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Updated: 14 min 32 sec ago

Wal-Mart’s ‘Main Street’ Cronyism Campaigns

Thu, 06/08/2017 - 1:36am

Originally published by Investor’s Business Daily on June 6, 2017.

“Main Street” is Americana. Literally, it’s the primary road in a town, but culturally it’s much more than that. Main street is synonymous with mainstream, but it also evokes core American ideals like fairness — that the rules are the same for the “average Joe” as they are for wealthy corporations.

In recent years, Wal-Mart has tried to appropriate “Main Street” into the names of various lobbying campaigns it’s funding. First, it was the “Alliance for Main Street Fairness,” a Wal-Mart-led coalition to impose price controls on payment fees.

Now the company is behind the “Main Street Energy Alliance,” a group of companies who are working to convert the government’s ethanol quotas into a weapon against their competitors.

Claiming the mantle of American values is utterly ordinary in politics, but there are several reasons to draw attention here.

  • First, to correct any benefit of the doubt for Wal-Mart, which despite its rich history as a success story of American capitalism and entrepreneurship has fallen behind in the Internet age, a dynamic that may explain the company’s turn to Washington cronyism.
  • Second, to highlight the particular, self-serving policies that Wal-Mart has wrapped itself in the American flag to justify, despite the harm they are causing to consumers and the larger economy.
  • Third, simply to note the depth of cynicism for a company to cloak its efforts to tilt the playing field in its favor as “main street” — a concept that stands for literally the opposite of what Wal-Mart is engaged in.

It wasn’t always this way. The story of how the late Sam Walton transformed the “Walton’s 5 & 10″ in Bentonville, Ark., into what was at one point the world’s largest company is inspiring. At its best, Wal-Mart was the champion of low prices, tirelessly pushing for ways to cut costs to produce value for its customers.

But things change — quickly. Just last month, Jeff Bezos’ online retail behemoth, Amazon saw its market cap rise to roughly double the value of Wal-Mart, an undeniable sign that the Internet era has changed the rules of retail, and those changes aren’t necessarily good for Wal-Mart.

One possible response would have been to double down and out-compete Amazon. But there was another, less principled course available: “If you don’t like the game, change the rules.”

It’s interesting: Back in 1998, the first year that data became available on the money-in-politics website OpenSecrets.org, Wal-Mart’s lobbying presence was tiny — $140,000. “Saving Private Ryan” was on the big screen, Savage Garden on the radio, and Amazon announced that it would expand beyond just selling books. Wal-Mart and Barnes & Noble both filed lawsuits against the new company, one of many failed tactics to stop the march of technology.

Last year, Wal-Mart spent $6.8 million on a small army of 70 Washington, D.C., lobbyists, a 4,757% increase. That amount will let you cover your bases — former Republican senators like Jon Kyl and Don Nickles were recipients, as were Clinton loyalist and uber-lobbyist Tony Podesta and other top Democrats.

Modern Wal-Mart’s legislative agenda would likely cause Sam Walton deep shame were he alive today.

Wal-Mart has always succeeded by pushing its suppliers to cut costs. The difference now is that it’s decided to use the government for the same purpose, partnering with arch-liberal Illinois Democrat Sen. Dick Durbin to enact Venezuela-style price controls on processing fees for credit card payments, something conservative House Republicans are fighting to repeal.

The other main agenda item (the origin of the “Main Street Energy Alliance”) is exploiting loopholes in the government’s ethanol quotas to mortally wound its competitors. Through a quirk in the law, big players like Wal-Mart are awarded special environmental credits for blending renewable fuels into gasoline on its way to the station, something they are already required by law to do.

Wal-Mart and other gas-station giants are spending big bucks to keep the “point of obligation” for renewable energy credits on independent refiners. The subsidies from this program are worth billions to Wal-Mart and their “Main Street” coalition of giant corporations.

Since smaller, independent players don’t have an in-house blending operation like the giants, they’re forced to buy these credits from Wal-Mart (and the other companies in their “main street” alliance) at exorbitant cost. It’s like making Wal-Mart buy permission to sell things from Amazon, at any price Amazon deems fair.

Someone, somewhere, had a good laugh when they plastered “main street” all over these egregious crony-capitalist campaigns. Sadly, the depth of cynicism required for such a gambit is abundant in Washington.

For the rest of us, for “average Joe,” it’s no laughing matter. It’s time for people to wake up to the fact that, in its internet-era desperation, Wal-Mart has turned to political cronyism to keep up.

The Best Trump Budget Cuts, Part VI: Food Stamp Reform

Wed, 06/07/2017 - 12:47pm

I’m agnostic about President’s Trump’s budget. It has some good proposals to save money and control the burden of government spending, but after he got rolled by the big spenders earlier this year, I wonder if he’s serious about tackling wasteful government.

Nonetheless, I’m the libertarian version of Sisyphus. Except instead of trying to roll a boulder up a hill, I have the much harder task of trying to convince the crowd in Washington to shrink the size and scope of the federal government.

So I’ve written in favor of some of Trump’s proposals.

  • Shutting down the wasteful National Endowment for the Arts.
  • Defunding National Public Radio and the Corporation for Public Broadcasting.
  • Terminating the scandal-plagued Community Development Block Grant program.
  • Block-granting Medicaid and reducing central government funding and control.
  • Curtailing foreign aid payments that enable bad policy in poor nations.

Today, let’s add to this list by looking at what’s being proposed to control spending on food stamps.

Here are the key details from the Trump budget.

The Budget provides a path toward welfare reform, particularly to encourage those individuals dependent on the Government to return to the workforce. In doing so, this Budget includes Supplemental Nutrition Assistance Program (SNAP) reforms that tighten eligibility and encourage work… SNAP—formerly Food Stamps—has grown significantly in the past decade. …despite improvements in unemployment since the recession ended, SNAP participation remains persistently high. The Budget proposes a series of reforms to SNAP that close eligibility loopholes, target benefits to the neediest households, and require able-bodied adults to work. Combined, these reforms will reduce SNAP expenditures while maintaining the basic assistance low-income families need to weather hard times. The Budget also proposes SNAP reforms that will re-balance the State-Federal partnership in providing benefits by establishing a State match for benefit costs. The Budget assumes a gradual phase-in of the match, beginning with a national average of 10 percent in 2020 and increasing to an average of 25 percent by 2023.

This is not the approach I prefer. It would be better to create a block grant that slowly phases out over a number of years (as part of an overall plan to get the federal government out of the redistribution racket).

Nonetheless, the Trump proposal would save money for taxpayers. Here are the projected savings from the budget.

To put those numbers in context, the Congressional Budget Office projects that food stamp outlays will be about $70 billion per year if current policy is left in place.

Folks on the left are predictably warning that any restrictions on the program will cause poor people to go hungry.

Yet it seems that many of these people are happy to give up their food stamps in order to avoid productive activity. I’ve already discussed examples from Maine, Wisconsin, and Kansas. Now let’s look at a news report from Alabama.

Thirteen previously exempted Alabama counties saw an 85 percent drop in food stamp participation after work requirements were put in place on Jan. 1, according to the Alabama Department of Human Resources. …there were 5,538 adults ages 18-50 without dependents receiving food stamps as of Jan. 1, 2017. That number dropped to 831 – a decline of about 85 percent – by May 1, 2017. …Statewide, the number of able-bodied adults receiving food stamps has fallen by almost 35,000 people since Jan. 1, 2016. …Nationwide, there are about 44 million people receiving SNAP benefits at a cost of about $71 billion. The Trump administration has vowed to cut the food stamp rolls over the next decade, including ensuring that able-bodied adults recipients are working.

The same thing is happening in Arkansas.

Food stamp enrollment dropped by 25,000 people in Arkansas in 2016, after the state reinstated work requirements limited individuals to three months of benefits unless they found or trained for a job… Arkansas stopped granting waivers to work requirements January 1, 2016, and by April, 9,000 people were off of food stamps, also called Supplemental Nutrition Assistance Program (SNAP) benefits. Another 15,000 more lost their benefits between April and November… J.R. Davis, a spokesman for Hutchinson’s office, told Arkansas Online. “If you’re receiving these SNAP benefits, you can continue to receive those SNAP benefits, but you have to work if you’re between 18 and 49 — that’s a conservative philosophy that the governor believes.”

By the way, recipients often don’t need to actually work to satisfy the work requirements. They can simply be enrolled in some sort of job-training program, many of which are run by the government at no direct cost to participants.

Yet a huge proportion of these able-bodied adults would rather give up food stamps than participate. Maybe I’m heartless, but this suggests that they are not actually dependent on handouts.

Let’s close by augmenting our list of con artists (the Octo-mom, college kids, etc) who mooch off the food stamp program. As reported by the Daily Caller, one of Mayor de Blasio’s cronies in New York City pretended to be poor so he could steal money from taxpayers.

A religious leader and big-time fundraiser for Democratic New York City Mayor Bill de Blasio has been charged with welfare fraud for getting around $30,000 in food stamps. Yitzchok “Isaac” Sofer, a Hasidic religious leader, hosted a fundraiser for de Blasio’s 2013 mayoral campaign at the same time he was receiving food stamps illegally. …FBI…agents found that Sofer has been on food stamps since the beginning of 2010, and received more than $30,000 in benefits from the Supplemental Nutrition Assistance Program (SNAP) since 2012, according to court documents… On his food stamp application in 2012, Sofer claimed to make $250 a week, or about $13,000 a year…in 2012, however, he listed his income for 2011 at $100,000, and assets at more than $600,000, according to the criminal complaint. Sofer still has ties with de Blasio’s office.

Sounds like he’s a wonderful human being. Let’s call him Exhibit A for the decline of social capital in the United States (though certain fast food restaurants might be an even more ominous sign of eroding cultural norms).

P.S. Even if Trump isn’t sincere about wanting to control food stamp spending, I guess I shouldn’t be too depressed. After all, at least he’s not proposing to make the problem worse. By contrast, the Obama Administration actually bribed states to lure more people into food stamp dependency. And, if you can believe it, Obama’s Agriculture Secretary argued that food stamps stimulate the economy.

P.P.S. Speaking of states, here are the states with the most and least food stamp dependency, and here is a ranking of states looking at the ratio of recipients compared to the eligible population.

CF&P Submission Urges Congress to Enact Tax Reform Without a DBCFT/BAT

Tue, 06/06/2017 - 12:18pm

Center for Freedom and Prosperity

For Immediate Release
Tuesday, June 6, 2017
202-285-0244

www.freedomandprosperity.org

CF&P Submission Urges Congress to Enact Tax Reform
Without a DBCFT/BAT

(Washington, D.C., Tuesday, June 6, 2017) In a statement to the House Ways and Means Committee, CF&P President Andrew F. Quinlan today urged members of Congress to not include the destination-based cash flow tax (DBCFT), or border adjustment tax (BAT), in any attempt to enact pro-growth tax reform. The testimony, submitted in response to a Congressional hearing looking at how to increase U.S. competitiveness, argues that the BAT has become an obstacle to tax reform.

There’s widespread agreement regarding the need for comprehensive tax reform. High U.S. corporate tax rates leave U.S.-based multinationals at a competitive disadvantage, while excessive complexity burdens taxpayers and the economy with unneeded costs. It is long past time to make correcting these problems a top legislative priority.

Unfortunately, the path to tax reform is being hindered by the prospect of adopting a destination-based cash-flow tax (DBCFT). The proposed switch to a “border adjustable” system has divided both businesses and the free-market advocacy community, constituencies whose full support is needed to help shepherd tax reform through the legislative process.

