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The Keynesian Blunder Down Under

Mon, 06/12/2017 - 12:22pm

Time for an update on the perpetual motion machine of Keynesian economics.

We’ll start with the good news. The Treasury Department commissioned a study on the efficacy of the so-called stimulus spending that took place at the end of last decade. As discussed in this news report, the results were negative.

…a scathing new Treasury-commissioned report…argues the cash splash actually weakened the economy and damaged local industry… The report, …says the…fiscal stimulus was “unnecessarily large” and “misconceived because it emphasised transfers, unproductive expenditure…rather than tax relief and/or supply side reform”.

The bad news, at least from an American perspective, is that it was this story isn’t about the United States. It’s a story from an Australian newspaper about a study by an Australian professor about the Keynesian spending binge in Australia that was enacted back in 2008 and 2009.

I actually gave my assessment of the plan back in 2010, and I even provided my highly sophisticated analysis at no charge.

The Treasury-commissioned report, by contrast, presumably wasn’t free. The taxpayers of Australia probably coughed up tens of thousands of dollars for the study.

But this is a rare case where they may benefit, at least if policy makers read the findings and draw the appropriate conclusions.

Here are some of the highlights that caught my eye, starting with a description of what the Australian government actually did.

The GFC fiscal stimulus involved a mix of new public expenditure on school buildings, social housing, home insulation, limited tax breaks for business, and income transfers to select groups. Stimulus packages were announced and implemented in the December 2008, March 2009 quarters and ran into subsequent quarters.

For what it’s worth, there are strong parallels between what happened in the U.S. and Australia.

Both nations had modest-sized Keynesian packages in 2008, followed by larger plans in 2009. The total American “stimulus” was larger because of a larger population and larger economy, of course, and the political situation was also different since it was one government that did the two plans in Australia compared to two governments (Bush in 2008 and Obama in 2009) imposing Keynesianism in the United States.

Here’s a table from the report, showing how the money was (mis)spent in Australia.

Now let’s look at the economic impact. We know Keynesianism didn’t work very well in the United States.

And the report suggests it didn’t work any better in Australia.

…fiscal stimulus induced foreign investors to take up newly issued relatively high yielding government bonds whose AAA credit rating further enhanced their appeal. This contributed to exchange rate appreciation and a subsequent competitiveness… Worsened competitiveness in turn reduced the viability of substantial parts of manufacturing, including the motor vehicle sector. …Government spending continued to rise as a proportion of GDP… This put upward pressure on interest rates… this worsened industry competitiveness contributed to major job losses, not gains, in manufacturing and tourism. …In sum, fiscal stimulus was not primarily responsible for saving the Australian economy… Fiscal stimulus later weakened the economy.

Though there was one area where the Keynesian policies had a significant impact.

Australia’s public debt growth post GFC ranks amongst the highest in the G20. Ongoing budget deficits and rising public debt have contributed to economic weakness in numerous ways. …Interest paid by the federal government on its outstanding debt was under $4 billion before the GFC yet could reach $20 billion, or one per cent of GDP, by the end of the decade.

We got a similar result in America. Lots more red ink.

Except our debt started higher and grew by more, so we face a more difficult future (especially since Australia is much less threatened by demographics thanks to a system of private retirement savings).

The study also makes a very good point about the different types of austerity.

…a distinction can be made between “good” and “bad” fiscal consolidation in terms of its macroeconomic impact. Good fiscal repair involves cutting unproductive government spending, including program overlap between different tiers of government. On the contrary, bad fiscal repair involves cutting productive infrastructure spending, or raising taxes that distort incentives to save and invest.

Incidentally, the report noted that the Kiwis implemented a “good” set of policies.

…in New Zealand…marginal income tax rates were reduced, infrastructure was improved and the regulatory burden on business was lowered.

Yet another reason to like New Zealand.

Let’s close by comparing the burden of government spending in the United States and Australia. Using the OECD’s dataset, you see that the Aussies are actually slightly better than the United States.

By the way, it looks like America had a bigger relative spending increase at the end of last decade, but keep in mind that these numbers are relative to economic output. And since Australia only had a minor downturn while the US suffered a somewhat serious recession, that makes the American numbers appear more volatile even if spending is rising at the same nominal rate.

P.S. The U.S. numbers improved significantly between 2009 and 2014 because of a de facto spending freeze. If we did the same thing again today, the budget would be balanced in 2021.

A Female Wing for the Moocher Hall of Fame?

Sun, 06/11/2017 - 12:18pm

The Moocher Hall of Fame highlights people who have some special trait that sets them apart from normal welfare recipients. They may get on the list because they are undeservingly rich, malignantly evil, incredibly entitled, or downright weird.

