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Posts Tagged ‘Ted Cruz’

One of my pet peeves is when people characterize Robin Hood as some sort of left-wing redistributionist. As I’ve explained, that’s utter nonsense.

If you read the book or watch the movie starring Errol Flynn, Prince John and the Sheriff of Nottingham were the bad guys because they over-taxed the peasants. Robin Hood was the good guy because he rescued the money from the tax collectors and returned it to the people who earned it.

Kudos to Ted Cruz, who tried to educate (a poorly informed) Bernie Sanders on this topic.

Cruz accidentally promoted Prince John to King John (or is my aging memory betraying me and did Prince John declare himself King at some point?), but he’s 100 percent correct on the fundamental point.

And now I’m wondering which modern leftists should play the roles of the bad guys from Robin Hood if there’s a remake of the movie. Perhaps Obama should be Prince John, which might be a better fit than the other movie roles people have imagined for our former president.

And the Sheriff of Nottingham obviously could be played by our corrupt IRS Commissioner. He would be a natural for the role.

But let’s not get too distracted. The focus today is on whether Robin Hood belongs to Occupy Wall Street or the Tea Party. This image reinforces the point that the latter is a better fit.

Just in case the message isn’t clear, here’s a nice clip from the cartoon version of Robin Hood.

I’m delighted that children actually were exposed to this message. I suggest sharing this clip widely with your kids, grandkids, nieces, nephew, etc, etc.

For what it’s worth, I also tried to correct the record about Robin Hood in a TV interview back in 2012.

P.S. Leftists aren’t the only people to mischaracterize Robin Hood, as I noted when discussing an otherwise-solid column by Cal Thomas.

P.P.S. Since Cal Thomas mentioned Robin Hood as part of a column explaining that Jesus wasn’t a socialist, I can’t resist showing Libertarian Jesus, who dispenses wisdom here and here.

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What’s the link between government employees and the Iowa Republican Caucus?

You’re probably thinking there’s little or no connection. After all, bureaucrats presumably would more likely be interested in the choice on the other side between the two peas in the statist pod, right?

That’s true, but bear with me. To understand the link I’m going to make, start by reading Kevin Williamson’s scathing column posted at National Review. Here are my favorite passages.

Veterans Affairs hospitals had, through their negligence and stupidity, killed more of our servicemen than died during any year of the Iraq war, and then engaged in a massive criminal cover-up. Legislation was introduced to make it easier to fire people for — let’s focus here — killing veterans through their negligence and stupidity. But government employees are the single most important Democratic interest group, and the president and his congressional allies complained that the bill was too harsh on public servants who were killing veterans through their negligence and stupidity. And so the bill died in the Senate… In the Treasury Department, the EPA, and the FCC, employees have been found to routinely spend the equivalent of a full workday every week watching pornography on their office computers. Most of those crank-yanking bureaucrats are still on your payroll. At the Commerce Department, paralegals spent their days shopping online and trolling dating sites because they were assigned no work — their supervisors were afraid giving their employees work would “antagonize the labor union.” …The IRS and the AFT are routinely used as political weapons. …Beyond spending on (overwhelmingly Democratic) political campaigns, government workers and their unions also show up to vote, to knock on doors, and to bully, harass, and threaten nonconformists. They are the backbone of the Democratic party — and they are thieving, lazy, grasping, thieving, dishonest, thieving, pervy, thieving, detestable, despicable, thieving, thieving thieves… We are ruled by criminals.

Wow, I thought I sometimes employed a bit of sarcasm when writing about overpaid scroungers in the bureaucracy. Heck, I even created a Bureaucrat Hall of Fame to mock our paper-pushing overseers. But Kevin doesn’t mince words.

At this point, you’re probably wondering what this has to do with the GOP contest in Iowa.

Well, I think “The Donald” had a great opportunity to exploit this issue. He’s the guy who’s famous for “You’re fired” and he could have used that reputation to argue he would clean house in the federal bureaucracy.

