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Updated: 57 min 39 sec ago

Helping a Program That Creates American Jobs

Sat, 07/21/2018 - 12:09am

Originally published by The Washington Times on July 16, 2018.

A recent Senate Judiciary Committee hearing purported to examine questions surrounding the EB-5 investor immigrant program. I say purported, because it featured only a single witness, one sympathetic to Chairman Chuck Grassley’s attacks on the program, and frequently digressed with discussion of the political topic du jour, family separations at the border.

When it stuck to the issue, what was said at the hearing left much to be desired. For instance, Mr. Grassley’s recitation of some recent abuses within the program lacked critical context. Not only are wrongdoers generally caught, but their impact pales when compared to the program’s thousands of successfully executed projects and the $20 billion in investment added it has brought the U.S. economy since 2008.

EB-5 visas are those available to immigrants who invest considerable funds in the U.S. economy, with a requirement that at least 10 jobs be created. Of political importance is the fact that EB-5 recipients don’t compete for American jobs, they create them. It’s the rare immigration program that should ruffle few, if any, feathers.

So why should the program be targeted with such tenacity? It can use some improvements, to be sure, but when even Republicans are embracing Obama-era regulations that would seriously curtail a pro-growth program, something is up.

We may have received an answer near the end of Mr. Grassley’s opening statement, where he stated his desire to “ensure capital is actually flowing to rural and underserved urban areas.”

For context, the investment threshold required to qualify for an EB-5 visa is lowered for government-designated Targeted Employment Areas, generally rural areas or those with significant levels of unemployment. What has the chairman, who represents Iowa, so agitated is his view that these attempts at government controls are not directing the market as thoroughly as politicians would like. That’s the thing about markets. They care more about efficiency than political expediency.

Ideally, investment should flow to where it provides the most value, and that’s best determined by markets, not politicians. Unfortunately, political necessity sometimes requires deal-making and compromises. The failure of this approach to direct sufficient funds away from their best economic use toward the projects preferred by politicians is not a good reason to scuttle the entire program, as would be done by a bill that Mr. Grassley introduced after his desired reforms were not adopted.

There are legitimate improvements that would benefit the EB-5 program. For instance, the processing of EB-5 applications takes much longer than advertised. Jacqueline Varas of American Action Forum also recommended more reliable and precise data collection, and to make it publicly available.

Another improvement to the program not discussed at the hearing involves the counting of family members against the 10,000 yearly EB-5 cap. There’s a huge backlog of EB-5 applicants, individuals eager to bring investment into the United States, that wouldn’t exist if Congress had been properly adhering to the law. That’s because as the Cato Institute’s David Bier recently uncovered, there is strong “evidence that proves that members of Congress believed that spouses and children wouldn’t count against the cap.” But that’s not how it’s been administered to date.

Opponents of EB-5 visas are also missing the big picture. Sen. Dianne Feinstein, who joined with Mr. Grassley to introduce the legislation to terminate the program, criticized it as meaning that “U.S. citizenship is for sale.” But a sale implies the proceeds are going to the seller, in this case the government. Instead, EB-5 is about attracting the most successful to America. The alternative is that they take their investment capital and experience to any of the numerous other jurisdictions competing for these immigrants with similar programs.

 

Politician of the Year?

Thu, 07/19/2018 - 12:47pm

Back in 2016, I had an informal “politician of the year” contest. The three candidates were:

  • The Prime Minister of Malaysia, who took normal cronyist corruption and added several zeroes to the total.
  • The president of the Philippines, because he announced to voters that none of his mistresses would be on the public payroll.
  • The follicly-challenged President of France, Francois Hollande, who squandered more than $100,000 per year on a hair stylist.

As a proud American, I was chagrined that no Americans made the list.

So I’m delighted to report that our first contestant in the 2018 race is from the United States.

Courtesy of the Washingtonian, let’s look at a very strong candidate for this year’s award.