I also have a terror wing in the Hall of Fame. Though I’ve had to become selective since it turns out that just about every nutcase terrorist in the western world mooches off taxpayers.

And now I’m thinking I need a new wing. I’m not sure what to call it, but it’s for the middlemen or wholesalers who engage in industrial-level fleecing of taxpayers.

To give you an idea of what I mean, here are some excerpts from a story in  Newsweek about some Chicago-based scamming.

…the grandmother was actually conducting a simple unemployment insurance scam, one that stole almost $7 million from the state of Illinois, attracted a federal investigation and on Monday earned Garcia a four-year prison sentence. Garcia would pass out business cards at gas stations and on some days 10 to 15 people would walk into her office and hire her to file unemployment insurance claims for them, according to court papers filed by federal prosecutors. Many of her clients were Mexican-born immigrants without lawful immigration status or work permits, which made them ineligible for unemployment benefits. …She also kept a list of U.S. cities near the Mexican border, handwritten and neatly organized, and selected from it when filling out a client’s application. …Garcia told the informant she had clients who used false Social Security numbers for five or six years without problems, and that nine out of 10 applications were approved.

I have a couple of thoughts about this story. First, why isn’t she in jail for longer? Second, why isn’t her daughter also in jail?

But most important, why is government so blindly incompetent that it makes us all have Social Security numbers, but then it doesn’t actually have some sort of system to match names and numbers on things like unemployment forms?!?

It’s almost as if government is a big incompetent blob.

Here’s another story about a welfare middleman, though this is also a case where it’s a woman who is ripping off taxpayers.

Convenience store owner Vida Ofori Causey out of Worcester, Mass. was charged in federal court Monday after pleading guilty to $3.6 million worth of food stamp fraud. …She was able to scam the program by buying food stamp benefits from receipts for half the actual value. …As a result, recipients had cash on hand to buy restricted items. The restricted items could include alcohol, cigarettes and even drugs.

Since there’s a long history of fraud in the food stamps program, I’m not surprised that this happened.

Though I’m impressed (in a bad way) about the magnitude. It takes a lot of dishonest recipients combining with one evil woman to produce $3.6 million in fraud.

Last but not least, here’s a really disturbing story about a moocher who very appropriately has been jailed for life.

For 10 years, the group targeted mentally disabled people, luring those who were vulnerable and estranged from their families and locking them inside cabinets, basements and attics, according to prosecutors. The group’s ringleader, Linda Weston, persuaded the victims to allow her to become their representative and began collecting their disability benefits. The victims, prosecutors said, lived in the dark and in isolation, and were fed food laced with drugs to keep them sedated; they were brutally punished if they tried to escape. On Thursday, a federal judge sentenced Weston, 55, to life in prison — plus 80 years — for her role in the scheme. …The case horrified Philadelphia, where in 2011 a landlord discovered four disabled adults locked inside a boiler room, NBC reported. …The group ran the operation in three other states, prosecutors said. …victims were forced to live in attics naked…were fed a diet of Ramen noodles, beans or stew just once a day. …Some were encouraged to have children in order to collect more benefits. …The group stole more than $200,000 in Social Security benefits from victims, some of whom were forced into prostitution.

By the way, all three stories today feature women, so America truly is a land of opportunity for reprehensible people of both sexes. So perhaps the bottom line is that I need a female wing in the Moocher Hall of Fame.

You’ve come a long way, baby!

True to Form, the Paris-Based OECD Urges More Class-Warfare Tax Hikes and Big Expansions of the Welfare State

Sat, 06/10/2017 - 7:11pm

If there was a ranking of international bureaucracies, the World Bank would be my favorite (or, to be more accurate, least unfavorite). Yes, it sometimes produces bad studies, but it also is the source of good research on topics such as government spending, Social Security reform, tax complexity, financial regulation, and economic liberty. And the rankings in Doing Business are a very helpful way of measuring and comparing regulatory burdens (which is why leftists are so hostile to the project). Moreover, it’s hard to dislike an organization that has a mission of fighting poverty (even if it sometimes thinks redistribution is the right strategy).

The United Nations would be next on the list. The good news is that it has many well-meaning people. The bad news is that it has some very misguided projects. But since it isn’t very effective, I confess that it doesn’t command much of my attention.

At the bottom would be either the International Monetary Fund (IMF) or the Organization for Economic Cooperation and Development (OECD).

The IMF is notorious for supporting bailouts and advocating tax increases. Depending on my mood, it’s either the “Dr. Kevorkian of economic policy” or the “dumpster fire of the global economy.” Yes, I try to be fair and will acknowledge occasional good research (on taxation, government spending, financial regulation, spending caps, etc), but there’s no question that the net impact of the IMF is negative.

