will be spent on Oregonians’ health care.

And taxpayers in other states will pick up a majority of the tab!

That tax revenue will enable Oregon to qualify for $630 million to $960 million in federal Medicaid matching funds that benefit the state’s health care industry. …state taxes would allow the state to keep federal matching funds.

This scam was exposed last year in a Wall Street Journal column.

…42 states tax hospitals. Why? One answer is the perverse incentives built into the Medicaid law. When a state returns tax money to hospitals through Medicaid “supplemental payments,” it qualifies for matching funds from Washington. …Medicaid supplemental payments, as the term implies, are separate and distinct from the reimbursements that cover the actual cost of services rendered to beneficiaries. But the federal government turns a blind eye to the circular nature of the arrangement: Hospitals and other providers are both the source and the recipient of most of the funds.

Here are more details on this oleaginous ripoff.

…supplemental-payment schemes…“have the effect of shifting costs to the federal government,” according to a 2014 study by the Governmental Accountability Office. The more a state taxes its hospitals and then gives them money back, the more federal funds it can obtain. …The hospital tax is the biggest revenue-raiser, but 44 states also tax nursing homes, and 34 tax at least one other type of health-care provider. The GAO study found that these taxes had almost doubled nationally, from about $9.5 billion in 2008 to $18.5 billion in 2012.

By the way, I have written on this topic before, and even included a handy infographic that explains a version of the scam.

Let’s now return to the column. The author cites an example from Connecticut.

Connecticut hospitals will pay $900 million in taxes, but the state will offset that with $600 million in supplemental Medicaid payments—matched with $450 million of federal funds. The state keeps those matching funds, plus the $300 million from the hospital tax, meaning Hartford comes out ahead in the whole scheme by $750 million. Nice work if you can get it.

I’m not a fan of my home state, but the Nutmeg State is hardly alone is playing this game.

What’s remarkable is that there are 8 states what don’t participate in the ripoff.

Anyhow, I can’t resist making one final point. Here’s a sordid tidbit from the earlier story about what happened in Oregon.

Democrats in the Oregon House helped achieve the deal by agreeing to fund three projects in a Medford Republican’s district, in exchange for that lawmaker providing the lone Republican “yes” vote in the state House.

One more piece of evidence that Republicans often are the most despicable people.

P.S. While today’s column focused on an odious quirk in the Medicaid program, let’s not lose sight of the forest by fixating on this particular tree. The reason we should care is that Medicaid is an initiative-sapping, money-draining program that greatly contributes to the mess in our overall healthcare system.

P.P.S. Which is why I encourage folks to watch the short video I narrated on the program. Pay close attention to the discussion that starts at 1:48. I explain that programs with both federal and state spending create perverse incentives for even more spending (e.g., what I wrote today). This is mostly because politicians in either Washington or state capitals can expand eligibility and take full credit for new handouts while only being responsible for a portion of the costs.

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Here are three things I’ve written about tax policy. See if you can detect a pattern:

  • I’ve written that I don’t want a value-added tax because the money would be used to finance bigger government.
  • I’ve also explained I don’t want a carbon tax because the revenue from such a levy would finance bigger government.
  • I’ve given thumbs down to financial transactions taxes as well because I don’t want to finance bigger government.

Just in case it’s not obvious, the common theme is that I don’t want to give politicians new sources of revenue that would be used to expand the burden of government spending.

Some of my technocrat friends get upset by these writings. They argue, often correctly, that some of these taxes are not as destructive as the current tax code.

My response is that they’re making an irrelevant argument. Politicians who advocate the above taxes are not proposing to eliminate the income tax and repeal the 16th Amendment. Instead, they simply want to levy a new tax without fully repealing the awful system that already exists.

And now there’s a new tax idea gaining steam.

The Task Force on Fiscal Policy for Health…will examine the evidence on excise tax policy for health, including barriers to implementation, and make recommendations on how countries can best leverage fiscal policies to yield improved health outcomes for their citizens with the added benefit of bringing in additional revenue.