The strong opposition to the DBCFT is due to its significant political and economic risks. These include the similarity between the tax and European-style VATs that have fueled the growth of governments on the continent, the ambiguity of WTO rules regarding the tax structure, and the likelihood that currency appreciation will not fully offset the shifting of the corporate tax burden onto consumers, among other concerns.

Full Testimony

In addition to detailing the widespread concerns regarding implementation of a BAT, the comments dispel certain popular myths, such as references to a so-called “Made in America Tax,” regarding the tax treatment of domestic and foreign produced goods. The real obstacle to U.S. competitiveness, Quinlan argues, is high U.S. corporate tax rates, not any imbalance in the treatment of imports and exports. The comment concludes by offering closure of certain tax loopholes as better alternatives to the BAT, and urges consideration of spending reductions as well.

CF&P Director of Policy and Communications, Brian Garst, added, “Republicans have painted themselves into a corner by preemptively surrendering on principle and refusing to pair tax reform with needed spending cuts, or having the courage to close misguided, distortionary tax loopholes out of deference to certain special interests. It is utterly dishonest to then suggest that accepting this dangerous new tax is the only way to finance tax reform. It’s time for the few remaining holdouts to accept political reality: the border adjustment tax is dead. There are ample ways to move forward without it. Pick one and let’s get on with implementing pro-growth tax reform.”

For additional comments:
Andrew Quinlan can be reached at 202-285-0244, [email protected]
Brian Garst, Dir. of Policy and Communications, can be reached at [email protected]

###

A Glimmer of Common Sense on Gun Rights from the Czech Republic

Tue, 06/06/2017 - 12:14pm

Defenders of civil liberties have won big victories against gun control in the United States.

The fight certainly isn’t over, to be sure, but most Americans have some degree of freedom to own guns, carry guns, and protect themselves with guns.

By contrast, the situation in Europe tends to be grim. Many nations strictly limit the freedom of people to keep and bear arms. As you might expect, the “sensible Swiss” are an exception, and nations such as Monaco, Austria, and the Nordics are semi-reasonable.

But it’s just about impossible to own a gun in countries such as the United Kingdom, France, Germany, and Italy. Even groups that are targeted by Islamic fanatics, such as Jews, aren’t allowed to defend themselves.

And that is good news for terrorists. They can plot murder and mayhem with considerable confidence that they won’t meet armed resistance until police show up (just as mass killers in the USA seek out gun-free zones for their evil attacks).

But that passive approach may be changing in some European nations.

According to a column in the Washington Post, the President of the Czech Republic believes an armed citizenry is a safe citizenry.

A couple of months ago, Czech President Milos Zeman made an unusual request: He urged citizens to arm themselves against a possible “super-Holocaust” carried out by Muslim terrorists.

The column notes that he’s almost certainly overstating the risks.

…there are fewer than 4,000 Muslims in this country of 10 million people.

But some citizens decided it’s better to be safe than sorry.

…gun purchases spiked.

Now the government is seeking to make it easier for citizens to use those guns for self-defense.

…the country’s interior ministry is pushing a constitutional change that would let citizens use guns against terrorists. Proponents say this could save lives if an attack occurs and police are delayed or unable to make their way to the scene. …Parliament must approve the proposal.

The good news is that the Czech Republic already has fairly good laws. At least by European standards.

The Czech Republic already has some of the most lenient gun policies in Europe. It’s home to about 800,000 registered firearms and 300,000 people with gun licenses. Obtaining a weapon is relatively easy: Residents must be 21, pass a gun knowledge check and have no criminal record. By law, Czechs can use their weapons to protect their property or when in danger, although they need to prove they faced a real threat.

Hopefully there are lots of unregistered firearms as well.

Though I’m unsure what the Interior Ministry is proposing with regards to gun use against terrorists. Why would the law need to be changed if Czechs already are allowed to use weapons for self-defense?

In any event, the bad news is that the meddling bureaucrats in Brussels are trying to make it more difficult for law-abiding people to protect themselves.

…much of Europe…has long supported much more stringent gun-control measures.  In the wake of the 2015 terror attacks in Paris, France pushed the European Union to enact even tougher policies. The European Commission’s initial proposal called for a complete ban on the sale of weapons like Kalashnikovs or AR-15s that are intended primarily for military use. Ammunition magazines would be limited to 20 rounds or less. …the EU passed a compromise last month… The final measure bans the sale of most military-style rifles and requires all potential buyers to go through a psychological check before they can buy a weapon. …it’s not yet clear if gun owners will have to turn in newly illegal weapons.

How typical of the French. They want to make it more difficult for law-abiding people to have guns, an approach that presumably won’t have much – if any – impact on terrorists who presumably can get weapons illegally.

And the EU once again ignores its own federalist rhetoric on subsidiarity to push for statist continent-wide policy.

Moreover, Kalashnikovs and AR-15s are no more dangerous or deadly than other rifles, so targeting guns that “are intended primarily for military use” is irrelevant nonsense.

The bottom line is that more gun control in Europe won’t help the fight against terrorism. Instead, it simply means citizens don’t have the right to defend themselves.

So I’m glad the Czechs are trying to do the right thing, in spite of the paternalistic left-wing ideologues elsewhere in Europe. And I hope there will be lots of civil disobedience as more gun control policies emanate from Brussels.

Testimony to House Ways and Means Committee on Border Adjustments and Tax Reform

Tue, 06/06/2017 - 12:04pm
Written Testimony Submitted by Andrew F. Quinlan
President
Center for Freedom and Prosperity To the House Committee on Ways and Means hearing on
“Increasing U.S. Competitiveness and Preventing American Jobs from Moving Overseas”
May 23, 2017

There’s widespread agreement regarding the need for comprehensive tax reform. High U.S. corporate tax rates leave U.S.-based multinationals at a competitive disadvantage, while excessive complexity burdens taxpayers and the economy with unneeded costs. It is long past time to make correcting these problems a top legislative priority.

Unfortunately, the path to tax reform is being hindered by the prospect of adopting a destination-based cash-flow tax (DBCFT). The proposed switch to a “border adjustable” system has divided both businesses and the free-market advocacy community, constituencies whose full support is needed to help shepherd tax reform through the legislative process.

The strong opposition to the DBCFT is due to its significant political and economic risks. These include the similarity between the tax and European-style VATs that have fueled the growth of governments on the continent, the ambiguity of WTO rules regarding the tax structure, and the likelihood that currency appreciation will not fully offset the shifting of the corporate tax burden onto consumers, among other concerns.

The False Promise of the DBCFT

The DBCFT is being sold as a correction to a tax injustice, or what some call a “Made in America Tax.” Supposedly, U.S.-based exporters pay a tax penalty that foreign producers who sell in the U.S. do not, and the DBCFT is thus the solution. This understanding is flawed.

Proponents compare the U.S. corporate income tax to European VATs, but they ignore that these countries also have corporate income taxes, too. Only by misleadingly switching back and forth between domestic income taxes and foreign consumption taxes can it be claimed that there is not tax parity between imports and exports sold both within the U.S. and in foreign markets. Simply put, it makes no sense to complain that the U.S. does not border adjust like European nations when the reason is that the U.S. does not have a European-style VAT. To put it yet another way, you can’t rebate a zero percent consumption tax.

The real source of imbalance between the U.S. and foreign governments is our excessively high corporate income tax and uniquely destructive worldwide tax system. The obvious solution to this problem is to lower the corporate income tax and move to a territorial system.

The U.S. is Better Off Without a VAT

VATs provide easy revenue because they are characterized by large tax bases that allow for the collection of significant revenue with only small rate hikes, while also being largely hidden from consumers. This combination helps explain why the widespread adoption of value-added taxes precipitated dramatic growth in the size of European governments, and why advocates for bigger government in the U.S. have long sought to impose such a tax here as well.

The DBCFT is very similar to a subtraction-method VAT, except in that labor compensation is deductible under the DBCFT. It’s unclear, however, if the World Trade Organization would permit border adjustments on this type of tax. WTO rules distinguish between direct and indirect taxes, as border adjustments have been ruled to be allowed for the latter but not the former. And since the DBCFT is a direct tax that mimics the tax base of an indirect tax, it’s not at all clear how the organization would rule should the DBCFT be challenged.

Not only would this uncertainty undermine some of the pro-growth benefits of tax reform, but an adverse ruling would almost certainly lead to the adoption of a full VAT as the most politically expedient solution. That would start the U.S. down the same path forged by our European counterparts of bigger government, higher tax burdens, and, ultimately, slower economic growth.

Consumer Pain and Political Peril

The DBCFT shifts much of the corporate tax burden from exporters to importers, though the former will also face higher priced inputs from their international supply chains. On its face, that means consumers will take a hit. Proponents of the DBCFT claim higher costs for consumer goods will be offset by an accompanying appreciation of the dollar. Currency markets, they say, will immediately and perfectly adjust. Unfortunately, the evidence for this claim is mixed, and complications like the many foreign currencies that are pegged to the dollar leave the currency market less than perfectly efficient.

Even if currencies did entirely adjust, higher costs on consumer would remain a perceived reality if not an actual one. That would obviously pose an electoral challenge to lawmakers who backed tax reform, but more importantly from a policy perspective, would leave the new tax system vulnerable to demagoguery. Voters who felt they were bearing the burden of corporate tax reductions could demand that businesses pay their fair share. Advocates for bigger government and the higher taxes needed to fund it would be all to happy to offer the return of the corporate income tax, in addition to the DBCFT, to satisfy these complaints. Needless to say, such would completely undermine the entire purpose of this exercise.

Dangers of a Destination-Based System

A major downside of moving from an origin-based to a destination-based system that has received too little attention is the impact it would have on international tax competition. There’s a reason why left-leaning economists like Alan Auerbach tout destroying tax competition as a primary feature of the DBCFT. He bragged that the DBCFT “alleviates the pressure to reduce the corporate tax rate,” and would “alter fundamentally the terms of international tax competition.”

Advocates for higher taxes and bigger governments understand the role that tax competition has played in discouraging excessive taxation globally. If your goal is to make it easier for governments to raise tax rates, then the DBCFT looks like a great idea. But if you want to maximize economic growth and keep political greed in check, then it’s a big step in the wrong direction.

Tax Reform Without the DBCFT

Pro-growth tax reform should not need to be immediately and simultaneously paid for using an arbitrary and short-term budget window. The Kennedy and Reagan cuts were enacted without such constraints and the economy benefited as a result. If legislators nevertheless insist on paying for pro-growth tax cuts, the goal should be deficit rather than revenue neutrality, opening up the possibility of pairing pro-growth tax reform with much-needed spending reductions.

Although some arguments have been put forward to suggest that the DBCFT is desirable in its own right, it is only being proposed as a “pay-for” to offset the provisions of tax reform that are actually pro-growth. But even if it is decided that offsets are necessary, it makes little sense to choose a bad policy to pay for tax reform when there are alternatives available that also represent good policy. Or taking another approach, the need for revenues from the DBCFT could be eliminated by removing the switch to full and immediate expensing from proposed reforms and focusing instead on competitive rate cuts and tax code simplification.

Current reform plans rightly call for the elimination of the state and local tax deduction. This is good policy because the deduction encourages states to raise their tax burdens. However, other distortion-creating tax expenditures remain unchallenged, like the mortgage interest deduction, the municipal bond interest exemption, and the employer-provided health care exclusion. Closing these loopholes would not only provide the means to pay for rate reductions, but would simultaneously remove costly distortions from their respective markets.