The OECD also is on the wrong side when looking at the big picture. Once again, I’ll admit that there are occasional good studies (on spending caps, tax policy, government spending, etc). But those glimmers of good news are overwhelmed by a statist agenda on a wide range of policies. Most recently, the Paris-based bureaucracy proposed more taxes and more spending for the American economy. And if you’re interested in other examples, I’ve attached a list of examples at the bottom of this column.

But the main purpose of this column is to review a new publication from the OECD. As part of its so-called “Bridging the Gap” project, the bureaucrats in Paris just issued a new report that reads as if it was taken from the campaign speeches of Bernie Sanders and Jeremy Corbyn.

Here are some of the lowlights, starting with a misguided fixation on inequality.

Fiscal redistribution through taxes and transfers plays a crucial role in containing the impact of market income inequality on disposable income… Policies aimed at promoting growth should consider how growth will have an impact on many other outcomes, and how to ensure that those policies avoid the “grow first, distribute later” assumption that has characterised the economic paradigm until recently. It is now clear that growth strategies need to consider from the outset the way in which their benefits will be distributed to different income groups. … Inequalities tear at the fabric of our societies. Inequality of incomes translates seamlessly into inequality of opportunities for children, including education, health and jobs, and lower future prospects to flourish individually and collectively. …inequalities are reaching a tipping point

I’m tempted to joke that the bureaucrats want a “distribute first, grow never” approach, but let’s focus on the fact that the real goal should be reducing poverty rather than reducing inequality.

If I’m poor, I want an opportunity to increase my income. And if there’s a policy that will help give me that opportunity, it doesn’t matter if that policy enables Bill Gates to increase his income at a faster rate.

That’s why there’s no substitute for economic growth if you really want to help the less fortunate.

But the not-so-subtle message of the OECD report is that poor people are poor because rich people are rich. The bureaucrats are concerned with how to re-slice the pie rather than how to expand the size of the pie.

The really troubling material is in the final chapter, but I can’t resist commenting on a few items that appeared earlier in the report.

Such as the fact that the bureaucrats were not happy when unemployment benefits in the United States were curtailed.

…redistribution helped cushion increases in market income inequality, but its role has since tended to fall in a majority of OECD countries in the most recent years…it reflects the phasing out of fiscal stimulus, as in the United States, where the extension of unemployment benefit duration carried out in 2008-09 was rolled back in 2011.

Too bad nobody told the authors that the job market improved in America when subsidies for joblessness were cut back.

But that kind of mistake is predictable since the OECD puts such a high value on coercive redistribution.

I’m also not surprised that the bureaucrats are upset that tax competition has resulted in lower tax rates.

Globalisation has increased the difficulty for governments in taxing mobile capital income. Increased levels of capital mobility have led to certain reductions in statutory income tax rates…, which has reduced the progressivity of tax systems… The distributional effects of these reductions in statutory tax rates, especially the reduction in top personal income tax rates, has been a contributing factor to the rise in inequalities.

And the OECD even regurgitated its bizarre hypothesis that inequality reduces growth.

Widespread increases in income inequality are a source of concern…for their potential impact on economic performance. …recent OECD work estimates that rising inequality between 1985 and 2005 might have contributed to knocking more than 4 percentage points off growth between 1990-2010.

The final chapter, though, is where the OECD unveils its Bernie Sanders/Jeremy Corbyn agenda. I guess young people might say that the bureaucrats were “letting their statism freak flag fly.”

Governments have a vital role to play…targeted social investment, redistributive fiscal policy and comprehensive labour market support…fiscal policy is the key mechanism for redistributing market incomes and it is important that it is set up to prioritise support for vulnerable population groups at all points in the economic cycle.

And what are some of these policies?

The OECD wants to expand the welfare state, even though such policies already have caused fiscal crises in many nations.

The size of means-tested programmes is relatively small in many countries and there is room for expansion, by either making those programmes more generous or by extending their coverage.

The bureaucrats also want to increase double taxation on income that is saved and invested.

…enhancing tax progressivity via savings tax reform. Income from savings is taxed progressively, though at lower rates than labour and with a lot of variation in taxation across asset types. …There is therefore scope to increase the fairness and the neutrality of the taxation of capital income…removing tax expenditures…strengthening progressivity of tax bases. …tax expenditures such as tax deductions for private pension contributions…are regressive since higher income taxpayers tend to save… Removing such tax expenditures could simultaneously reduce inequality and make the tax system more efficient.

There’s also an embrace of punitive property taxes.