Best of all, he wouldn’t even have to try very hard.

According to Government Executive, a non-trivial number of federal workers would retire or quit if Donald Trump is elected.

One in four federal workers would consider leaving their jobs if Trump were elected president, according to a new survey conducted by the Government Business Council, Government Executive Media Group’s research arm. About 14 percent of respondents said they would definitely consider leaving federal service under President Trump, while an additional 11 percent said they might. The findings indicate those leaving government would come from agencies’ top ranks… Among Democrats, 42 percent said they would consider leaving, while 48 percent would not.

Imagine what would have happened if Trump’s people had run commercials with this information, or handed out copies of the article at the Caucus.

Just think of all the taxpayers who might have been convinced that there was finally a candidate who would get rid of some of the over-compensated dead wood in Washington.

Definitely a missed opportunity for The Donald.

By the way, I should take this opportunity to point out that bureaucrats aren’t necessarily bad people. I realize it’s a trite phrase, but some of my best friends work for the government.

Nor are they all leftists.

The article reports that a majority would have been embarrassed with Trump in the White House, but there was also widespread disdain for Hillary. And Rubio actually did better than either Democrat.

…a majority — about six in 10 — would be “embarrassed” to have him as their boss. About half of respondents said the same of Hillary Clinton, compared to 45 percent for Sen. Ted Cruz, R-Texas, and 37 percent for Sen. Bernie Sanders, I-Vt. Just one in five said the same of Sen. Marco Rubio, R-Fla.

I have two additional observations about Iowa.

First, it was great to see that the corrupt and sleazy ethanol industry failed in its all-out effort to defeat Cruz. Hopefully this will be interpreted as a sign that politicians no longer have to kneel at the altar of King Corn.

Second, I find it remarkable that Rubio is now being portrayed as the “establishment” candidate. This is a guy who was part of the Tea Party revolt. A guy who defeated the establishment-endorsed governor to win his Senate seat. A guy who has one of the most pro-market voting records in the Senate. A guy from a state filled with old people who is openly pro-entitlement reform. So if he’s the “establishment,” that’s a major victory.

By the way, the first observation doesn’t mean you should vote for Cruz and the second observation doesn’t mean you should vote for Rubio. I’m simply making two points that should be encouraging for advocates of good policy.

Actually, let me add a third observation. In my prediction yesterday, I guessed Cruz would come in first with 28 percent, and…drum roll, please…he came in first with 28 percent. And I said he would be followed by Trump, Rubio, Carson, Paul, and Bush, all of which was true. And I predicted Hillary would beat Bernie.

Sure, some of my percentages were off, but I’ll take this as a partial victory.

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My views on the value-added tax are very simple and straightforward.

If we completely eliminated all income-based taxes, I would be willing to accept a VAT (or even a national sales tax) as a revenue source for government.

But unless that happens, I’m unalterably opposed because it’s far too risky to give politicians two major sources of tax revenue. Just look at what happened in Europe (and Japan). Before the VAT, the burden of government spending wasn’t that much higher in Europe than it was in the United States. Once VATs were adopted, however, that enabled a vast expansion of the welfare state.

This is why I’m worried about the Rand Paul and Ted Cruz tax plans. On paper, both plans are very good, dramatically lowering income tax rates, significantly curtailing double taxation, and also abolishing the corporate income tax. But I don’t like that they both propose a VAT to help make up the difference. It’s not that I think they have bad intentions, but I worry about what happens in the future when a bad President takes office and has the ability to increase both the income tax and the value-added tax. When the dust settles, we’re France or Greece!

By contrast, if we do some type of tax reform that doesn’t include a VAT, the worst thing that could happen when that bad president takes office is that we degenerate back to the awful tax code we have today. Which would be unfortunate, but not nearly as bad as today’s income tax with a VAT on top.

Bad since I’ve already addressed this issue, let’s focus on a part of the Paul and Cruz tax plans that has received very little attention.