Removing the unnecessary constraint of “revenue-neutrality” would open up further pay-for alternatives to the DBCFT by allowing for spending reductions. Rather than presupposing that the government is entitled to a particular share of taxpayer dollars, the alternative “deficit-neutral” approach would recognize that true pro-growth reform requires not only fixing the tax code, but also tackling out-of-control federal spending. Rather than implementing a dangerous new government revenue stream in the form of a DBCFT, a fiscally responsible approach to reform would pair the pro-growth cuts and tax code simplification with a combination of eliminating tax distortions and cutting wasteful and counterproductive programs.

The Federal Tax Code Shouldn’t Subsidize and Encourage Profligacy by State and Local Governments

Mon, 06/05/2017 - 4:16pm

The federal income tax is corrosive and destructive. It’s almost as if a group of malicious people decided to deliberately design a system that imposes maximum damage while also allowing the most corruption.

The economic damage is not only the result of high tax rates and pervasive double taxation, but also because of loopholes that exist to bribe people into making economically unwise decisions.

These include itemized deductions for mortgages and charitable contributions, as well as the fringe benefits exclusion and the exemption for municipal bond interest. And there are many other corrupt favors sprinkled through a metastasizing tax code.

But there’s a strong case to be made that the worst loophole is the deduction for state and local taxes. Why? For the simple reason that it encourages, enables, and subsidizes bad policy.

Here’s how it works. State and local lawmakers can increase income taxes or property taxes and be partially insulated from political blowback because their taxpayers can deduct those taxes on their federal return.

And it’s a back-door way of giving a special break to upper-income taxpayers because the deduction is more valuable to people in higher tax brackets.

Let’s look at an example that’s currently in the news. Democrats in the Illinois state legislature want a big increase in the personal income tax. If they succeed and boost taxes by an average of $1000, high-income taxpayers who take advantage of the deduction may only suffer a loss of as little as $600 since their federal tax bill may fall by almost $400.

For politicians, this is an ideal racket. They can promise various interest groups $1000 of goodies while reducing take-home pay by a lesser amount.

Let’s review some recent commentary on this topic.

The Wall Street Journal opined on the issue last weekend.

Chuck Schumer aspires to raise taxes on every rich person in America, save one protected class: coastal progressives. …Like many other Democrats, he’s apoplectic about a plan to end the state and local tax deduction. …One goal of tax reform is to reduce unproductive tax loopholes, and ending the state and local deduction would generate revenue to finance lower rates: The deduction is worth about $100 billion a year… About 88% of the benefits in 2014 flowed to taxpayers who earn more than $100,000, while 1% went to those who earn less than $50,000. California alone reaps nearly 20% of the benefit…and a mere six states get more than half. …The folks underwriting this windfall are in Alaska, South Dakota, Wyoming and other places without a state income tax. …Eliminating the deduction would be a powerful incentive for Governors to cut state taxes on residents who are suddenly exposed to their full liability. …killing the state and local deduction would pay a double dividend: The first is creating a more equitable tax code with a broader base and lower rates. The second is spurring reform in states that are long overdue for a better tax climate.

Writing earlier this year for National Review, Kevin Williamson was characteristically blunt.

It’s time for…blue-state…tax increases that would fall most heavily on upper-income Americans in high-tax progressive states such as California and New York. …eliminate the deduction for state income taxes, a provision that takes some of the sting out of living in a high-tax jurisdiction such as New York City (which has both state and local income taxes) or California, home to the nation’s highest state-tax burden. Do not hold your breath waiting for the inequality warriors to congratulate Republicans for proposing these significant tax increases on the rich. …allowing for the deduction of state taxes against federal tax liabilities creates a subsidy and an incentive for higher state taxes. California in essence is able to capture money that would be federal revenue and use it for its own ends, an option that is not practically available to low-tax (and no-income-tax) states such as Nevada and Florida. It makes sense to allow the states to compete on taxes and services, but the federal tax code biases that competition in favor of high-tax jurisdictions.

And Bob McManus adds his two cents in an article for the Manhattan Institute’s City Journal.

Voters in all heavy-tax, high-spending states have no one to blame for their situation save themselves. At a minimum, it seems clear that deductibility—by softening the impact of federal taxation—encourages outsize state and local spending. States that take advantage of deductibility—mostly in the Northeast and on the West Coast—are in effect subsidized by states that have kept tighter control on their spending. …New York’s top-of-the-charts spending puts the state at the pinnacle…with New Yorkers paying a national high of 12.7 percent of income in state and local levies. Local property taxes in New York are astronomical and not coming down any time soon. …deductibility has powerful friends—among them the public-employee unions… New York and the nation would benefit if deductibility was jettisoned. …end the incentive for the tax-and-spend practices that have been so economically corrosive to big-spending Blue states.

Let’s close with the should-be-obvious point that the goal isn’t to repeal the state and local tax deduction in order to give politicians in Washington more money to spend. Instead, every penny of that revenue should be used to finance pro-growth tax reforms.

That creates a win-win situation of better tax policy in Washington, while also creating pressure for better tax policy at the state and local level.

For what it’s worth, both Trump and House Republicans are proposing to get rid of the deduction.

P.S. I mentioned at the start of this column that it would not be unreasonable to think that the tax code was deliberately designed to maximize economic damage. But even a curmudgeon like me doesn’t think that’s actually the case. Instead, our awful tax system is the result of 104 years of “public choice.”

P.P.S. Itemized deductions and other loopholes create distortions by allowing people to understate their income if they engage in approved behaviors. There are also provisions of the tax code – such as depreciation and worldwide taxation – that force taxpayers to overstate their income.

The Congressional Budget Office’s Questionable Analysis of Obamacare Repeal

Sun, 06/04/2017 - 12:09pm

Back in 2015, I basically applauded the Congressional Budget Office for its analysis of what would happen if Obamacare was repealed. The agency’s number crunchers didn’t get it exactly right, but they actually took important steps and produced numbers showing how the law was hurting taxpayers and the economy.

Now we have a new set of Obamacare numbers from CBO based on the partial repeal bill approved by the House of Representatives. The good news is that the bureaucrats show substantial fiscal benefits. There would be a significant reduction in the burden of spending and taxation.

But the CBO did not show very favorable numbers in other areas, most notably when it said that 23 million additional people would be uninsured if the legislation was enacted.

Part of the problem is that Republicans aren’t actually repealing Obamacare. Many of the regulations that drive up the cost of health insurance are left in place.

My colleague at Cato, Michael Cannon, explains why this is a big mistake.

Rather than do what their supporters sent them to Washington to do – repeal ObamaCare and replace it with free-market reforms – House Republicans are pushing a bill that will increase health-insurance premiums, make health insurance worse for the sick… ObamaCare’s core provisions are the “community rating” price controls and other regulations that (supposedly) end discrimination against patients with preexisting conditions. …Community rating is the reason former president Bill Clinton called ObamaCare “the craziest thing in the world” where Americans “wind up with their premiums doubled and their coverage cut in half.” Community rating is why women age 55 to 64 have seen the highest premium increases under ObamaCare. It is the principal reason ObamaCare has caused overall premiums to double in just four years. Community rating literally penalizes quality coverage for the sick… ObamaCare is community rating. The AHCA does not repeal community rating. Therefore, the AHCA does not repeal ObamaCare.

It would be ideal if Republicans fully repealed Obamacare.

Heck, they should also address the other programs and policies that have messed up America’s healthcare system and caused a third-party payer crisis.

That means further reforms to Medicaid, as well as Medicare and the tax code’s exclusion of fringe benefits.

But maybe that’s hoping for too much since many Republicans are squeamish about supporting even a watered-down proposal to modify Obamacare.

That being said, there are some reasonable complaints that CBO overstated the impact of the GOP bill.

Doug Badger and Grace Marie Turner, for instance, were not impressed by CBO’s methodology.

The Congressional Budget Office (CBO) launched its latest mistaken Obamacare-related estimate this week, predicting that a House-passed bill to repeal and replace the embattled law would lead to 23 million more uninsured people by 2026. …the agency’s errors are not only massive – one of their predictions of 2016 exchange-based enrollment missed by 140%… Undaunted by failure and unschooled by experience, CBO soldiers on, fearlessly predicting that millions will flock to the exchanges any day now.  …CBO measures the House-passed bill against this imaginary baseline and finds it wanting. …One reason CBO gets it so wrong so consistently is its fervent belief that the individual mandate has motivated millions to enroll in coverage.  …CBO’s belief in the power of the individual mandate is misplaced. …The IRS reports that in the 2015 tax year, 6.5 million uninsured filers paid the tax penalty, 12.7 million got an exemption and additional 4.2 million people simply ignored the penalty.  They left line 61 on their form 1040 blank, refusing to tell the government whether or not they had insurance.  …In all, that is a total of 23.4 million uninsured people – out of an estimated 28.8 million uninsured – who either paid, avoided or ignored the penalty.  That hardly suggests that the mandate has worked.

The Wall Street Journal also was quite critical of the CBO analysis.

…the budget scorekeepers claim the House bill could degrade the quality of insurance. This editorializing could use some scrutiny. Without government supervision of insurance minutiae and a mandate to buy coverage or pay a penalty, CBO asserts, “a few million” people will turn to insurance that falls short of the “widely accepted definition” of “a comprehensive major medical policy.” They might select certain forms of coverage that Obama Care banned, like “mini-med” plans with low costs and low benefits. Or they might select indemnity plans that pay a fixed-dollar amount per day for illness or hospitalization, or dental-only or vision-only single-service plans. CBO decided to classify these people as “uninsured,” though without identifying who accepts ObamaCare’s definition of standardized health benefits and why they deserve to substitute their judgment for the choices of individual consumers. …But the strangest part of CBO’s preoccupation with “high-cost medical events” is that the analysts never once mention catastrophic coverage—not once. These types of plans didn’t cover routine medical expenses but they did protect consumers against, well, a high-cost medical event like an accident or the diagnosis of a serious illness. Those plans answered what most people want most out of insurance—financial security and a guarantee that they won’t be bankrupted by cancer or a distracted bus driver. …under the House reform Americans won’t have any problem insuring against a bad health event, even if CBO won’t admit it. …CBO has become a fear factory because it prefers having government decide for everybody.

Drawing on his first-hand knowledge, Dr. Marc Siegel wrote on the issue for Fox News.

…23 million…will lose their health insurance by 2026 if the American Health Care Act, the bill the House passed to replace ObamaCare, is passed in the Senate and signed by President Trump. This number is concerning — until you look at it and the CBO’s handling of the health care bills more closely. …First, the CBO was wildly inaccurate when it came to ObamaCare, predicting that 23 million people would be getting policies via the exchanges by 2016. The actual number ended up being only 10.4 million… Second, many who chose to buy insurance on the exchanges did so only because they wanted to avoid paying the penalty, not because they needed or wanted the insurance. Many didn’t buy insurance until they got sick.

The Oklahoman panned the CBO’s calculations.

IN the real world, people who don’t have insurance coverage cannot lose it. Yet…the CBO estimates 14 million fewer people will have coverage in 2018 if the House bill is enacted than would be the case if the ACA is left intact, and 23 million fewer by 2026. …In 2016, there were roughly 10 million people obtaining insurance through an Obamacare exchange. The CBO estimated that number would suddenly surge to 18 million by 2018 if the law was left intact, but that far fewer people would be covered if the House reforms became law. Put simply, the CBO estimated that millions of people who don’t have insurance through an exchange today would “lose” coverage they would otherwise obtain next year. That’s doubtful. …At one point, the office estimated 22 million people would receive insurance through an Obamacare exchange by 2016. As already noted, the actual figure was less than half that. One major reason for the CBO being so far off the mark is that federal forecasters believed Obamacare’s individual mandate would cause people to buy insurance, regardless of cost. That hasn’t proven true. …In a nutshell, the CBO predicts reform would cause millions to lose coverage they don’t now have, and that millions more would eagerly reject the coverage they do have because it’s such a bad deal. Those aren’t conclusions that bolster the case for Obamacare.