For readers who aren’t familiar with DC bureaucrat-speak, “leverage fiscal policies” means higher taxes. More specifically, advocates want higher “sin taxes” on unhealthy food and drink.

This Task Force is being spearheaded by Larry Summers (yes, that Larry Summers) and Mike Bloomberg (yes, that Mike Bloomberg), so it’s no surprise that this pair of leftists view “additional revenue” as an “added benefit.”

While my focus is on the negative fiscal and economic consequences of higher taxes and more spending, it’s worth pointing out the moral and practical argument against sin taxes.

Bill Wirtz, in a column for CapX, warns that nanny-state policies treat people as infants.

2017 has seen yet another increase in lifestyle regulations and sin taxes… Historically, it was social conservatives pushing for this kind of meddling. …How different is today’s excruciatingly irritating public health lobby…? Food and non-alcoholic drinks are…under fire, and blamed for a range of health issues. France and Ireland are now cracking down on that scourge on society: fizzy drinks. Ireland introduced a new tax on sugary drinks, while France increased the tax created in 2012 under French president Nicolas Sarkozy. Such policies are highly regressive… When Denmark introduced its controversial tax on fatty foods, consumers simply switched to cheaper – but equally unhealthy – alternatives. The country’s diet did not improve. …We are adults and we sometimes make decisions for ourselves which are unhealthy. The answer is for us to moderate our consumption, not quasi-prohibition. It’s time to stop infantilising the…consumer.

Charles Hughes of the Manhattan Institute reviews what happened with a new sin tax on sweetened beverages in Seattle.

Seattle recently became the latest major city to enact a sweetened beverage tax. …customers are reeling from sticker shock. One local reporter found that the tax added $10.34 to a case of Gatorade, bringing the final price to more than $26.00. …One of the justifications for beverage taxes is that customers will respond to price changes by reducing consumption of taxed beverages. The mechanism here is straightforward: tax something to get less of it. If people were to substitute diet sodas or other, less-harmful beverages for sugared sodas, they would be healthier.

But will such a policy work?

Many people are likely to avoid the tax by traveling to other untaxed locations to purchase groceries. Costco tells its customers about locations outside the city that are not subject to the beverage tax. …so the tax will have limited success in its health-related goals while also harming local businesses and failing to generate revenue.

Yet the fact the tax will be a failure at generating revenue isn’t stopping the city was squandering the money.

…revenue has already been allocated to a smorgasbord of causes, ranging from $500,000 for displaced worker retraining, to more than $1 million in tax administration costs, to vouchers to purchase fruits and vegetables.

While I’m glad consumers are escaping the tax by buying beverages from outside the city’s borders, in an ideal world, they would react in a bolder fashion.

If nothing else, the pro-tax crowd has a very elastic definition of sin.

They even want to tax meat.

Move over, taxes on carbon and sugar: the global levy that may be next is meat. Some investors are betting governments around the world will find a way to start taxing meat production… Meat could encounter the same fate as tobacco, carbon and sugar, which are currently taxed in 180, 60, and 25 jurisdictions around the world, respectively, according to a report Monday from investor group the FAIRR (Farm Animal Investment Risk & Return) Initiative. Lawmakers in Denmark, Germany, China and Sweden have discussed creating livestock-related taxes in the past two years.

By the way, the supposed Conservative Party in the United Kingdom is pushing sin taxes to finance bigger government.

The sugar tax was announced by Chancellor Philip Hammond in his budget statement in 2017. He said the money raised as part of the levy would go to the Department for Education. The former Chancellor said the new levy would be put on drinks companies and they would be taxed according to how much sugar was in their beverages. Two categories of taxation are set to come into force. One on the total sugar content on drinks with more than 5g per 100ml and a higher levy for drinks with 8g per 100ml or more. …The new tax could whack up the cost of a 2 litre bottle of Coca-Cola (10.6g per 100ml) by as much as 48p.

The nanny-state crowd complains that this isn’t enough.