Both of them propose to get rid of the payroll tax, which is the part of your paycheck that goes to “FICA” and is used to help fund Social Security and Medicare.

Alan Viard of the American Enterprise Institute has a column in U.S. News & World Report that explores the implications of this repeal.

Would you like to see the FICA item on your pay stub go away and be able to keep the 7.65 percent that the payroll tax takes out of your paycheck? If so, Republican presidential candidates Rand Paul and Ted Cruz have a deal for you – each of them has proposed getting rid of the tax. The senators’ plans would also eliminate the other 7.65 percent that the government collects from your employer, which you ultimately pay in the form of lower wages.

That sounds good, right? After all, who wouldn’t like to keep 15.3 percent of their income that is now being siphoned off for entitlement programs.

But here’s the catch. As Alan explains, other revenue sources would be needed to finance those programs, particularly Social Security.

The payroll tax finances two large benefit programs – 6.2 percent goes to Social Security and 1.45 percent goes to Medicare Part A. If the payroll tax went away, we would have to find another way to pay for those benefits. Paul and Cruz would turn to a value added tax, known as a VAT. …using it to pay for Social Security would have repercussions for the program that the candidates haven’t thought through. …once the payroll tax was gone, Social Security would no longer be a self-financed program with its own funding source. Instead, it would draw on the same general revenues as other government programs.

Viard thinks there are two problems with using VAT revenue to finance Social Security.

First, it means that there’s no longer a limit on how much money can be spent on the program.

…having a separate funding source for Social Security has been good budgetary policy. It’s kept the program out of annual budget fights while controlling its long-run growth – Social Security spending is limited to what current and past payroll taxes can support.

Second, replacing the payroll tax with a VAT eliminated the existing rationale for how benefits are determined.

And that will open a potential can of worms.

…what would happen to the benefit formula if the payroll tax disappeared and Social Security was financed by general revenue from the VAT? Paul and Cruz haven’t said. …One option would be to switch to a completely different formula, maybe a flat monthly benefit for all retirees. …that would be a big step, cutting benefits for high-wage workers and posing tricky transition issues.

I imagine there are probably ways to address these issues, though they might wind up generating varying degrees of controversy.

But I’m more concerned with an issue that isn’t addressed in Viard’s article.

I worry that eliminating the payroll tax would make it far harder to modernize Social Security by creating a system of personal retirement accounts.

With the current system, it would be relatively easy to give workers an option to shift their payroll taxes into a retirement account.

If the payroll tax is replaced by a VAT, by contrast, that option no longer exists and I fear reform would be more difficult.

By the way, this is also the reason why I was less than enthused about a tax reform plan proposed by the Heritage Foundation that would have merged the payroll tax into the income tax.

Yes, I realize that genuine Social Security reform may be a long shot, but I don’t want to make that uphill climb even more difficult.

The bottom line is that I don’t want changes to payroll taxes as part of tax reform, particularly when it would only be happening to offset the adverse distributional impact of the VAT, which is a tax that shouldn’t be adopted in the first place!

Instead, let’s do the right kind of tax reform and leave the payroll tax unscathed so we’ll have the ability to do the right kind of Social Security reform.

P.S. Some of you may be wondering why Senators Paul and Cruz included payroll tax repeal in their plans when that leads to some tricky issues. The answer is simple. As I briefly noted above, it’s a distribution issue. The VAT unquestionably would impose a burden on low-income households. That would not be nice (and it also would be politically toxic), so they needed some offsetting tax cut. And since low-income households generally don’t pay any income tax because of deductions, exemptions, and credits, repealing the payroll tax was the only way to address this concern about fairness for the less fortunate.

P.P.S. Since we have a “pay-as-you-go” Social Security system, with benefits for current retirees being financed by current workers, some people inevitably ask how those benefits will be financed if younger workers get to shift their payroll taxes into personal retirement accounts. That’s what’s known as the “transition” issue, and it’s a multi-trillion-dollar challenge. But the good news (relatively speaking) is that coming up with trillions of dollars over several decades as part of a switch to personal accounts will be less of a challenge than coming up with $40 trillion (in today’s dollars) to bail out a Social Security system that is actuarially bankrupt.