And here are passages from another WSJ editorial.

CBO says 14 million fewer people on net would be insured in 2018 relative to the ObamaCare status quo, rising to 23 million in 2026. The political left has defined this as “losing coverage.” But 14 million would roll off Medicaid as the program shifted to block grants, which is a mere 17% drop in enrollment after the ObamaCare expansion. The safety net would work better if it prioritized the poor and disabled with a somewhat lower number of able-bodied, working-age adults. The balance of beneficiaries “losing coverage” would not enroll in insurance, CBO says, “because the penalty for not having insurance would be eliminated.” In other words, without the threat of government to buy insurance or else pay a penalty, some people will conclude that ObamaCare coverage isn’t worth the price even with subsidies. …CBO’s projections about ObamaCare enrollment…were consistently too high and discredited by reality year after year. CBO is also generally wrong in the opposite direction about market-based reforms, such as the 2003 Medicare drug benefit whose costs the CBO badly overestimated.

Here are excerpts from Seth Chandler’s Forbes column.

My complaints about the CBO largely revolve around its dogged refusal to adjust its computations to the ever-more-apparent failings of the Affordable Care Act. When the CBO says that 23 million fewer people will have insurance coverage under the AHCA than under the ACA — a statistic that politics have converted into a mantra —  that figure is predicated on an ACA that no longer exists. It is based on the continuing assumption that the ACA will have 18 million people enrolled on its exchanges in 2018 and that this situation will persist until 2026. I know no one on any side of the political spectrum who believes this to be true. The ACA has about 11 million people currently enrolled on its exchanges in 2017 and, with premiums going up, some insurers withdrawing from various markets, and the executive branch fuzzing up whether the individual mandate will actually be enforced. The consensus is that ACA enrollment will stay the same or go down, not increase 60%.

And here’s some of what Drew Gonshorowski wrote for the Daily Signal.

…reducing premium levels by rolling back regulations could actually have the effect of making plans more desirable for individuals looking to pay less. The CBO lacks any real discussion of these positive effects. …The CBO’s score on Medicaid…reflects that it assumes more states would likely have expanded in the future under the Affordable Care Act. Thus, its projection that 14 million fewer people would be insured due to not having Medicaid under the American Health Care Act might be overstated… CBO…assumes the Affordable Care Act will enroll 7 to 8 million more people in the individual market, when in reality it does not appear this will be the case

Last but not least, my former colleague Robert Moffit expressed concerns in a column for USA Today. The part that caught my eye was that CBO has a less-than-stellar track record on Obamacare projections.

The GOP should be skeptical of CBO’s coverage estimates. It has been an abysmal performance. For example, CBO projected initially that 21 million persons would enroll in exchange plans in 2016. The actual enrollment: 11.5 million.

The bottom line is that CBO overstated the benefits of Obamacare, at least as measured by the number of people who would sign up for the program.

The bureaucrats were way off.

Yet CBO continues to use those inaccurate numbers, creating a make-believe baseline that is then used to estimate a large number of uninsured people if the Republican bill is enacted.

This is sort of like the “baseline math” that is used to measure supposed spending cuts when the budget actually is getting bigger.

P.S. You may be wondering why Republicans don’t fully repeal Obamacare so that they can get credit for falling premiums. Part of the problem is that they are using “reconciliation” legislation that supposedly is limited to fiscal matters. In other words, you can’t repeal red tape and regulation. At least according to some observers. I think that’s silly since such interventions drive up the cost of health care, which obviously has an impact on the budget. Also, Republicans are a bit squeamish about reducing subsidies for various groups, whether explicit (like the Medicaid expansion) or implicit (like community rating). In other words, the Second Theorem of Government applies.

Illinois on the Brink of Fiscal Meltdown

Sat, 06/03/2017 - 12:00pm

Illinois is a mess. Taxes and spending already are too high, and huge unfunded liabilities point to an even darker future.

Simply stated, politicians and government employee unions have created an unholy alliance to extract as much money as possible from the state’s beleaguered private sector.

That’s not a surprise. Indeed, it’s easily explained by the “stationary bandit” theory of government.

But while the bandit of government may be stationary, the victims are not. At least not in a nation with 50 different states. Indeed, Illinois Policy reports that a growing number of geese with golden eggs decided to fly away after a big tax hike in 2011.

Politicians enacted Illinois’ 2011 income-tax hike during a late-night legislative session in January 2011 and raised the state’s personal income-tax rate to 5 percent from 3 percent. This 67 percent income-tax hike lasted for four years, during which time Illinois experienced record wealth flight. …The short-term increase in tax revenue gained from higher tax rates is offset by the long-term loss of substantial portions of Illinois’ tax base. The average income of taxpayers leaving Illinois rose to $77,000 per year in 2014, according to new income migration data released by the IRS. Meanwhile, the average income of people entering Illinois was only $57,000. …During the four years of the full income-tax hike, prior to its partial sunset in 2015, Illinois lost $14 billion in annual adjusted gross income, or AGI, to other states, on net.

Illinois has always had an unfavorable ratio when comparing the incomes of immigrants and emigrants. But you can see from this chart that there was a radically unfavorable shift after the tax hike.

Here’s a table from the article showing the 10-worst states.

Illinois leads this list of losers by a comfortable margin. Connecticut, meanwhile, has a strong hold on second place (which shouldn’t be a surprise).

The IP report observes that the states benefiting from internal migration have much better fiscal policy. In particular, most of them are on the admirable list of states that don’t impose income taxes.

…the top five states with favorable income differentials were Florida, Wyoming, Nevada, South Carolina and Texas. Notably, 4 of 5 of these states have no income tax, and none of them have a death tax.

It’s worth noting that the high-tax approach is not producing good results.

Instead, as reported by Bloomberg, the Land of Lincoln is the land of red ink.

Illinois had its bond rating downgraded to one step above junk by Moody’s Investors Service and S&P Global Ratings, the lowest ranking on record for a U.S. state… Illinois’s underfunded pensions and the record backlog of bills…are equivalent to about 40 percent of its operating budget. …investors have demanded higher premiums for the risk of owning its debt. Moody’s called Illinois “an outlier among states” after suffering eight downgrades in as many years. …like other states, has no ability to resort to bankruptcy to escape from its debts. A downgrade to junk, though, would add further financial pressure by increasing its borrowing costs.

Amazing, in spite of this ongoing meltdown, the Democrats who control the state legislature are pushing hard to once again increase the income tax.

Heck, they want to increase all sorts of taxes. Including higher burdens on the financial industry.

Kristina Rasumussen, the President of Illinois Policy, warned in the Wall Street Journal that this was not a good recipe.

Proponents here call it the “privilege tax.” …The Illinois bill would put a 20% levy on fees earned by investment advisers. It passed the state Senate in a 32-24 vote Tuesday, and backers are hoping to get it through the House before the legislative session ends May 31. The new tax is pitched as a way to squeeze more revenue—as much as $1.7 billion a year—from hedge funds and private-equity firms… An earlier version of the Illinois proposal included a provision so that the 20% tax would take effect only if and when New York, New Jersey and Connecticut enacted similar measures. But the bill as written now would impose the tax regardless, and lawmakers will simply have to hope other states follow suit. Yet who says financiers can’t do their jobs just as well in Palm Beach, Fla.—or London, Zurich or Hong Kong? The progressives peddling this idea don’t understand that Chicago competes for these businesses not only with New York and Greenwich, Conn., but with anywhere that can offer cellphone service and an internet connection. …Railing against supposed “fat cats” might satisfy progressive groups, but lawmakers shouldn’t be in the business of hounding the people who help connect capital with new opportunities for growth. …Rather than focus on how to make everyone miserable together, policy makers should work to increase their states’ competitiveness. A start would be to rally against this proposed privilege tax and instead fix the spiraling pension costs and outdated labor rules that are dragging Illinois and other blue states down.

Let’s hope the governor continues to reject any and all tax increases.

If he does hold firm, he’ll have allies.

Including the Chicago Tribune, which recently editorialized about the state’s dire position

Illinois legislators fumble repeated attempts to send a balanced budget to Gov. Bruce Rauner; while the stack of Illinois’ unpaid bills climbs by the minute; while our leaders prioritize politics over policy… Employers and other taxpayers are hopping over Illinois’ borders with alarming regularity. …What an embarrassment. What a dereliction of duty. …Illinois, boasting the lowest credit rating and the highest population loss of any state in the country, has doubled down. State government is in a full-blown crisis. Again. Since January, Democrats have discussed plans to raise income taxes and borrow money to pay down bills. They approved bills that would make Illinois a less attractive place to do business; under one proposal, Illinois would have the highest minimum wage of all its neighboring states.

This is some very sensible analysis from a newspaper that endorsed Obama in both 2008 and 2012.

Even more important, the state’s taxpayers are mostly on the correct side.

Illinoisans feel the strain of the state’s two-year budget impasse, but they are emphatic that tax hikes should not be part of any budget deal. These are the findings of a new poll of likely Illinois voters… Only 31 percent of survey respondents support raising the state income tax to end the budget impasse. An increase in the state sales tax is even more unpopular, with 76 percent of survey respondents opposed. Another key takeaway from the poll: A plurality (49 percent) of respondents who are directly affected by the state budget impasse prefer a cuts-only, no-tax-hike budget. …Survey respondents were also asked what they think of political candidates who support raising taxes to end the budget impasse. The poll found that likely Illinois voters will be unforgiving of candidates for governor or the General Assembly who raise the state income tax or sales tax.

I suspect taxpayers realize that higher taxes will simply lead to more spending.

Indeed, a leftist in the state inadvertently admitted that the purpose of tax hikes is to enable more spending.

If there is to be any hope for the future in Illinois, Governor Rauner needs to hold firm. So long as Republicans in the state legislature hold firm, he can use his veto power to stop any tax hikes.

Or he can be Charlie Brown.

P.S. Illinois is invariably near the bottom in comparisons of state fiscal policy. The one saving grace is that the state has a flat tax. If the statists ever succeed in replacing that system with a so-called progressive tax, it will just be a matter of time before the state passes New York and California in the real race to the bottom.

Budget Porn for Libertarians and other Supporters of Limited Government

Fri, 06/02/2017 - 12:53pm

Neither involves nudity, but I’ve written about libertarian porn and poverty porn.

To augment that list, my former colleague Brian Riedl, now with the Manhattan Institute, has produced some fiscal porn. Nothing sexual, so you can disregard this column if that’s your thing. However, if you share my salacious interest in smaller government and more freedom, you’ll be squirming in your seat as you read parts of his column.

He starts with a simple observation.

President Trump’s…bold proposal to cut discretionary spending – excluding defense – from $619 billion this year to $429 billion a decade from now. That is a 30 percent reduction.

And Brian points out it’s a real cut, not a “Washington cut” that occurs when spending doesn’t rise as fast as previously planned.

I admit that my heart is beating faster.

But I shouldn’t get too excited. Brian points out that Trump doesn’t specify which domestic discretionary programs would get cut, either over the next several years or by 2027 when total outlays for that category are supposed to be $429 billion.