Health campaigners have said the fizzy drinks tax should be extended to cover all chocolate, sweets and other confectionery containing the highest levels of sugar. …Action on Sugar is urging a mandatory levy set at a minimum of 20 per cent on all confectionery products that contain high levels of sugar.

Politicians in other nations also are using this excuse to extract more money from the citizenry.

Other countries have introduced similar measures and have seen some success in reducing the drinking of fizzy drinks. Mexico introduced a 10 per cent tax on sugary drinks in 2014 and saw a 12 per cent reduction over the first year. Hungary brought in a tax on the drinks companies and saw a 40 per cent decrease in the amount of sugar in the products. Brits will be joining some of our European neighbours with the move with similar measures in place on drinks in France and Finland and the Norwegians chocolate tax.

Let’s sum this up. The case against sin taxes is based on two simple principles.

  1. Politicians want to seize more of our money in order to have greater ability to buy votes. Saying no to tax increases is a necessary (though sadly not sufficient) condition for good fiscal policy.
  2. Politicians want to tell us how to live our lives. But that’s not their job, even in cases where I agree with the underlying advice. Coerced good behavior is not a sign of virtue.

The bottom line is that some proponents of sin taxes presumably have their hearts in the right place. But they need their brains in a good place as well. If they want to be taken seriously, at the very least they should match their proposed sin taxes with permanent repeal of an existing tax of similar magnitude.

For example, offer to trade a sugar tax for repeal of the death tax. Or suggest a fat tax accompanied by elimination of the capital gains tax.

Until we see such offers, advocates of sin taxes should be met with unyielding opposition.

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I never saw The Nightmare Before Christmas, a 1993 film. But that’s fine, because I am already dealing with my own nightmare with the holiday just around the corner.

What’s haunting me in the specter of a value-added tax, which some reporters now think is a clear and present danger (my concern, not theirs).

We’ll start with this disconcerting report a couple of days ago from Politico.

Is the real lesson from tax reform that Americans rely too much on the income tax to fund their government? …Most other industrial nations lighten the load on their income tax by combining it with some form of consumption taxes… “If you want a code that is predictable and simple and competitive with rates on the global market place, you have to bring in other sources of income, other than the income tax,” said Sen. Ben Cardin (D-Md.). “A progressive consumption tax is the most logical way to move forward but we’re not there yet. I think ultimately we’ll get there.”

By the way, there’s a huge mistake in the above excerpt.

I don’t know if it’s because of dishonesty of incompetence, but the reporter is wrong to claim that other nations “lighten the load of their income tax.” Here’s a chart, based on OECD data, comparing the burden of personal income tax for the U.S. and Western Europe.

In other words, governments adopt VATs because politicians want to spend more.

And what sort of spending will we get?

Our statist friends are salivating at the thought of financing a bigger welfare state.

As a rule, the regressive nature of consumption taxes makes them less attractive to Democrats. But given concerns about climate change, a carbon tax is one consumption tax that has begun to attract some following. And economist Henry Aaron at the non-profit Brookings Institution said Democrats are “short-sighted” if they reject consumption taxes… Given the aging population and desire to do more to help workers adjust to technologies that threaten their jobs, the needs are there. “The bulk of redistribution occurs on the expenditure side of the budget,” Aaron said. “Those of us who want more progressivity would rather see a progressive tax … but the impact on income redistribution is going to be overwhelmed by what is done with revenue on the expenditure side. That’s going to completely overwhelm any regressivity in the collection mechanism.”

And here are some excerpts from a Yahoo column from earlier this month.

We’re being warned that politicians will use the next fiscal crisis to impose a VAT.

…at some point, the United States will have to reduce annual deficits that could swell to $1 trillion per year as early as 2019. Republicans would prefer to solve that problem by cutting social spending. But that seems unlikely. To make a difference, cuts in programs such as Social Security and Medicare would have to be vast, which would outrage voters. A more likely solution is a national consumption tax, otherwise known as a value-added tax, or VAT. “A 5% VAT would raise an enormous amount of money,” says Jeremy Scott, a tax attorney who is vice president of editorial at the publisher Tax Analysts. “The next major fiscal crisis might be followed by a VAT.”