P.P.P.S. It goes without saying (but I’ll say it anyhow) that class-warfare taxation is Obama’s (and Hillary’s) ostensible solution to Social Security’s shortfall.

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Sometimes the best way to help the cause of freedom is to stop a bad idea. And that’s why I’m vociferously opposed to a value-added tax.

Here’s what I wrote today for National Review. I start by explaining that it’s a bad idea to give Washington a big new tax to finance a larger burden of government spending.

It’s especially good news that the United States has resisted the value-added tax (VAT), which is tempting because of its revenue-generating capacity. …Hostility to the VAT is justified by the European experience. Back in the mid 1960s, the burden of government spending in Europe was only slightly above the American level. But as VATs were implemented, the welfare state expanded, and now government consumes a much higher share of economic output on the other side of the Atlantic.

European politicians embraced the VAT because it’s the only way to finance leviathan-sized government.

…there’s a limit to how much revenue can be generated by an income tax. As honest leftists will admit (at least off the record), the Laffer Curve is real. …Indeed, income-tax revenues (personal and corporate) average less than 12 percent of GDP in OECD nations. …In other words, the only effective way to finance European-sized government is to have European-style taxation. Which is exactly why the Left desperately wants a VAT.

I then express dismay that a couple of very attractive candidates have inserted this pernicious tax in their otherwise good proposals.

…some conservatives think the VAT is an acceptable risk if it’s part of a bigger tax-reform plan. Senators Rand Paul and Ted Cruz, for instance, both have proposals that would lower personal-income-tax rates, reduce double taxation of income that is saved and invested, and eliminate corporate income taxes and payroll taxes. …Paul and Cruz would offset some of the revenue loss by imposing VATs.

The two Senators actually have good plans, at least on paper. My concern is about what happens once either one of them left the White House.

…something that looks pretty on a blackboard might not be so appealing once you add the sordid reality of politics to the equation. To be blunt, unless there’s a magic guarantee that principled conservatives such as Rand Paul and Ted Cruz (and their philosophical clones) would always hold the presidency, a VAT would be a very risky gamble. …What happens in the future when a statist wins the White House? …Raising the VAT rate would be a comparatively simple option for our hypothetical left-wing president. And because it has such a broad tax base (all “value added” in the economy, including wages paid to workers), even small rate increase would generate a lot of revenue to finance bigger government. …And I’m sure this future statist president also would boost tax rates on the “rich” and also impose higher levels of double taxation.

Incidentally, any good tax reform plan can be distorted by bad politicians in the future. But the downside risk of a VAT is monumentally greater because of its revenue-generating capacity.

…there’s a downside risk to other types of tax reform. But it’s a matter of magnitude. If we did something like Ben Carson’s flat tax or the more incremental tax-reform plans of Jeb Bush and Marco Rubio, it’s obviously possible for a future leftist to undo those reforms, in which case we could degenerate back to the current system. That’s obviously bad news, but it’s not nearly as bad as what might happen with the Cruz and Paul plans. When the wrong politicians got back in charge, they’d restore all the bad features of the income tax and also use the VAT as a money machine to expand the welfare state. And when the dust settles, we’d be France.

I realize that some people won’t believe what I just wrote. Maybe you lean left and you’re used to dismissing my arguments. Or maybe you’re a huge fan of Rand Paul or Ted Cruz and you think I’m somehow trying to knock them down because of some sinister agenda.

So maybe you’ll be more persuaded when a left-leaning columnist reaches the same conclusion. Here is some of what Catherine Rampell just wrote for the Washington Post.