Increased taxation of residential property could increase both growth and strengthen progressivity. …if designed well can fall mostly on high-wealth, high-income households.

Amazingly, the OECD even wants more onerous death taxes, even though such policies have a very negative impact on capital formation.

Strengthening inheritance and gift taxes can support inclusive growth. … Inheritance taxes can…help achieve intergenerational equity goals. …In order to be effective, inheritance taxes must also be combined with taxes on gifts and wealth transfers during the taxpayers’ lifetime, as well as with measures to address avoidance and evasion.

The bureaucrats want more subsidies for joblessness.

Sufficiently generous unemployment benefits and social-assistance systems with a wide coverage are also a key.

And they even endorse an idea that is so economically absurd that it was rejected by President Obama’s main economic adviser.

Promoting gender equality in access to employment and job quality is a key component of inclusive growth. …gender pay gaps remaining at about 15% across the OECD, on average, with little change in recent years.

Here’s another passage urging a bigger welfare state.

Compensatory policies that redistribute income also have a role to play in…lowering post-redistribution inequality. …strong and well-designed social safety nets programmes are all the more needed.

And here’s a specific policy for more housing subsidies.

Access to affordable housing is a challenge for inclusion, and solutions include not only better housing policies but also better urban planning and governance of land use. …Explicit policies to support access to housing include housing allowances, social housing arrangements and different kinds of financial support towards homeownership.

As you can see, that’s an impressive collection of statist policies, even for the OECD.

P.S. I wrote last year that some folks on the left enjoy very lavish incomes while crusading about inequality. The same is true of the OECD, where bureaucrats not only are lavishly compensated (a general rule for international organizations), but they also enjoy tax-free incomes while urging higher taxes on the rest of us.

P.P.S. Here are additional examples of very dodgy research from the OECD.

P.P.P.S. Don’t forget that the OECD’s statist agenda is financed by your tax dollars.

Paging Fox Butterfield: Another Jurisdiction Gets a Painful Lesson about the High Price of High Tax Rates

Fri, 06/09/2017 - 12:46pm

Since I’m a fiscal wonk, it’s sometimes tempting to overstate the importance of good tax policy. So I’m always reminding myself that all sorts of other factors matter for a jurisdiction’s competitiveness and success, including regulation and government effectiveness (and, for national governments, policies such as trade and monetary policy).

That being said, taxes are very important. In some cases, you could almost say tax policy is suicidally important.

Here’s some of what the Wall Street Journal reported earlier this week.

Hartford, Connecticut…is edging closer to joining a small club of American municipalities: those that have sought bankruptcy protection. …The city must pay nearly $180 million on debt service, health care, pensions and other fixed costs in the coming fiscal year beginning July 1. That is more than half of the city’s budget, excluding education.

This sounds like a run-of-the-mill story about a city (like Detroit) that has spent itself into fiscal trouble, mostly because of a bloated and over-compensated bureaucracy.

But tax policy is the story behind the story. Here’s the headline that caught my attention.

As I’ve written before, this is the “Fox Butterfield” version of financial reporting (he’s the New York Times reporter who was widely mocked for repeatedly expressing puzzlement that crime rates fell when crooks were locked up).

Simply stated, it would be more accurate to state (just as it was in Detroit) that the city is in trouble “because of” high property taxes, not “despite” those onerous levies.

Imagine being a homeowner or business with this type of burden.

Since 2000, Hartford has increased its property-tax, or millage, rate seven times. The rate is now more than 50% higher than it was in 1998. At the current level, a Hartford resident who owns a home with an assessed value of $300,000 currently pays an annual tax bill of $22,287, at rate of 7.43%. A West Hartford homeowner with a similar house pays $11,853 at a rate of 3.95%.

Wow, you get to pay twice as much tax on your home simply for the “privilege” of subsidizing an inefficient and incompetent city bureaucracy (not to mention the problem of excessive state taxes).

No wonder some major taxpayers are escaping, leaving the city (and state) even more vulnerable.

…the impending departure of one of its biggest employers, Aetna Inc. …Aetna and the other four biggest taxpayers in the city contribute nearly one-fifth of the city’s $280 million of property-tax revenue. Property-tax receipts make up nearly half of the city’s general-fund revenues.

To make matters worse, the city exempts a lot of property owners, which is one of the reasons for higher tax burdens on those that don’t get favored treatment.

Half of the city’s properties are excluded from paying taxes because they are government entities, hospitals and universities. …In Baltimore, about 32% of the property is tax exempt, and in Philadelphia it’s 27%.