Gee, isn’t that wonderful. The politicians will spend us into a fiscal cul-de-sac, and then use that spending crisis as an excuse to seize more of our money.

And I can’t resist sharing this passage to remind folks that those of us who opposed the “border-adjustment tax” were on the side of the angels. The BAT was basically a pre-VAT.

House Republicans actually proposed a tax similar to a VAT in the tax plan they introduced in 2016, and carried into 2017 as the starting point for the Trump tax cuts. That tax alone would have raised $1.2 trillion in new revenue during the first decade and more during the second decade — a large pot of new funds that would have allowed significant cuts elsewhere in the tax code. That tax was controversial, however, and Trump declared it too complicated. So House Republicans dropped it. Still, old ideas have a way of coming back around in Washington.

Yes, it is certainly the case that bad ideas never go away in Washington.

Let’s close with an amusing poem from Reddit‘s libertarian page.

P.S. If minimalist poetry isn’t your cup of tea, you can enjoy some cartoons about the VAT by clicking herehere, and here.

P.P.S. The clinching argument is that Reagan opposed a VAT and Nixon supported a VAT. That tells you everything you need to know.

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Greece has confirmed that a nation can spend itself into a fiscal crisis.

And the Greek experience also has confirmed that bailouts exacerbate a fiscal crisis by enabling more bad policy, while also rewarding spendthrift politicians and reckless lenders (as I predicted when Greece’s finances first began to unravel).

So now let’s look at a third question: Can a country tax itself to death? Greek politicians are doing their best to see if this is possible, with a seemingly endless parade of tax increases (so many that even the tax-loving folks at the IMF have balked).

At the very least, they’ve pushed the private sector into hospice care.

Let’s peruse a couple of recent stories from Ekathimerini, an English-language Greek news outlet. We’ll start with a rather grim look at a very punitive tax regime that is aggressively grabbing money from taxpayers with arrears.

Tax authorities have confiscated the salaries, pensions and assets of more that 180,000 taxpayers since the start of the year, but expired debts to the state have continued to rise, reaching almost 100 billion euros, as the taxpaying capacity of the Greeks is all but exhausted. In the month of October, authorities made almost 1,000 confiscations a day from people with debts to the state of more than 500 euros. In the first 10 months of the year, the state confiscated some 4 billion euros.

But the Greek government is losing a race. The more it raises taxes, the more people fall behind.

in October alone, the unpaid tax obligations of households and enterprises came to 1.2 billion euros. Unpaid taxes from January to October amounted to 10.44 billion euros, which brings the total including unpaid debts from previous years to almost 100 billion euros (99.8 billion), or about 55 percent of the country’s gross domestic product. The inability of citizens and businesses to meet their obligations is also confirmed by the course of public revenues, which this year have declined by more than 2.5 billion euros. The same situation is expected to continue into next year, as the new tax burdens and increased social security contributions look set to send debts to the state soaring.

The fact that revenues have declined should be a glaring signal to politicians that they are past the revenue-maximizing point on the Laffer Curve.

But the government probably won’t be satisfied until everyone in the private sector is in debt to the state.

There are now 4.17 million taxpayers who owe the state money. This means that one in every two taxpayers is in arrears to the state, with 1,724,708 taxpayers facing the risk of forced collection measures. Of the 99.8 billion euros of total debt, just 10-15 billion euros is still considered to be collectible.

Here’s another article from Ekathimerini that looks at how Greece is doubling down on suicidal fiscal policy.

Greece is defying the prevalent trend among the world’s industrialized nations for reducing tax rates in order to boost investment and competitiveness… According to the report, in contrast to the majority of OECD member states, Greece has raised taxes and social security contributions as government policy is geared toward reaching fiscal targets, even though this inevitably harms the crisis-hit country’s competitiveness.