Parking laws in the District can seem like a mess, but as any DC driver can note, confusion is not an excuse for breaking the law—unless you’re DC Councilmember Jack Evans. Evans, whose free-form approach to parking regulations has been well-documented, was spotted in his car Saturday morning, idling in a no-parking zone in Georgetown… Evans is hardly the first member of the DC Council to be criticized or spotlighted for flouting the District’s traffic and parking rules. …But of all of these, Evans is the council’s best-known parking-law skeptic. As it turns out, he has a point: In 2002, the DC Council granted itself the same legal immunity that members of Congress enjoy in the District, allowing them to park in bus zones, crosswalks, and residential permit zones when on official city business.

But the mere fact that there are special rules for insiders isn’t what qualifies Mr. Evans for an award.

If that was the case, the folks on Capitol Hill would deserve an award for wanting exemptions from the Obamacare law that they imposed on the country. Or we could give a giant prize to the bureaucrats at the OECD, who get tax-exempt salaries while pushing higher taxes on the rest of us.

What makes Mr. Evans worthy is the remarkable logic that he used when confronted by a lowly voter.

Kmetz says he first noticed Evans’ car parked at the corner of 32nd and Q streets, Northwest, while on his way to the post office. …Kmetz approaching Evans and asking the councilmember if he knows he is parking illegally. “Can I ask you something? Why do you care?” Evans responds. “Because if I parked illegally, I would get a ticket,” Kmetz says. “If I park illegally, that opens up a spot for you,” Evans says.

That’s some impressive sophistry.

But I’m wondering if Mr. Evans missed a golden opportunity. Instead of being snarky, he should have expressed fake empathy and told Mr. Kmetz that he would “solve” the problem the by submitting a bill to provide chauffeur-driven limousines to all members of the DC Council.

And he could even demonstrate his “frugality” by buying second-hand limos from the federal government’s massive fleet.

Great Moments in Foreign Government

Wed, 07/18/2018 - 12:40pm

Given the routine corruption and reckless spending in Washington, I frequently get asked how I keep my sanity.

It’s possible, as some of my friends argue, that I’m not actually sane. That would explain why I try to put my finger in the dyke of big government as more and more new leaks keep developing. Only a crazy person would fight against big government when politicians and bureaucrats have a “public choice” incentive to do the wrong thing.

Moreover, if “victory” is restoring the kind of limited government envisioned by the Founding Fathers, then there’s a 99.99 percent chance all my efforts will be wasted.

But allow me to offer a reason for optimism. What if we decide that “victory” is simply hindering the growth of government so that the private sector has enough “breathing room” to continue making our lives richer and better?

That’s the basic message of Human Progress, Marian Tupy’s website showing how the world is constantly improving. And we see good long-run developments from Economic Freedom of the World.

In other words, we don’t need to achieve Libertarian Nirvana. We just need to throw sand in the gears of government.

And that’s why I don’t think my life is pointless. To be sure, I haven’t given up on my dream of replacing the odious internal revenue code with a flat tax, but if the only thing I achieve is to protect America from a value-added tax, I’ll nonetheless go to my grave feeling like I did something very valuable for my country.

But there’s something else that keeps me sane. I also enjoy laughing at government. I regularly write about “great moments” in government and point out that incompetence and stupidity is a regular feature of the federal government, of state governments, and of local governments.

And I also enjoy mocking the spectacular screw-ups and bizarre blunders that are a feature of foreign governments as well.

And that’s our topic for today. So let’s start with this story from India about a very unusual example of vote buying.

A south Indian state has become possibly the first in the world to offer publicly-funded breast implants, its health minister arguing, “Why should beauty treatment not be available to the poor?” The Tamil Nadu state health department on Wednesday launched the free service at a clinic in the capital Chennai. …The clinic had already been providing breast reconstruction surgery for cancer patients, but was now extending the service for people who wished to alter the size of their breasts for other health or cosmetic reasons. The head of plastic surgery at the clinic, Dr V Ramadevi, said some of her patients…sought to augment or shrink their breasts for a boost in confidence. “There is a psychological benefit. Many girls who have larger breasts don’t like to go out. There is no reason this surgery should be restricted from the poor.” The procedure would also be available to men, she said. …Tamil Nadu’s government is known for its largesse, particularly under former chief minister Jayalalithaa, who pioneered free food canteens and doled out wedding jewellery and venues to the poor.

I’ve previously reported on crazy examples of government policy in India, so I suppose this story shouldn’t surprise me.