Excuse me if I don’t shed a tear of sympathy for Hartford’s politicians. The city is in dire straits because of a perverse combination of excessive taxation and special tax favors. Combined, of course, with lavish remuneration for a gilded bureaucracy.

That’s the worst of all worlds. It’s Detroit all over again. Or you could call it the local government version of Illinois.

Needless to say, I don’t want my tax dollars involved in any sort of bailout.

Norway’s Version of the Resource Curse

Thu, 06/08/2017 - 12:22pm

There are a lot of positive things to be said about Norway.

In other words, Norway is a typical Nordic nation, with open markets, light regulation, free trade, and honest government. That’s the good news.

The bad news, at least from my perspective, is that Norway also is a typical Nordic nation in that it has a big welfare state.

But unlike the other Nordic nations, Norway also has a lot of oil. And, just like Alaska, it’s very easy to finance a big public sector when a government has access to a huge amount of petroleum-related revenue.

So does this make the country special? Is Norway a welfare-state Nirvana? In some sense, the answer is yes. As I’ve noted before, if a country wants a big welfare state, it makes a lot of sense to have very market-oriented policy in other areas to compensate. And if the country also happens to be rich with oil, that’s presumably not a bad combination.

But I would argue, of course, that Norway would be in better shape if the fiscal burden of government wasn’t so onerous.

And there’s growing evidence to validate my concerns. Bloomberg reports that falling oil prices are exposing problems with Norway’s extravagant welfare state.

More than a fifth of its working age population relied on unemployment or sick-leave benefits throughout 2016, according to a study by the Norwegian Labor and Welfare Administration, or NAV. With welfare payments up 3 percent in 2016, the growing dependence will likely make it harder for Norway to wean itself off oil and gas production. While the discovery of petroleum 50 years ago…helped make the world’s most generous welfare system possible — declining resources…means that the country will need to find other legs to stand on to keep up its standard of living.

Norway isn’t in any immediate danger, but I wonder whether it can still prosper when the oil runs out.

Simply stated, the welfare state may have eroded the country’s work ethic (something that’s also a problem in America).

That’s something that the stewards of the system readily admit. The agency’s acronym has even become a verb, to NAV, which means `being on benefits.’ “To uphold the Norwegian welfare system we need more people at work and not on passive benefits,” said Sigrun Vageng, the head of NAV, in an emailed answered to questions.

The problem of dependency has even spread to the richer parts of the country.

…dependency on state handouts now runs deeper. It also spread to the nation’s richest regions after the plunge in oil prices… Welfare payments in Rogaland, the regional center of the oil industry and home to Statoil ASA, rose a whopping 13 percent last year. Some 19 percent received benefits on average each month in Rogaland. In Oslo, it was 15 percent.

And once there are too many people riding in the wagon of government dependency, it’s not easy to rejuvenate a nation’s social capital.

…with an increasing share of its working age population on welfare benefits instead of paying taxes, the desired changes could prove a difficult task for whoever is in power. And many are also pulling out of the workforce altogether. The percentage of people of working age in employment fell to 70.6 percent in 2016, a 21-year low… “This comes as a big cost for the society, both through lost tax revenues and the direct expenses from social benefit payments,” said Jeanette Strom Fjaere, an economist at DNB.

On the bright side, Norway has set aside lots of oil money.

Norway…has over the past 20 years built up a sovereign wealth fund.

In other words, Norway is the opposite of Venezuela. It hasn’t squandered its oil wealth on bigger government.

On the dark side, it has reached the point where its sovereign wealth fund is shrinking rather than growing.

…the government last year started withdrawing cash for the first time.

Some people say this is similar to America’s Social Security system, which has a Trust Fund that is now being depleted. I reject that analogy for the simple reason that Norway’s fund is filled with real assets. The Social Security Trust Fund, by contrast, is nothing but a pile of IOUs (as even the Clinton Administration acknowledged).

But I’m digressing. Let’s close by observing that development economists sometimes write about a “resource curse” that exists when politicians feel they can impose lots of bad policy because it is easy to generate revenue by selling natural resources.

Some argue that Norway, with its commitment to the rule of law and markets, is the exception to the rule. Yes, its welfare state is excessive, but not because of oil. Indeed, there’s more welfare spending as a share of GDP in Denmark, Sweden, and Finland.

Though don’t forget that Norway’s GDP is boosted by all the oil wealth, so I’m guessing per-capita welfare outlays are higher than in neighboring countries (an important distinction, as illustrated by this data on government health spending).

So perhaps a version of the resource curse will hit Norway. But it won’t be because of a Venezuelan-style kleptocracy. Instead, it will be because the welfare state lures too many people into dependency. And when the oil money runs out, fixing that problem will be very difficult.

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.

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