Ted Cruz and Rand Paul have a really compelling tax proposal. …an interesting, serious and provocative idea: a value-added tax. …The VAT is also one of the first proposals out of the International Monetary Fund’s bag of tricks for countries that need to raise money. …it’s good these candidates have given voice to The Tax That Dare Not Speak Its Name. There’s only so much revenue a country can wring out of an income tax system, particularly one as Swiss-cheesed as ours. A well-designed VAT could help get our fiscal house in order.

This must be some sign of harmonic convergence. We both recognize that Paul and Cruz are proposing a VAT, and we both understand that there’s a limit to how much money can be raised from an income tax, and we both concur that a VAT will give politicians a way of dramatically boosting the tax burden.

But we don’t really agree. Because I’m horrified about the prospect of a new tax whereas Ms. Rampell thinks the VAT would be good because she favors bigger government.

By the way, Catherine confirms one of the fears I expressed in my article. The VAT would actually lead politicians to make the income tax even worse because of their fixation on distributional issues.

The main downside of a VAT is that it hurts the poor more than the rich, because the poor spend a larger share of their incomes on basic necessities. There’s an easy way to counteract that problem, though: Just make the income tax system more progressive.

By the way, while she’s right that the VAT is a money machine for big government, I can’t resist pointing out a mistake in her column.

Unlike an income tax, it doesn’t discourage saving or working

No, that’s not true. One of the good features of a VAT (assuming all other taxes could be abolished) is that it would generate revenue in a way that minimizes the negative impact on incentives.

But it would still drive a wedge between pre-tax income and post-tax consumption.

This is also the case for the flat tax. A “good” tax system is only “pro growth” in the sense that it does less damage than the current system.

Just in case you haven’t reached the point of VAT exhaustion, here’s my video explaining why the VAT is such a bad idea.

But if you don’t want to spend a few minutes watching a video, just keep this image in mind anytime sometime tells you we should roll the dice and adopt a VAT.

P.S. None of this suggests that Rand Paul and Ted Cruz should be rejected by voters. All candidates have some warts. I like the Jeb Bush tax plan, but I’m worried by his failure to take the no-tax pledge. I like the Marco Rubio tax plan, but I’m not a big fan of his big tax credits for kids. And I could come up with similar complaints about other candidates.

All I’m saying is that Paul and Cruz have one part of their agenda that should be jettisoned.

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I’m not a fan of the IRS or it’s Commissioner, a partisan Democrat named John Koskinen. The agency has become politicized, interfering with America’s political process. Needless to say, I’m not shedding tears that the bureaucracy is no longer getting big budget increases.

By contrast, I oftentimes applaud Senator Ted Cruz. His shutdown fight against Obamacare was a net plus. He was one of the few 2016 candidates who took a strong stand against cronyism in Iowa. And he manages to retain a sense of humor in the fight against big government.

So it’s with considerable chagrin that I feel compelled to admit that IRS boss made a good point, at least from a technical perspective, when he criticized Senator Cruz on the topic of the flat tax.

Here’s the background. A story in Bloomberg quotes Senator Cruz about his goal for tax reform.

“Instead of a tax code that crushes innovation, that imposes burdens on families struggling to make ends meet, imagine a simple flat tax that lets every American fill out his or her taxes on a post card. Imagine abolishing the IRS,” Cruz said.

Now here’s an excerpt from a Politico report about Mr. Koskinen’s response.

IRS Commissioner John Koskinen poked holes in Republican presidential candidate Ted Cruz’s plan to abolish the IRS and create a simple flat tax so taxpayers could file their taxes on a postcard. Koskinen pointed out that even if taxpayers were to file their taxes on “a small card,” someone would have to collect the money and make sure the numbers filled out are actually correct. “You can call [tax collectors] something else than the IRS if that makes you feel better, but basically someone has to follow through on all of that,” Koskinen told reporters today after a speech at the National Press Club.

Koskinen is right. So long as the federal government intends to extract more than $3 trillion from taxpayers, there will be a tax-collection agency. That’s true even if you have a flat tax or a national sales tax.