And since taxpayer-financed cosmetic surgery exists in the United Kingdom and the United States, Indian taxpayers can take solace that they’re not alone.

Now let’s go to Belgium, where there’s apparently a problem with rogue royalty.

Prince Laurent of Belgium has had his monthly allowance docked for a year, after a vote by the country’s federal parliament. The sanction was imposed after the prince attended a Chinese embassy reception last year without government permission, in full naval uniform. Lawmakers voted for a 15% cut to his €307,000 (£270,000; $378,000) annual allowance. …Prince Laurent, who is the younger brother of King Philippe, wrote a lengthy emotional letter to parliament before the vote on his endowment, arguing that, as a royal, he is unable to work for a living. He described the vote as “the trial of my life” and said it would “likely cause me serious prejudice” if MPs went against him. …The prince, 54, said the royal family had obstructed his attempts to be financially independent. …Lawmakers ultimately rejected his claim that no citizen of their country had been so exploited, voting to cut his stipend by 93 to 23 votes. …He had previously been criticised for attending meetings in Libya when the late Muammar Gaddafi was still in power, and making an unsanctioned 2011 trip to the Democratic Republic of Congo, a former Belgian colony.

I suppose this is a feel-good story in that politicians actually voted to cut spending.

Though we should never forget that this is the country where the public sector consumes half of economic output but officials actually complained that it’s hard to fight terrorism because of “the small size of the Belgian government.”

Now it’s time for ar stop in Malaysia, where corrupt politicians spent the country into debt and now they want taxpayers to voluntarily cough up extra money.

When Malaysian Prime Minister Mahathir Mohamad unexpectedly won his bid for office in May, he pledged to…get the country’s $250 billion worth of debt under control. And this week, he announced the government had found a way to at least get started: crowdfunding. Within 24 hours, the “Malaysia Hope Fund” raised almost $2 million, the BBC reported. “The rakyat (people) voluntarily want to share their earnings with the government to help ease the burden,” the finance ministry said in a statement, announcing that it would be accepting donations to a special fund set up to help relieve the country’s debt. …The crowdfunding idea started with a 27-year-old named Nik Shazarina Bakti, who recently launched a private crowdfunding initiative to help relieve Malaysia’s debt.  She raised around $3,500 before the government stepped in. In a sense, the effort is a version of what she said Malaysians did during their struggle for independence from Britain, when they donated jewelry, money and valuables. It’s also similar to what South Korea did as it attempted to pull itself out of economic crisis in the late 1990s, and regular citizens lined up to donate their most prized possessions to the government, including wedding rings and trophies.

Hmmm…, $2 million raised to pay off $250 billion of debt. Methinks they won’t meet their goal.

Though this story reminds me that politicians like Elizabeth Warren want the rest of us to pay more tax, yet she conveniently doesn’t participate in her state’s version of voluntary crowdfunding.

Here’s an amazing story from Romania.

He’s a dead man walking and the court ruling is final. A Romanian court has rejected a man’s claim that he is still very much alive, after he was officially registered as deceased, the Associated Press reports. Constantin Reliu, 63, lost his case in Vasului because he appealed too late on the ruling, a court spokeswoman said Friday. The story goes that Reliu had traveled to Turkey in 1992 for work and lost contact with his family. Since his wife had not heard from her husband in years, she acquired a death certificate for him in 2016, the AP reports. However, since Reliu was discovered by Turkish authorities this year with expired papers, he was deported back to Romania. That’s when he discovered he had been declared dead.

Wow. I thought American courts generated some outlandish decisions, but this belies belief.

Last but not least, here’s a report from Spain that should leave you skeptical about the efficacy of additional NATO spending.

An attempt to deploy a new submarine for Spain’s navy has run aground again, after it emerged it cannot fit in its dock, Spanish media report. The S-80 boat was redesigned at great expense after an earlier mistake meant it had problems floating, and it was lengthened to correct the issue. Spanish newspaper El País now reports that after the changes, the docks at Cartagena can no longer fit the vessel. The cost for each has almost doubled, the newspaper said. …The original problem with the submarine dates back to 2013, when it was discovered that it was about 100 tons heavier than it needed to be. That caused a problem for its buoyancy – so it could submerge, but might not come back up again. A former Spanish official told the Associated Press at the time that someone had put a decimal point in the wrong place, and “nobody paid attention to review the calculations”. …the base at Cartagena will have to be dredged and reshaped to accommodate the now-floating longer vessel, the El País report said. Spain’s Defence Minister Margarita Robles, speaking on Spanish radio, admitted that “there have been deficiencies in the project”.