It’s hard to think of a tax that Greek politicians haven’t increased.

Greece…is also the only one among them that increased taxes on labor and corporate profits. …eight OECD member states reduced rates in 2017 on an average of 2.7 percent…, in stark contrast to Greece, which…has the highest corporate tax rates in the OECD compared to 2008. Many countries also offered breaks and reductions on income tax, …also cutting social contributions in 2015-2016. Not so Greece, which in 2016 raised both, thereby increasing the overall burden on low-income earners by 1.5 percent. Greece was also the only country in the OECD to raise value-added tax rates in 2016.

And what was accomplished by all these tax increases? Less tax revenue and recession. That’s a lose-lose scenario by almost any standard.

…in the 2014-2015 period, 25 of the 32 countries for which data is available recorded an increase in tax-to-GDP levels. The report…mentions Greece as an exception to this trend as well, noting that the country was in recession in that two-year period.

Even an establishment outlet like the U.K.-based Financial Times has noticed.

Unemployment is at 23 per cent and 44 per cent of those aged 15-24 are out of work. More than a fifth of Greeks get by without basics such as heating or a telephone connection. …Sweeping new taxes imposed across the economy have already left communities scrabbling to survive. …this year will bring €1bn worth of new taxes on cars, telecoms, television, fuel, cigarettes, coffee and beer… New taxes have eroded disposable incomes still further. Value added tax has increased to 24 per cent on food, disproportionately hurting the poor, for whom living costs represent a far higher proportion of income. Most detested is the Enfia property levy, which brings in €2.65bn a year – roughly €650 from each of Greece’s four million households. …recent direct taxes like the new estate tax have affected households that have seen their income decline greatly during the crisis. The rise of VAT, meanwhile, only adds to the cost of life of poor families.” …this month, new levies will mean the taxes paid by his business will jump 29 per cent.

Interestingly, the article acknowledges that profligate politicians created the mess, while also noting that the Greek people also deserve blame.

…blame is laid on the politicians who spent the 27 years of Greece’s EU membership before the crisis loading the country with debt to fund increased defence expenditure, more public sector jobs and higher pension and other social benefit payments. …“The Greek people should be blamed. We voted for these people,” he concludes.

The problem, of course, is that Greek voters don’t show any interest in now voting for politicians who will clean up the mess. Simply stated, too many people in the country are living off the government.

In other words, even though it’s mathematically possible to fix the problems, the erosion of societal capital suggests that Greece may have reached the point of collapse.

From a fiscal perspective, this chart from OECD data confirms that policy is getting worse rather than better. Measured as a share of economic output, taxes and spending have both become a bigger burden over the past 10 years.

What makes this chart especially depressing is that economic output is lower today than it was in 2005, which means that the problem isn’t so much that annual tax receipts and spending level are climbing, but rather that the private economy is declining.

Let’s close with an additional look at the moribund Greek economy and a discussion of how the bailouts have made a bad situation even worse.

The Wall Street Journal editorialized on the impact of ever-higher taxes and a still-stifling bureaucratic business environment.

…the bailout is not in fact working, if you think the goal should be to restore Athens to sound public finances and to offer Greeks economic hope for the future. The European Commission’s autumn forecast predicts eurozone economic growth of 2.2% this year, the fastest in a decade. But Greece is falling further behind. …Investment has collapsed in the country, to 11% of GDP last year from 26% of GDP in 2007. …The bailouts are creating a dangerous situation in which the government has enough cash to meet its debts but no one else in Greece can thrive.

And here’s the scary part. What happens when there’s another global recession? The already-bad numbers in Greece will get even worse. Not a pleasant thought.

P.S. If you want to know why I’m not optimistic about Greece’s future, how can you expect good policy from a nation that subsidizes pedophiles and requires stool samples to set up online companies? I’d be more hopeful if Greek politicians instead had learned some lessons from Slovakia or Latvia.

P.P.S. Notwithstanding a the constant stream of bad policy, I am capable of feeling sorry for Greece.