…the budget shows initial cuts followed by an across-the-board sequestration that would top $100 billion by 2027.

Brian doesn’t think politicians would want to accept a sequester.

I’d be happy with that outcome. Perhaps even pruriently happy.

But he may be right about the preferences of the political class.

So he decided to put together his own budget for domestic discretionary programs. In effect, a roadmap for lawmakers who may actually be serious about controlling the size and scope of Washington.

I extrapolate the budget’s own reductions, and fill in the remaining gaps based on my own experience crafting federal budgets for several leading presidential campaigns and working as a federal budget economist in the Senate.

He starts by going after the federal bureaucracy’s lavish compensation.

Federal employment and its generous compensation would be reduced. The federal civilian workforce could be downsized by 10 percent by replacing only one-third of the workers who leave their jobs ($7 billion saved in 2027), slowing the annual growth rate of federal civilian employee pay by half a percentage point ($12 billion), and requiring federal employees to contribute more to their own retirement plans ($7 billion).

I call this a good start. Not only is my heart racing, I’m flushed with anticipation.

Brian follows with ideas to raise revenue that – under D.C.’s bizarre budget rules – get counted as negative spending.

Other potential cross-agency reforms include raising user fees to better reflect program costs ($3 billion), and raising $10 billion annually by 2027 through modest federal asset and land sales (which Congress could classify as an offset to discretionary spending).

I don’t object to genuine user fees (such as setting entrance fees to national parks so costs are covered). And I certainly don’t object to selling federal land and other federal assets.

That being said, I prefer genuine spending cuts, so these provisions don’t excite me. My pulse has returned to normal. He’s ruined the mood!

But Brian then gets my heart racing again with some take-no-prisoners fiscal slashing.

With regard to specific programs, two-thirds of non-defense discretionary spending goes to federal operations, and the rest to state and local government grants. …federal operations could be targeted for deeper reforms. The Administration could shelve NASA’s human space exploration program ($10 billion), and halve the National Science Foundation and energy research (saving $6 billion). President Trump’s privatization targets include Amtrak ($1 billion); much of the Federal Aviation Administration (saving $10 billion); agriculture research ($1 billion); AmeriCorps and related programs ($1.5 billion); and the National Endowments for the Arts and the Humanities and public broadcasting ($0.7 billion combined). President Trump proposes cutting international spending nearly in half. Drastic reductions in the $45 billion foreign assistance budget.

I’m especially hot and bothered about what Brian suggests for Amtrak, the NEA, the CPB, and foreign aid.

And what he proposes for federal grants has me panting with desire.

…the completion of the interstate highway system leaves little reason for Washington to continue collecting the federal gas tax and redistributing it to states. Congress could save $40 billion in federal spending (and taxes) by eliminating the federal middle man and allowing states to collect and spend the tax themselves on projects of their choice. Other federal grant programs that could be devolved to states include housing aid to the poor (reduce by $30 billion and retain the final $10 billion for the hardest-hit states); means-tested food, child care, and home energy assistance ($10 billion); Head Start and other family service programs ($11 billion); job training ($6 billion); social services ($2 billion); economic development ($8 billion); justice ($2 billion); pollution control ($4 billion); disaster preparation ($2 billion); and numerous small public health grants ($6 billion). …lawmakers could freeze the two largest K-12 programs (special education and Title I grants to low-income school districts) at today’s combined $29 billion level, while eliminating dozens of small and largely unnecessary K-12 grant programs ($6 billion). Freezing Pell Grant spending at $24 billion, despite rising population, would require trimming either eligibility standards or the $4,860 annual maximum award.

A very good list, though I think he should get the federal government totally out of the education business, so his budget porn leaves something to be desired.

However, now for…ummm…the climax of Brian’s column (is that pun too obvious?).

Altogether, these reforms would reduce 2027 non-defense discretionary outlays to the $429 billion target proposed by President Trump.

And I must be young and virile, because the question that immediately comes to mind is what Brian can propose to get us to $329 billion. And then $229 billion.

By the way, Brian then ruins the mood with a final sentence. Maybe I’m reading it wrong, but I think he’s implying that the above cuts are too much and he’s only proposing them because Trump won’t address the old-age entitlements,

Such cuts are the price of balancing the budget without addressing the soaring Social Security and Medicare costs that are driving the deficit upwards.

My view is that we should bank all the savings to domestic discretionary that Brian identifies, accept all the reforms Trump proposes for Medicaid and other means-tested programs, and then add some reform of the other entitlements to the mix.

If Brian goes along with that, I won’t be upset if he doesn’t send flowers the next day.

Great Moments in Local Government

Thu, 06/01/2017 - 12:47pm

While most of my disdain is reserved for the federal government in Washington, I periodically share horror stories about foreign governments and state governments.

And today we’re going to add to our collection of bone-headed policies by local governments.

In some past cases, the examples captured systemic flaws. In other cases, we looked at specific bad examples. Today, we have an interesting mix.

We’ll start with an example of bad policy that is easy to mock. It focuses on the predatory interventions by a town, as illustrated by this story from Alabama.

Teens in Gardendale are in for a rude awakening this summer when it comes to cutting grass. According to the city’s ordinance, you must have a business license. Teenagers have been threatened by officials…to show their city issued license before cutting a person’s lawn for extra summer cash. Cutting grass is often one of the first jobs many have in the summer. But a business license in Gardendale costs $110. And for a job, just for a couple of months, that can be a bit extreme.

What’s really disappointing about this story is that adults are ratting out the teenagers.

I can understand that they’re irked that they pay the license fee while the kids don’t, but that’s still wrong.

“One of the men that cuts several yards made a remark to one of our neighbors, ‘that if he saw her cutting grass again that he was going to call Gardendale because she didn’t have a business license,” said Campbell. …Mayor Stan Hogeland said when operating a business for pay within the city limits, you must have a business license.

Hey, Mr. Mayor, I have a better idea. Get rid of licensing rules and give freedom a try.

If your residents want to freely contract with each other, let them. Whether they’re kids or adults.

Makes me wonder if Gardendale is one of those places that puts the boot of government on the necks of kids who set up – gasp! – unlicensed lemonade stands?

If so, I imagine Daniela Earnest and Julie Murphy can offer the mayor some useful advice.

Now let’s shift to an example of local government abuse that is more troubling. And apparently more systemic.

A column in the Washington Post reveals that local governments try to make families pay if their kids wind up in the legal system, even if they’re ultimately declared not guilty of any offense.

In dozens of one-on-one meetings every week, a lawyer retained by the city of Philadelphia summons parents whose children have just been jailed, pulls out his calculator and hands them more bad news: a bill for their kids’ incarceration. Even if a child is later proved innocent, the parents still must pay a nightly rate for the detention. Bills run up to $1,000 a month… The lawyer, Steven Kaplan…is paid up to $316,000 a year in salary and bonuses, more than any city employee, including the mayor.

I haven’t given any thought to whether families should cough up money if kids are found guilty and then incarcerated.

But I find it to be outrageous that bills are sent to families when the kids are found to be not guilty.

And let’s be honest. Such a policy is not about criminal justice. It’s about figuring out new ways of pillaging people to finance bureaucracy.

To add insult to injury, most of the families are poor, so it’s very difficult to collect revenue. Indeed, very little money is collected after paying the lawyer.

Because these parents are so often from poor communities, even the most aggressive efforts to bill them seldom bring in meaningful revenue. Philadelphia netted $551,261 from parents of delinquent children in fiscal 2016.

And when you look at the consequences for poor families, it’s hard to think this is a good policy. Especially if the kid isn’t convicted of any crime!

When parents fail to pay on time, the state can send collection agencies after them, tack on interest, garnish 50 percent of their wages, seize their bank accounts, intercept their tax refunds, suspend their driver’s licenses or charge them with contempt of court.

Here’s an example from the west coast.

When Mariana Cuevas’s son was released from a California jail, after being locked up in a juvenile hall for more than 300 days for a homicide he did not commit, the boy’s public defender, Jeffrey Landau, thought his work was done. The case had been dismissed; his client was free. But at a celebratory dinner afterward, Cuevas, a Bay Area home cleaner, pulled out a plastic bag full of bills and showed Landau that the state had tried to collect nearly $10,000 for her child’s imprisonment. …In fiscal 2014-2015, Alameda County, which contains Oakland, spent $250,938 collecting $419,830 from parents. An internal county report called that “little financial gain.”

This is astounding. Trying to pillage a poor family for $10,000 when the kid didn’t commit the crime. If you care about decency and justice, this may even be worse than civil asset forfeiture.

Let’s close with another example of easy-to-mock local government.

The New York Post reports that the city is largely incapable of getting rid of incompetent teachers. So they’re paid to sit in a room and do nothing.

In one of the “reassignment centers,” 16 exiled educators sit in a city Department of Education building in Long Island City, Queens, including a dozen packed into one room — where they do virtually no work. They listen to music, do crossword puzzles, chat — and as this exclusive Post photo reveals, doze on the taxpayer’s dime. The rules forbid beach chairs and air mattresses, but not nap time. The teacher sprawled on the floor, pulled a wool hat over his eyes to shut out the fluorescent lights and slept. Others prop up two chairs to recline or just lay their heads on the table. …the city denies the existence of the derided holding pens. “There are no more rubber rooms,” DOE officials told The Post last week, saying reassigned staffers are given “administrative duties.” …The DOE refused to say how many removed teachers and other tenured staffers remain in limbo, but sources estimate 200 to 400 get paid while awaiting disciplinary hearings. Their salaries total $15 million to $20 million a year. …They mainly just kill time to get through a six-hour, 20-minute day. “I’m so exhausted from being in this place doing nothing,” one said. Several teachers on the payroll have been benched for up to five years due to a stunning bureaucratic breakdown.

Yes, this is bureaucratic breakdown.

But if you really want to understand the story behind the story, the real problem is that the unions representing government employee unions give a lot of money to politicians. Those politicians then turn around and “negotiate” contracts that provide excessive pay to regular bureaucrats and absurd protections to bad bureaucrats.

In this case, bad teachers are removed from the classroom, but it’s very difficult to fire them. So they get paid to do nothing.

P.S. Of course, that reminds me of the standard joke that most bureaucrats get paid to do nothing. There’s even a video version of that joke.

Libertarian Humor

Wed, 05/31/2017 - 12:27pm

As part of my collection of anti-libertarian jokes, I shared a mosaic back in 2012 purporting to show the 24 types of libertarians.

Well, turnabout is fair play. Here’s something similar, showing the 24 types of authoritarians, from the libertarian page on Reddit.

I actually think the matrix of 24 libertarians was more clever than the above array of authoritarians.

That being said, I’ve amused myself by imagining which category best fits various statists.

  • Barack Obama is the dreamer.
  • Hillary Clinton is the elitist snob.
  • Bernie Sanders is drunk on debt.
  • Jeremy Corbyn is the humanitarian.
  • Every leftist in Congress is the deluded.
  • Lois Lerner obviously is the petty tyrant.
  • And it goes without saying that the limousine lefties of Hollywood are masochists.

Since today’s topic is humor, let’s now target President Trump.

This arrived in my inbox, so I don’t know who deserves credit for its creation, but I think it’s clever.

Not as funny as the videos “welcoming” Trump from various European nations, but still amusing.

Last but not least, here’s something clever from Reddit‘s libertarian page.

Exactly! Having read and very much enjoyed Robin Hood in my youth, Robin Hood was a tea party activist before the tea party existed. He reclaimed the tax money of the peasants from the nobility and returned the funds to the people.