Call me crazy, but “deficiencies” doesn’t really describe what happened. Almost makes the Pentagon look frugal. Almost makes the German intelligence servicelook competent.

For previous examples of great moments in foreign government, click hereherehereherehereherehereherehere, and here.

P.S. In other words, my “government in cartoons” collection applies equally no matter where you travel.

Fake Poverty Data from the European Commission and New York Times

Tue, 07/17/2018 - 12:22pm

If you look at the top of your screen on my home page, you’ll notice that I have a collection of special pages such as the Bureaucrat Hall of Fame and examples of what happens when you mix government and sex.

I’m thinking of creating a new page, but I need a pithy way of describing leftists who lie about poverty. And there are plenty of them.

Today, we identify some additional members who are eligible for this disreputable club.

And we’ll start with the European Commission.

Here’s a chart from a recent report that supposedly shows poverty rates in various European nations.

If you compare the “at-risk-of-poverty rate” for various nations, you’ll notice some very odd outcomes.

For instance, the tiny tax haven of Luxembourg is one of the world’s wealthiest nations, yet it supposedly has more poverty than Hungary. And super-rich Switzerland has more poverty than Slovakia. And oil-rich Norway has more poverty than the Czech Republic.

Are all those rich nations in Western Europe really suffering from higher poverty rates than some of the Eastern European countries still recovering from communist rule?

Of course not. The chart is based on a big, fat lie.

And I know it’s a lie because if you look in the glossary at the end of the long report, you’ll see that the bureaucrats openly admit that their so-called poverty chart has nothing to do with poverty and nothing to do with living standards (I’ve underlined the most important parts).

Interestingly, the bureaucrats in Brussels included a chart in the study revealing the level of inaccuracy for each country.

Here’s a look at the dishonest poverty rate (the blue diamond) compared to a measure of “severe material deprivation” that presumably does a better job of showing the real number of poor people (the red diamond).

By the way, I’m not a huge fan of the European Commission’s measure of “severe material deprivation” since it includes variables such as having a car, a color TV, and the money to take a one-week vacation.

But that’s a separate story.

Let’s look at other new members of our club.

An Eduardo Porter column in the New York Times also used the dishonest definition of poverty.

How can it be that the United States spends so much money fighting poverty and still suffers one of the highest child poverty rates among advanced nations? One in five American children is poor by the count of LIS, a data archive tracking well-being and deprivation around the world. …the United States tolerated more child poverty in 2012 than 30 of the 35 countries in the Organization for Economic Cooperation and Development, a grouping of advanced industrialized nations. The percentage of children who are poor is more than three times as high in the United States as it is in Norway or the Netherlands. America has a larger proportion of poor children than Russia.

And here’s a chart from the article that definitely makes the United States look bad.

But, unless you read the column carefully, you would have missed this all-important detail.

…international standards that set the poverty line at one-half the income of families on the middle rung of the income ladder.

In other words, everything in the article, and all the numbers in the chart, have nothing to do with actual poverty. Instead, we’re simply looking at an indirect measure of income distribution.

And the United States is made to look bad because our median income is generally much higher than it is in other nations.

How absurd.

You’ll think I’m joking, but you can dramatically reduce “poverty,” based on this dishonest definition, if you randomly kill rich people.

Let’s conclude by looking at the U.K.-based Guardian‘s article about supposed poverty in Hong Kong.

A record number of Hong Kong residents live in poverty, with one fifth of the population falling below the poverty line despite economic growth, according to new government figures. The number of people living below the poverty line rose to 1.35 million in 2016, about 20% of the city’s population. The number is the highest number of poor since the government began publishing statistics in 2009. Despite opulent wealth, Hong Kong is a deeply unequal society. …The number of poor rose despite the government raising the poverty line last year. For single person households it is set at HK$4,000 (£388). It is HK$9,000 (£873) for a two person home and HK$15,000 (£1,455) for a family of three.