P.P.P.S. Newer readers may not be familiar with my collection of Greek-related humor. This cartoon is quite  good, but this this one is my favorite. And the final cartoon in this post also has a Greek theme.

We also have a couple of videos. The first one features a European romantic comedy and the second one features a Greek comic pontificating about Germany.

Last but not least, here are some very un-PC maps of how various peoples – including the Greeks – view different European nations. Speaking of stereotypes, the Greeks are in a tight race with the Italians and Germans for being considered untrustworthy.

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

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

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

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

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

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

But even that may be too much to hope for.

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

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

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

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

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

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

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

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

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

Third, is a Trigger linked to deficit projections?

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

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

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

Fifth, why not a spending-cut Trigger?

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

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

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

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I’m not a fan of what is sometimes called the “European Project.”

Yes, one of the original goals – free trade between European nations – was admirable and has generated significant benefits.

But what started as a positive idea has morphed into a Brussels-based superstate that pushes bureaucratization, centralization, and harmonization.

This is why I was – and still am – a fan of Brexit. And I hope other nations escape as well.

I’m sometimes asked whether it would be a better idea if there was sweeping reform in the European Union. In other words, would I favor the European Project if it basically focused on free trade and competition in a framework of “mutual recognition.”

Of course that would be preferable, but it’s not an option.

Instead, the bureaucrats keep pushing for more bad policy. Policies to penalize on tax competition. Policies to penalize low-tax jurisdictions. Policies to penalize American companies. Policies to penalize European companies.

And don’t forget bailouts, cartelization, subsidies, waste, corruption, and self-aggrandizement.

But if you really want to know why the European Union is a lost cause, just consider that the bureaucrats at the European Commission actually created an online game designed to brainwash students into supporting higher taxes.

I’m not joking. If you play Taxlandia (I selected the 18-25 age group), you’re asked to pick an aggregate tax burden.

So I selected 5 percent of GDP, which seems like the right level to provide core public goods (and also would be close to the tax burden that existed in the 1800s when Europe became rich).

As you can see, the game did not approve of low taxes and small government. I failed.

Needless to say, I automatically became very suspicious that the “correct” answer would be much higher.

So I selected a tax burden of 50 percent of GDP, basically about what you find in France and Greece.

And guess what? I passed!

So what happens if you go even farther and impose a tax burden of 75 percent of GDP?

Keep in mind that no country has ever been in this range (governments own all production in communist nations, so they don’t have conventional systems of taxation).

But if the kids in Europe choose that level of taxation it’s not a problem. They pass!

Heck, an 80 percent tax burden gets a passing grade. As does an 85 percent tax burden.

The good news is that even the EU bureaucrats don’t think a 100 percent tax is workable. As a matter of fact, once players picks a tax burden that exceeds 87.5 percent of economic output, they fail.

It’s good to see confirmation of my hypothesis that even EU bureaucrats are capable of recognizing that taxes can be excessive at some point. That’s not good new for the former French President. Or the ghost of FDR.

It’s difficult to pick the worst part of this taxpayer-funded propaganda exercise, but I was quite irked by the accompanying video that extolled the wonder and joy of paying tax and getting freebies from the government.

Just in case you think I’m exaggerating, this is how the bureaucrats describe the video.

To be fair, the Taxlandia game also allows passing grades for relatively low levels of taxation. Even a tax burden of 10 percent of GDP will allow students to get to the next round of the game.

But don’t be deceived by this seeming evidence of even-handedness. Once you pick a level of taxation that allows you to pass to the next fiscal year, you’re then presented with a bunch of options designed to make it seem like higher taxes are needed to have good dams, airports, railways, Internet, and sports facilities.

At no point is there any option for private provision of those supposed “public goods.”

That’s a rigged game.

Moreover, it’s also a dishonest game.

Given the options that are presented, unknowing students will think that government budgets are basically about physical capital (infrastructure, etc). In reality, though, the vast majority of government spending is for the ever-expanding social welfare state and the accompanying bureaucracy.