P.S. Not only was Robin Hood a potential libertarian, the same can be said about Shakespeare.

Trump’s Paid Parental Leave Entitlement: Bad for the Economy, Bad for Women

Tue, 05/30/2017 - 12:18pm

In a recent interview on the new Trump budget, I hit on some of my usual topics such as growth, real-world fiscal numbers, tax reform, fake budget cuts, entitlement reform, and my Golden Rule.

But I want to call attention to the part of the discussion that started a bit before the one-minute mark. This is the point where I expressed concern about Donald Trump’s proposed parental leave entitlement.

I’ve written about Trump’s childcare scheme, but that’s a different intervention than what we’re talking about today.

Government-mandated paid parental leave is just as misguided childcare subsidies. It may even be worse. Let’s look at some details.

The Wall Street Journal is unimpressed by Trump’s plan to expand the welfare state.

Mr. Trump’s budget would require states to provide six weeks of paid family leave for new mothers and fathers, as well as adoptive parents. States would have “broad latitude to design and finance” the benefit, which would be delivered through unemployment insurance. States would be forced to work out how much to pay parents, whether to ban a beneficiary from working during the leave, and dozens of other details. The budget says the program will cost the feds $25 billion. The cost is offset in theory by reducing waste and abuse in unemployment insurance. The left is naturally panning the plan as stingy. …Once an entitlement is codified it expands. Proponents note that underwriting the benefit requires only a tiny increase in taxes, or some other levy on businesses. But wait until Democrats double or triple the duration of the leave, which they will do as soon as they are in power. The idea that Republicans can propose a cost-effective entitlement is delusional… The left chants that every industrialized country in the world offers some form of paid family leave—even Oman!—but one reason European countries have inflexible labor markets and higher unemployment is because they make hiring more expensive.

The final sentence is the key.

Why on earth should the United States mimic the policies of nations that have less growth, more unemployment, and lower per-capita economic output?

And James Pethokoukis of the American Enterprise Institute agrees that if Republicans start the program, Democrats will expand it. But his citation of some academic research is the best part of his article.

…how could the left not be secretly thrilled? Even if Trump’s bare-bones plan doesn’t become law, it sets a sort of precedent for Republicans supporting paid leave. And should the plan pass Congress and get signed by Trump, it establishes a program that future Democratic presidents and lawmakers can expand. …A 2017 study, by UC Santa Barbara economist Jenna Stearns, of maternity leave policy in Great Britain found that…there’s a tradeoff: Expanding job protected leave benefits led to “fewer women holding management positions and other jobs with the potential for promotion.” Likewise, a 2013 study by Cornell University’s Francine Blau and Lawrence Kahn found family-friendly policies…also “leave women less likely to be considered for high-level positions. One’s evaluation of such policies must take both of these effects into account.” …In a classic 1983 paper on mandated benefits like paid leave, former Obama economist Lawrence Summers explained businesses would offset higher benefits with lower pay or hiring workers with lower potential benefit costs. You know, tradeoffs.

Amen.

And this is why even a columnist for the New York Times has pointed out that self-styled feminist policies actually are bad for women.

The best policies for women are the same as the best policies for men (not to mention all the other genders that now exist). Simply stated, allow free markets and small government.

P.S. Government-mandated paid parental leave is a bad idea even when the idea is pushed by people at right-wing think tanks.

More Examples of Terrorism Subsidized by Government Handouts

Mon, 05/29/2017 - 12:50pm

Whenever there’s a terrorist attack, I automatically feel a combination of anger, horror, and sadness. Like all normal people.

But it’s then just a matter of time before I also begin to wonder whether we’ll learn that the dirtbag terrorist was financed by welfare.

Which is an understandable reaction since that’s now the normal pattern. Over and over and over and over and over again, we learn that taxpayers were supporting these murderous losers while they plotted and planned their mayhem.

And it’s not random. They’re actually told by hate-filled Imams to sign up for handouts. And European courts protect terrorist households that use welfare to finance death and destruction.

It’s gotten to the point where I even created a special terror wing in the Moocher Hall of Fame.

And it’s happened again. The piece of human filth who murdered 22 people at a concert in Manchester was able to finance his terrorism with handouts from the British government.

The Telegraph has some of the odious details about tax-financed death and destruction.

Salman Abedi is understood to have received thousands of pounds in state funding in the run up to Monday’s atrocity even while he was overseas receiving bomb-making training. Police are investigating Abedi’s finances, including how he paid for frequent trips to Libya where he is thought to have been taught to make bombs at a jihadist training camp. …Abedi’s finances are a major ‘theme’ of the police inquiry amid growing alarm over the ease with which jihadists are able to manipulate Britain’s welfare and student loans system to secure financing. One former detective said jihadists were enrolling on university courses to collect the student loans “often with no intention of turning up”.

But he probably accessed other types of benefits as well, particularly since he never worked and had plenty of cash.

…the Department for Work and Pensions refused to say if Abedi had received any benefits, including housing benefit and income support worth up to £250 a week, during 2015 and 2016. …Abedi, 22, never held down a job, according to neighbours and friends, but was able to travel regularly between the UK and Libya. Abedi also had sufficient funds to buy materials for his sophisticated bomb while living in a rented house in south Manchester. Six weeks before the bombing Abedi rented a second property in a block of flats in Blackley eight miles from his home, paying £700 in cash. He had enough money to rent a third property in the centre of Manchester from where he set off with a backpack containing the bomb. Abedi also withdrew £250 in cash three days before the attack and transferred £2,500 to his younger brother Hashim in Libya

Time for another example. Remember the piece of human garbage in London who mowed down some innocent people with his car before murdering a policeman?

Well, he also was subsidized by taxpayers.

Khalid Masood, the radical ISIS terrorist responsible for London’s Westminster terror attack, did not have a job and was receiving government benefits before engaging in his attack. …Masood had a violent criminal history, including several knife attacks. …Terrorists receiving government welfare is a common theme discovered in many post-terror attack investigations.

Seems like Abedi and Masood should have had their own episode of “Benefits Street.”

There are also new reports on welfare-subsidized terror from continental Europe.

A story in USA Today offers a depressing summary.

Governments across Europe have accidentally paid taxpayer-funded welfare benefits such as unemployment funds, disability pensions and housing allowances to Islamic State militants who have used the money to wage war in Iraq and Syria, authorities and terrorism experts say. Danish officials said this week that 29 citizens were given $100,000 in public pension benefits because they were considered too ill or disabled to work, and they then fled to Syria to fight for the radical group. …Other countries that also have paid benefits to Islamic State fighters…It took eight months before welfare authorities cut off benefits paid to a Swedish national who had joined the terror group in its Syrian stronghold Raqqa. …Authorities concluded that several of the plotters in the Brussels and Paris terror attacks that killed 162 people in 2015 and 2016 were partly financed by Belgium’s social welfare system while they planned their atrocities. …radical Islamic cleric Anjem Choudary, who was jailed for terrorist activities, urged followers to claim “jihadiseeker’s allowance” — a reference to the nation’s welfare system. His phrase echoes a manual released by the militant group in 2015. How to Survive in the West: A Mujahid Guide advises that “if you can claim extra benefits from a government, then do so.”

By the way, I don’t know whether to laugh or cry about the Belgian government’s response.

Are they reducing the welfare state? Of course not.

But you’ll be happy to know that imprisoned radicals lose access to the government teat.

Philippe de Koster, director of Belgium’s agency that fights money laundering and terrorism financing, said steps have since been taken to prevent that from happening again. For example, those convicted of terrorism can no longer receive benefits while in jail.

I’ve already written about welfare-subsidized terrorism in the Nordic nations.

Here’s another story about developments in Scandinavia.

The report examined hundreds of individuals who left to join extremist groups such as Islamic State (IS, formerly ISIS/ISIL) between 2013 and 2016. Commissioned at the request of the Financial Supervisory Authority, it has found that the majority was still receiving living allowance, child benefit, maintenance support and parental benefits while abroad, having other people handle their mail to make it look like they were still at home.

The problem seems especially acute in Sweden.

Close to every person who left Sweden to fight for terror groups in the Middle East received welfare to support themselves abroad, according to a new government report. A study of 300 Swedish citizens who fought in Syria and Iraq between 2013 and 2016 shows jihadis are getting increasingly good at getting away with welfare fraud. The individuals often use a person in Sweden to handle paperwork and create the illusion that they’re still in the country. …The most attractive option are government loans to study abroad. The loans are easy to get and thousands of dollars are paid out at once. …The Danish Security and Intelligence Service (PET) recently identified several cases of Danish citizens receiving early pension because they were deemed too sick or disabled to work. They later left the country to fight for Islamic State while the payments continue to get deposited into their accounts. …PET has tried to cut off the benefits since 2014, but current legislation doesn’t allow the payment agency to cut early pensions simply because the recipient is believed to be a terrorist.

Let’s close with something that it either astounding or depressing, or actually both. All of the examples cited above are nations with bloated welfare states. Governments in all those countries consume more than 40 percent of economic output, and more than 50 percent of GDP in some cases.

Belgium is in that latter category, yet one official actually said that it was very difficult to fight terrorism “due to the small size of the Belgian government.”

To me, this is a reminder that the natural incompetence of government becomes worse the bigger it gets.

P.S. Today’s column mocks European government for welfare-subsidized terrorism, but American readers should be careful about throwing stones in glass houses.

The dirtbags who bombed the Boston Marathon were mooching off taxpayers.

And the U.S. refugee program includes automatic eligibility for handouts, making it, in part, a “terrorist-funding welfare scam.”

P.P.S. I suppose a concluding caveat would be appropriate. I’m not making an argument that welfare causes terrorism. That almost would be as silly as the leftists who claim that terrorism is caused by inequality or climate change. Though I do wonder whether people who get government handouts feel a sense of self-loathing that leaves them vulnerable to jihadist ideology.

Single-Payer Suicide: Go Ahead, California, Make My Day

Sun, 05/28/2017 - 12:38pm

In the Dirty Harry movies, one of Clint Eastwood’s famous lines is “Go ahead, make my day.”

I’m tempted to say the same thing when I read about politicians proposing economically destructive policies. Indeed, I sometimes even relish the opportunity. I endorsed Francois Hollande back in 2012, for instance, because I was confident he would make the awful French tax system even worse, thus giving me lots of additional evidence against class-warfare policies.

Mission accomplished!

Now we have another example. Politicians in California, unfazed by the disaster of Obamacare (or the nightmare of the British system), want to create a “single-payer” healthcare scheme for the Golden State.

Here’s a description of the proposal from Sacramento Bee.

It would cost $400 billion to remake California’s health insurance marketplace and create a publicly funded universal health care system, according to a state financial analysis released Monday. California would have to find an additional $200 billion per year, including in new tax revenues, to create a so-called “single-payer” system, the analysis by the Senate Appropriations Committee found. …Steep projected costs have derailed efforts over the past two decades to establish such a health care system in California. The cost is higher than the $180 billion in proposed general fund and special fund spending for the budget year beginning July 1. …Lara and Atkins say they are driven by the belief that health care is a human right and should be guaranteed to everyone, similar to public services like safe roads and clean drinking water. …Business groups, including the California Chamber of Commerce, have deemed the bill a “job-killer.” …“It will cost employers and taxpayers billions of dollars and result in significant loss of jobs in the state,” the Chamber of Commerce said in its opposition letter.

Yes, you read correctly. In one fell swoop, California politicians would more than double the fiscal burden of government. Without doubt, the state would take over the bottom spot in fiscal rankings (it’s already close anyhow).