Sure, you can rename the IRS, or even require states to collect the revenue instead, but none of that changes the fact that some coercive body will exist to take our money.

That being said, Cruz’s overall point surely is correct. The IRS in a flat tax world would be largely de-fanged. Indeed, the Tax Foundation estimated several years ago that compliance costs would drop by more than 94 percent if we replaced the internal revenue code with a flat tax. And, as pointed out in this video, the tax code today is even more complex, so the savings now presumably would be even larger.

So Koskinen may be technically correct, but only because he is focusing the conversation on the narrow issue of whether government will still have a tax-enforcement body.

But Cruz is correct on the big-picture issue of whether the IRS as it exists today will no longer exist.

Since we’re on the topic of tax reform, Amity Shlaes and Matthew Denhart, both with the Calvin Coolidge Presidential Foundation, have a column in today’s Wall Street Journal that is somewhat critical of the Rubio-Lee tax reform plan.

The authors start by pointing out that the defining characteristic of supply-side economics is lower marginal tax rates on productive behavior (work, saving, investment, risk-taking, entrepreneurship).

Signaling opportunity throughout the tax code has long been the basis of the philosophy known as supply-side economics, or “Reaganomics.” Reaganomics treats even individual wage earners as entrepreneurs. The marginal rate to which a worker is subject under the progressive tax schedule is crucial. A higher rate on the next dollar a worker earns discourages him from working more. The highest tax bracket is especially important as top earners produce the most and innovate the most. …That top marginal rate also functions as a symbol of how society rewards enterprise.

Their unhappiness with Rubio-Lee is due to the fact that their proposal does not contain big rate reductions for labor income to match the very good rate reductions for business and investment income.

…on the personal side their proposal drops the top marginal rate on individual income by a puny 4.6 percentage points, to 35% from 39.6%. …What’s more, Rubio-Lee lowers tax thresholds drastically. Singles with taxable income as low as $75,000 find themselves entering the 35% top bracket; for couples the top rate applies after $150,000. Currently, individuals don’t hit the 35% bracket until $411,501, and the same holds for couples.

So why aren’t there big reductions in tax rates for households to match the very good reforms for businesses? The answer, at least in part, is that “Rubio-Lee also raises the child credit” and this consumes a lot of money, in effect crowding out lower marginal tax rates.

As a result, you get big economic benefits from the reforms to business taxation, but the child credits don’t have any impact on incentives to create wealth, expand jobs, or boost income.

The nonpartisan Tax Foundation recently estimated that Rubio-Lee would increase economic growth so that by 2025 the economy would be 15% larger than otherwise, almost entirely due to business tax cuts. The effect of the child credit on growth is reckoned at zero. 

But imagine if Rubio-Lee took their good tax reform plan and made it better by replacing the child credit with lower rates? And then made it even better by getting rid of additional tax preferences such as the healthcare exclusion?

Shlaes and Denhart quote me in their column as pointing out that if Rubio and Lee made their plan into something akin to the flat tax, the tax rate could be under 20 percent.

Dan Mitchell of the Cato Institute notes that if Rubio-Lee dropped all the preferences it contains, old and new, the plan could drop its top income-tax rate to 20% or lower.

I confess that I don’t have up-to-date estimates to confirm my assertion, but the Clinton Treasury Department back in 1996 estimated that the flat tax rate in a revenue-neutral world would be 20.8 percent.

But since the Rubio-Lee plan is a very large tax cut, amounting to more than $4 trillion over 10 years, combining that amount of tax relief with the flat tax surely would allow the rate to be well below 20 percent.

By the way, none of this should be interpreted to suggest that Rubio-Lee is bad tax policy. It’s a huge improvement over the current system. As I wrote last month, it’s a very good tax reform plan. It is especially good about fixing some of the worst features of the current tax code, such as worldwide taxation, depreciation, and double taxation.

But that doesn’t mean it is as good as the flat tax, which does everything good in Rubio-Lee, but also has a low rate for households and fewer tax preferences.

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