And it’s a misleading game since there’s no feedback mechanism showing that higher taxes are associated with slower growth and lower living standards.

As you might suspect, students never learn that high-tax Europe is much less prosperous than medium-tax America or low-tax Hong Kong and Singapore. Or that rich European nations would be poor states if they were part of America.

The bottom line is that European bureaucrats are the ones who deserve to fail for putting together such deceptive propaganda.

P.S. About what you would expect from a group that wants to censor Christmas.

P.P.S. Speaking of games from Brussels, can you pick the bigger clown?

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I’m currently in Tokyo for an Innovation Summit. Perhaps because I once referred to Japan as a basket case, I’ve been asked to speak about policies that are needed to boost the nation’s competitiveness.

That sounds like an easy topic since I can simply explain that free markets and small government are the universal recipe for growth and prosperity.

But then I figured I should be more focused and look at some of Japan’s specific challenges. So I began to ponder whether I should talk about Japan’s high debt levels. Or perhaps the country’s repeated (and failed) attempts to stimulate the economy with Keynesianism. And Japan’s demographic crisis is also a very important issue.

But since I only have 20 minutes (not even counting Q&A), I don’t really have time for a detailed examination on any of those topics. So I was still uncertain of how best to illustrate the need for pro-market reforms.

My job suddenly got a lot easier, though, because Eduardo Porter of the New York Times wrote a column today that includes a graph very effectively illustrating why Japan is in trouble. Simply stated, the country is on a very bad trajectory of ever-higher taxes.

To elaborate, Japan used to have a relatively modest tax burden, as least compared to other industrialized nations. But then, thanks in part to the enactment of a value-added tax, the aggregate tax burden began to climb. It has jumped from about 18 percent of economic output in 1965 to about 32 percent of gross domestic product in 2015.

Even the French didn’t raise taxes that dramatically!

By the way, I feel compelled to digress and point out that Mr. Porter’s column was not designed to warn about rising taxes in Japan. Instead, he was whining about non-rising taxes in the United States. I’m not joking.

American tax policy must stand as one of the great mysteries of the global political economy. In 1969…federal, state and local governments in the United States raised about the same in taxes, as a share of the economy, as the government of the average industrialized country: 26.6 percent of gross domestic product, against 27 percent among the nations in the Organization for Economic Cooperation and Development. Nearly 50 years later, the tax picture has changed little in the United States. By 2015, …the figure was 26.4 percent of G.D.P. But across the market democracies of the O.E.C.D., the share had climbed by an average of more than seven percentage points. …Americans are paying dearly as a result, as their comparatively small government has proved incapable of providing an adequate safety net…there is no credible evidence that countries with higher tax rates necessarily grow less.

Americans are “paying dearly”? Are we “paying dearly” because our living standards are so much higher? Are we “paying dearly” because our growth rates are higher and Europe is failing to converge? Are we “paying dearly” because America’s poorest states are rich compared to European countries.

Now that I got that off my chest, let’s get back to our discussion about Japan.

Looking at the data from Economic Freedom of the World, Japan ranked among the world’s 10-freest economies as recently as 1990. Today, it ranks #39. That is a very unfortunate development, though I should point out that the nation’s relative decline isn’t solely because of misguided fiscal policy.

I’ll close by noting that even the good news from Japan isn’t that good. Yes, the government did slight lower its corporate tax rate so it no longer has the highest burden among developed nations. But having the second-highest corporate tax rate is hardly something to cheer about.

P.S. Since today’s column looks at the most depressing Japanese chart, I should remind people that I shared the most depressing Danish PowerPoint slide back in 2015. I may need to create a collection.

P.P.S. I doubt anyone will be surprised to learn that the OECD and IMF have been encouraging bad policy for Japan.

P.P.P.S. If I had to guess, I would say that Japan’s government is probably more competent than average. But that doesn’t mean it’s incapable of some bone-headed policies, such as a regulatory regime for coffee enemas and a giveaway program that was so convoluted that no companies asked for the free money.

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