Part of me hopes they do it. The economic consequences would be so catastrophic that it would serve as a powerful warning about the downside of statism.

The Wall Street Journal opines that this is a crazy idea, and wonders if California Democrats are crazy enough to enact it.

…it’s instructive, if not surprising, that Golden State Democrats are responding to the failure of ObamaCare by embracing single-payer health care. This proves the truism that the liberal solution to every government failure is always more government. …California Lieutenant Governor Gavin Newsom, the frontrunner to succeed Jerry Brown as Governor next year, is running on single-payer, which shows the idea is going mainstream. At the state Democratic convention last weekend, protesters shouted down speakers who dared to ask about paying for it. The state Senate Appropriations Committee passed a single-payer bill this week, and it has a fair chance of getting to Mr. Brown’s desk.

I semi-joked that California was committing slow-motion suicide when the top income tax rate was increased to 13.3 percent.

As the editorial implies, the state’s death will come much faster if this legislation is adopted.

A $200 billion tax hike would be equivalent to a 15% payroll tax, which would come on top of the current 15.3% federal payroll tax. …The report dryly concludes that “the state-wide economic impacts of such an overall tax increase on employment is beyond the scope of this analysis.”

California’s forecasting bureaucrats may not be willing to predict the economic fallout from this scheme, but it’s not beyond the scope of my analysis.

If this legislation is adopted, the migration of taxpayers out of California will accelerate, the costs will be higher than advertised, and I’ll have a powerful new example of why big government is a disaster.

Ed Morrissey, in a column for The Week, explains why this proposal is bad news. He starts by observing that other states have toyed with the idea and wisely backed away.

Vermont had to abandon its attempts to impose a single-payer health-care system when its greatest champion, Gov. Peter Shumlin, discovered that it would cost far more than he had anticipated. Similarly, last year Colorado voters resoundingly rejected ColoradoCare when a study discovered that even tripling taxes wouldn’t be enough to keep up with the costs.

So what happens if single payer is enacted by a state and costs are higher than projected and revenues are lower than projected (both very safe assumptions)?

The solutions for…fiscal meltdown in a single-payer system…all unpleasant. One option would be to cut benefits of the universal coverage, and hiking co-pays to provide disincentives for using health care. …The state could raise taxes for the health-care system as deficits increased, which would amount to ironic premium hikes from a system designed to be a response to premium hikes from insurers. Another option: Reduce the payments provided to doctors, clinics, and hospitals for their services, which would almost certainly drive providers to either reduce their access or leave the state for greener pastures.

By the way, I previously wrote about how Vermont’s leftists wisely backed off single-payer and explained that this was a great example of why federalism is a good idea.

Simply stated, even left-wing politicians understand that it’s easy to move across state lines to escape extortionary fiscal policy. And that puts pressure on them to be less greedy.

This is one of the main reasons I want to eliminate DC-based redistribution and let states be in charge of social welfare policy.

Using the same reasoning, I’ve also explained why it would be good news if California seceded. People tend to be a bit more rational when it’s more obvious that they’re voting to spend their own money.

Though maybe there’s no hope for California. Let’s close by noting that some Democrat politicians in the state want to compensate for the possible repeal of the federal death tax by imposing a huge state death tax.

In a column for Forbes, Robert Wood has some of the sordid details.

California…sure does like tax increases. …The latest is a move by the Golden State to tax estates, even if the feds do not. …A bill was introduced by state Sen. Scott Wiener (D-San Francisco), asking voters to keep the estate tax after all. …if the feds repeal it, and California enacts its own estate tax replacement, will all the billionaires remain, or will high California taxes spark an exodus? It isn’t a silly question.

Of course billionaires will leave the state. And so will many millionaires. Yes, the weather and scenery are nice, but at some point, rich people will do a cost-benefit analysis and decide it’s time to move.

And lots of middle-class jobs will move as well. That’s the inevitable consequence of class-warfare policy. Politicians say they’re targeting the rich, but the rest of us are the ones who suffer.

Will California politicians actually move forward with this crazy idea? Again, just as part of me hopes the state adopts single-payer, part of me hopes California imposes a confiscatory death tax. It’s useful to have examples of what not to do.

The Golden State already is in trouble. If it becomes an American version of Greece or Venezuela, bad news will become horrible news and I’ll have lots of material for future columns.

Reagan vs. Obama, America vs. Europe

Sat, 05/27/2017 - 12:29pm

Every time I’ve gone overseas in the past six months, I’ve been peppered with questions about Donald Trump. It doesn’t matter whether my speech was about tax reform, entitlements, fiscal crisis, or tax competition, most people wanted to know what I think about The Donald.

My general reaction has been to disavow any expertise (as illustrated by my wildly inaccurate election prediction). But, when pressed, I speculate that Hillary Clinton wasn’t a very attractive candidate and that Trump managed to tap into disdain for Washington (i.e., drain the swamp) and angst about the economy’s sub-par performance.

What I find galling, though, is when I get follow-up questions – and this happens a lot, especially in Europe – asking how it is possible that the United States could somehow go from electing a wonderful visionary like Obama to electing a dangerous clown like Trump.

Since I’m not a big Trump fan, I don’t particularly care how they characterize the current president, but I’m mystified about the ongoing Obama worship in other nations. Even among folks who otherwise are sympathetic to free markets.

I’ve generally responded by explaining that Obama was a statist who wound up decimating the Democratic Party.

And my favorite factoid has been the 2013 poll showing that Reagan would have trounced Obama in a hypothetical matchup.

I especially like sharing that data since many foreigners think Reagan wasn’t a successful President. So when I share that polling data, it also gives me an opportunity to set the record straight about the success of Reaganomics.

I’m motivated to write about this topic because I’m currently in Europe and earlier today I wound up having one of these conversations in the Frankfurt Airport with a German who noticed my accent and asked me about “crazy American politics.”

I had no problem admitting that the political situation in the U.S. is somewhat surreal, so that was a bonding moment. But as the conversation progressed and I started to give my standard explanation about Obama being a dismal president and I shared the 2013 poll, my German friend didn’t believe me.

So I felt motivated to quickly go online and find some additional data to augment my argument. And I was very happy to find a Quinnipiac poll from 2014. Here are some of the highlights, as reported by USA Today.

…33% named Obama the worst president since World War II, and 28% put Bush at the bottom of post-war presidents. “Over the span of 69 years of American history and 12 presidencies, President Barack Obama finds himself with President George W. Bush at the bottom of the popularity barrel,” said Tim Malloy, assistant director of the Quinnipiac University Poll. …Ronald Reagan topped the poll as the best president since World War II, with 35%. He is followed by presidents Bill Clinton (18%) and John F. Kennedy (15%).

Yes, Ronald Reagan easily was considered the best President in the post-World War II era.

Here’s the relevant chart from the story. Kudos to the American people from giving the Gipper high scores.

And what about the bottom of the list?

Here’s the chart showing Obama edging out George W. Bush for last place.

By the way, I suspect these numbers will look much different in 50 years. I’m guessing many Republicans picked Obama simply because he was the most recent Democrat president and a lot of Democrats picked W because he was the most recent Republican President.

With the passage of time, I think Nixon and Carter deservedly will get some of those votes (and I think LBJ deserves more votes as the worst president, for what it’s worth).

The bottom line, though, is that I now have a second poll to share with foreigners.

P.S. If there’s ever a poll that isn’t limited to the post-World War II era, I would urge votes not only for Reagan, but also for Calvin Coolidge and Grover Cleveland.

P.P.S. People are surprised when I explain that Bill Clinton deserves to be in second place for post-WWII presidents.

A Simple and Effective Strategy for Trump to Prevail on the Budget

Fri, 05/26/2017 - 12:57pm

In this interview with Dana Loesch, I make several points about the Trump budget, including the need to reform means-tested entitlements and Obamacare (with a caveat from my Second Theorem of government), as well as some comments on foreign aid and fake budget cuts.

But those are arguments that I make all the time. Today, I want to call attention to the mid-point of the interview when I explain that President Trump is actually in a strong position to get a win, notwithstanding all the rhetoric about his budget being “dead on arrival.”

Simply stated, while he can’t force Congress to enact a bill that reforms entitlements, his veto power means he can stop Congress from appropriating more money that he wants to spend.

But if he wants to win that battle, he needs to be willing to allow a partial government shutdown.

Which he wasn’t willing to let happen when he approved a bad deal a few weeks ago to fund the government for the rest of the 2017 fiscal year.

But we have some good news. He may have learned from that mistake, at least if we take this tweet seriously.

either elect more Republican Senators in 2018 or change the rules now to 51%. Our country needs a good “shutdown” in September to fix mess!

— Donald J. Trump (@realDonaldTrump) May 2, 2017

Amen. Trump should be firm and explicitly warn Congress that he will veto any appropriations bill that spends one penny above what he requested in his budget.

And if Congress doesn’t comply, he should use his veto pen and we’ll have a partial shutdown, which basically affects the “non-essential” parts of the federal government that presumably shouldn’t be funded anyhow.

The only way Trump loses that fight is if enough Republicans join with Democrats to override his veto. But that’s unlikely since it is mostly Democrat constituencies (government bureaucrats and other recipients of taxpayer money) who feel the pinch if there’s a partial shutdown.

This is a big reason why, as we saw during the Clinton years, it’s Democrats who begin to cave so long as Republicans don’t preemptively surrender.

The bottom line is that being tough on the budget isn’t just good policy. As Ronald Reagan demonstrated, there are political rewards when you shrink the burden of government and enable faster growth.

P.S. I’m not convinced that Trump actually wants smaller government, but I hope I’m wrong. This upcoming battle will be very revealing about where he really stands.

The Most Persuasive Argument for Slashing the Corporate Tax Rate

Thu, 05/25/2017 - 12:39pm

What’s the best argument for reducing the onerous 35 percent corporate tax rate in the United States?

These are all good reasons to dramatically lower the corporate tax rate, hopefully down to the 15-percent rate in Trump’s plan, but the House proposal for a 20-percent rate wouldn’t be a bad final outcome.

But there’s a 9th reason that is very emotionally appealing to me.

  • 9. Should the rate be lowered to trigger a new round of tax competition, even though that will make politicians unhappy? Actually, the fact that politicians will be unhappy is a feature rather than a bug.

I’ve shared lots of examples showing how jurisdictional competition leads to better tax policy.

Simply stated, politicians are less greedy when they have to worry that the geese with the golden eggs can fly away.

And the mere prospect that the United States will improve its tax system is already reverberating around the world.

The German media is reporting, for instance, that the government is concerned that a lower corporate rate in America will force similar changes elsewhere.

The German government is worried the world is slipping into a ruinous era of tax competition in which countries lure companies with ever-more generous tax rules to the detriment of public budgets. …Mr. Trump’s “America First” policy has committed his administration to slashing the US’s effective corporate tax rate to 22 from 37 percent. In Europe, the UK, Ireland, and Hungary have announced new or rejigged initiatives to lower corporate tax payments. Germany doesn’t want to lower its corporate-tax rate (from an effective 28.2 percent)… Germany’s finance minister, Wolfgang Schäuble, …left the recent meeting of G7 finance ministers worried by new signs of growing beggar-thy-neighbor rivalry among governments.

A “ruinous era of tax competition” and a “beggar-thy-neighbor rivalry among governments”?

That’s music to my ears!

I”d much rather have “competition” and “rivalry” instead of an “OPEC for politicians,” which is what occurs when governments impose “harmonization” policies.

The Germans aren’t the only ones to be worried. The Wall Street Journal observes that China’s government is also nervous about the prospect of a big reduction in America’s corporate tax burden.

China’s leaders fear the plan will lure manufacturing to the U.S. Forget a trade war, Beijing says a cut in the U.S. corporate rate to 15% from 35% would mean “tax war.” The People’s Daily warned Friday in a commentary that if Mr. Trump succeeds, “some powerful countries may join the game to launch competitive tax cuts,” citing similar proposals in the U.K. and France. …Beijing knows from experience how important tax rates are to economic competitiveness. …China’s double-digit growth streak began in the mid-1990s after government revenue as a share of GDP declined to 11% in 1995 from 31% in 1978—effectively a supply-side tax cut. But then taxes began to rise again…and the tax man’s take now stands at 22%. …Chinese companies have started to complain that the high burden is killing profits. …President Xi Jinping began to address the problem about 18 months ago when he launched “supply-side reforms” to cut corporate taxes and regulation. …the program’s stated goal of restoring lost competitiveness shows that Beijing understands the importance of corporate tax rates to growth and prefers not to have to compete in a “tax war.”

Amen.

Let’s have a “tax war.” Folks on the left fret that this creates a “race to the bottom,” but that’s because they favor big government and think our incomes belong to the state.

As far as I’m concerned a “tax war” is desirable because that means politicians are fighting each other and every bullet they fire (i.e., every tax they cut) is good news for the global economy.

Now that I’ve shared some good news, I’ll close with the potentially bad news. I’m worried that the overall tax reform agenda faces a grim future, mostly because Trump won’t address old-age entitlements and also because House GOPers have embraced a misguided border-adjustment tax.

Which is why, when the dust settles, I’ll be happy if all we get a big reduction in the corporate rate.

Trump’s Budget Sets Stage for OECD Cuts

Thu, 05/25/2017 - 12:32pm

The White House budget released earlier this week recognizes a reality that CF&P has long highlighted: taxpayer dollars are being wasted on international organizations that actively work against the interests of the US. The Trump budget plans for a spending cut on contributions to international organizations of approximately $450M from the estimated 2017 levels of $1.45B—almost a 31% reduction—and calls for a strategic review to determine from which organizations those cuts will come.

Here is the relevant explanation from the Budget Justification for the Department of State, Foreign Operations, and Related Programs (p. 181):

The FY 2018 request calls for significant reductions in U.S. contributions to international organizations. In order to implement the necessary reductions, the Department is examining options to: (a) reduce the levels of international organizations’ budgets, (b) reduce U.S. assessment rates, and/or (c) possibly not pay U.S. assessments in full.

Reducing international organization budgets and U.S. assessment rates requires agreement by other member states in inter-governmental bodies such as the UN General Assembly. For many of the larger organizations funded through the CIO account, the contributions and assessment rates in the request are for calendar year 2017 and since these budgets have already been approved by their respective governing bodies, they cannot be reduced retroactively. Reducing international organization budgets in future years will require a re-doubling of U.S. efforts to gain support from other member states, including key allies that have been supportive of efforts to limit budget growth. The Department is examining possible methods for achieving these objectives.

The third option, partial non-payment of assessments, can be achieved through unilateral decisions by the United States Government.

Therefore, in order to secure U.S. interests and ensure that limited funding goes to international organizations that most directly promote U.S. interests, the Department and interagency stakeholders will conduct a strategic review of organizations where reductions can be achieved while maintaining U.S. national interests. This interagency process will give priority to organizations that most directly support U.S. national security interests, such as NATO, and American prosperity.

If the interagency review really does prioritize organizations that support American prosperity, then the OECD should be cut completely. As we have extensively documented, it works against the interests of American taxpayers by trying to limit tax competition and raise global tax rates, and by lobbying for big government in the US.

Let’s hope that the Trump administration follows through on its commitment to review international funding to ensure it is advancing American interests, and that members of Congress do their part and stand up for American taxpayers when they provide their own budget proposal(s).

The Best Trump Budget Cuts, Part V: Less Foreign Aid

Wed, 05/24/2017 - 6:28pm

President Trump’s new budget is getting attacked by politicians and interest groups in Washington. These critics say the budget cuts are too severe and draconian.

My main reaction is to wonder whether these people are illiterate and/or innumerate. After all, even a cursory examination of Trump’s proposal shows that the federal government will expand over the next decade by an average of 3.46 percent every year, considerably faster than inflation.

For what it’s worth, I’m sure most of the critics actually do understand that government will continue growing under Trump’s budget. But they find it politically advantageous to engage in “Washington math,” which is when you get to claim a program is being cut if it doesn’t get a sufficiently large increase. I’m not joking.

That being said, while the overall federal budget will get bigger, there are some very good proposals in the President’s budget to terminate or reduce a few specific programs. I don’t know if the White House is actually serious about any of these ideas, but some of them are very desirable.

  • Shutting down the wasteful National Endowment for the Arts.
  • Defunding National Public Radio and the Corporation for Public Broadcasting.
  • Terminating the scandal-plagued Community Development Block Grant program.
  • Block-granting Medicaid and reducing central government funding and control.

Today, let’s add a fifth idea to our list. The Trump budget proposes a substantial reduction in foreign aid (for numbers, see line 18 of this OMB excel file).

I hope these cuts are implemented.

In part, I want to save money for American taxpayers, but I’m even more motivated by a desire to help the rest of the world. Simply stated, foreign aid is counterproductive.

The great paradox of government-to-government aid transfers is that they won’t work if recipient nations have bad policy. Yet we also know that nations with good policy don’t need handouts.

In other words, there’s no substitute for free markets and small government. That recipe works wherever it’s tried.

My colleague at the Cato Institute, Marian Tupy, embraces the idea of less foreign aid in a Reason column.

President Donald Trump is said to be considering large cuts to foreign aid. Those cuts cannot come soon enough.

And he explains why in the article. Here’s the passage that caught my eye.

Graham Hancock’s 1994 book, The Lords of Poverty: The Power, Prestige, and Corruption of the International Aid Business, is still worth reading. As the author explains, much of foreign aid is used to subsidize opulent lifestyles within the aid establishment. “Only a small portion of [aid money],” Hancock writes, “is ever translated into direct assistance. Thanks to bureaucratic inefficiency, misguided policies, large executive salaries, political corruption, and the self-perpetuating ‘overhead’ of the administrative agencies, much of this tremendous wealth is frittered away.”

The problems are not specific to the United States. Foreign aid also is used as a scam to line the pockets of contractors in the United Kingdom.

The British aid contracting industry has more than doubled in value from £540 million in 2012 to £1.34 billion last year. The proportion of every pound of taxpayers’ aid money that is spent on consultants has risen from 12p in 2011 to 22p. …Budget breakdowns showed the public being charged twice the going rate for workers. One contractor on a project had a margin of 141 per cent between staffing costs charged to Dfid and the cost at market rates.

By the way, one study even found that foreign aid undermines democracy.

Foreign aid provides a windfall of resources to recipient countries and may result in the same rent seeking behavior as documented in the “curse of natural resources” literature. …Using data for 108 recipient countries in the period 1960 to 1999, we find that foreign aid has a negative impact on democracy. In particular, if the foreign aid over GDP that a country receives over a period of five years reaches the 75th percentile in the sample, then a 10-point index of democracy is reduced between 0.6 and one point, a large effect.

Last but not least, Professor William Easterly explains in the Washington Post that foreign aid does not fight terrorism.

President Trump’s proposed budget includes steep cuts in foreign assistance. Aid proponents such as Bill Gates are eloquently fighting back. …The counter-terrorism argument for foreign aid after 9/11 indeed succeeded for a long time at increasing and then sustaining the U.S. foreign aid budget. …the link from aid to counter-terrorism never had any evidence behind it. As it became ever less plausible as terrorism continued, it set up aid for a fall. …the evidence for a link from poverty to terrorism never showed up. …studies since 9/11 have consistently shown that terrorists tend to have above-average income and education. Even if there had been a link from poverty to terrorism, the “aid as counter-terrorism” argument also required the assumption that aid has a dramatic effect on the poverty of entire aid-receiving nations. Today’s proponents of aid no longer make the grandiose claims of aid lifting whole societies out of poverty.

Heck, foreign aid keeps societies in poverty by enabling bigger government.

Yet international bureaucracies such as the United Nations keep peddling the discredited notion that developing nations should have more money to finance ever-bigger government.

The bottom line is that people who care about the world’s poor people should be advocating for freedom rather than handouts.

P.S. If you’re still skeptical, I invite you to try to come up with an example that answers either of these two questions.

The Five Most Important Takeaways from Trump’s Budget

Tue, 05/23/2017 - 12:01pm

It’s both amusing and frustrating to observe the reaction to President Trump’s budget.

I’m amused that it is generating wild-eyed hysterics from interest groups who want us to believe the world is about to end.

But I’m frustrated because I’m reminded of the terribly dishonest way that budgets are debated and discussed in Washington. Simply stated, almost everyone starts with a “baseline” of big, pre-determined annual spending increases and they whine and wail about “cuts” if spending doesn’t climb as fast as previously assumed.

Here are the three most important things to understand about what the President has proposed.

First, the budget isn’t being cut. Indeed, Trump is proposing that federal spending increase from $4.06 trillion this year to $5.71 trillion in 2027.

Second, government spending will grow by an average of almost 3.5 percent per year over the next 10 years.

 

Third, because the private economy is projected to grow by an average of about 5 percent per year (in nominal terms), Trump’s budget complies with the Golden Rule of fiscal policy.

Now that we’ve established a few basic facts, let’s shift to analysis.

From a libertarian perspective, you can argue that Trump’s budget is a big disappointment. Why isn’t he proposing to get rid of the Department of Housing and Urban Development? What about shutting down the Department of Education? Or the Department of Energy? How about the Department of Agriculture, or Department of Transportation?

And why is he leaving Social Security basically untouched when taxpayers and retirees would both be better off with a system of personal retirement accounts? And why is Medicare not being fundamentally reformed when the program is an ever-expanding budgetary burden?

In other words, if you want the federal government to reflect the vision of America’s Founders, the Trump budget is rather disappointing. It’s far from a Liberland-style dream.

But for those who prefer to see the glass as half-full, here are a couple of additional takeaways from the budget.

Fourth, as I wrote yesterday, there is real Medicaid reform that will restore federalism and save money.

Fifth, domestic discretionary spending will be curtailed.

But not just curtailed. Spending in the future for this category will actually be lower if Trump’s budget is approved. In other words, a genuine rather than fake budget cut.

I’ll close with my standard caveat that it’s easy to put good ideas (or bad ideas) in a budget. The real test is whether an Administration will devote the energy necessary to move fiscal reforms through Congress.

Based on how Trump was defeated in the battle over the final spending bill for the current fiscal year, there are good reasons to be worried that good reforms in his budget won’t be implemented. Simply stated, if Trump isn’t willing to use his veto power, Congress will probably ignore his proposals.

P.S. You may have noticed that I didn’t include any discussion of deficits and debt. And I also didn’t address the Administration’s assertion that the budget will be balanced in 10 years if Trump’s budget is approved. That’s because a fixation on red ink is a distraction. What really matters is whether the burden of spending is falling relative to the private sector’s output. In other words, the entire focus should be on policies that generate spending restraint and policies that facilitate private sector growth. If those two goals are achieved, the burden of red ink is sure to fall. Whether it happens fast enough to balance the budget in 2027 is of little concern.

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