There’s a small problem and big problem with this article. The small problem is that it states that the number of poor people increased “despite” an increase in the poverty line.

Huh?!?

If the government raises the threshold, of course it will seem like more people are poor. The article should replace “despite” with “because.”

Tom Worstall, writing for CapXexplains the big problem in the article.

One of the great injustices of our age is, as The Guardian reported…, that 20 per cent of the people in Hong Kong, one of the richest places on the planet, live in poverty. …The Guardian [is] waxing indignant over things it doesn’t understand. …there’s an important underlying point: inequality – not poverty – is being measured here. The international definition of poverty is less than $1.90 a day. There’s no one in Hong Kong on this at all, therefore there’s no poverty. …we’re told that the poverty line in Hong Kong is HK $4,000 per month (roughly £380) for an individual which certainly doesn’t seem like much. Yet when we plug that into a comparison of global incomes we find that, accounting for price differences across geography, it’s firmly in the top fifth of all global incomes. In other words, the poorest 20 per cent in Hong Kong are still find themselves in the richest 20 per cent of all humans.

Given the praise I’ve heaped on Hong Kong, I also can’t resist sharing this excerpt even though it’s a separate topic.

As Hong Kong so vividly demonstrates, the…economy in which the poverty line is defined as being rather rich by global standards must have something going for it. According to the World Bank’s figures, back in 1960 Hong Kong was at around the average level of income for the planet, with GDP per capita at a little over $400 (in 1960 dollars). Today the figure is slightly over $40,000 per head while the global average has only struggled up to $10,000 or so. An over performance by a factor of four isn’t that bad over half a century, is it?

Amen.

If we actually care about reducing genuine poverty, there’s no substitute for the miracle of compounding growth.

Which is why our friends on the left, if they actually cared about poor people (and I think most of them genuinely do care), should focus on growth rather than being fixated on redistribution.

The Economic Cost of Protectionism

Mon, 07/16/2018 - 12:02pm

I get offended when I hear people argue that Donald Trump is another Ronald Reagan. I’m not saying that out of animosity to the President. I also got offended when people compared Bush 41 or Bush 43 to Reagan.

I realize Reagan was not perfect, but I think he genuinely believed in free enterprise and he moved the country in that direction. Other GOPers, not so much.

That’s especially true on the issue of trade. Reagan’s goal was to expand markets. Trump, by contrast, seems inspired by Herbert Hoover.

So when CNBC asked for my thoughts on the President’s protectionism, I wasn’t overly optimistic.

Based on eight simple questions, I explained the economy-wide argument for free trade back in 2011. Simply stated, if it’s bad for prosperity for governments to impose taxes, regulation, and intervention on trade inside a country, then it’s also bad for prosperity for government to impose taxes, regulation, and intervention on trade that crosses national borders.

But maybe the case for free trade is easier to understand if we consider how various specific groups are harmed by protectionism.

Taxpayers – Tariffs are taxes. So when Trump imposes $13 billion of tariffs on Canada and $37 billion of tariffs on China, what’s really happening is that he’s increasing taxes by those amounts on American consumers. Trade taxes technically are paid by importers, but the real burden is borne by individuals, just as individuals bear the cost when a business writes a check for the corporate income tax.

Workers – The “seen” effect of protectionism is that a few jobs are saved in a certain sector. But because the economy-wide cost of saving those jobs is so high, the “unseen” effect of protectionism is that overall employment falls. To cite just one example, Trump’s proposed taxes on auto imports are projected to reduce net employment by 195,000-624,000 jobs.

Consumers – When tariffs are imposed, selected special interests are shielded from competition and they respond by raising prices. This is bad news for households. Consider the case of washing machines. In the opening salvo of his war on trade, Trump imposed higher taxes on imported machines earlier this year. This headline from Mark Perry at AEI shows the consequences.

Retailers – As trade taxes ripple through the economy, one obvious adverse effect is that stores have to raise prices, which leads to lower sales. But that microeconomic impact just part of the damage. The combination of trade taxes and higher prices also put a dent in household budgets, and this macroeconomic impact leads to less overall spending on other items.

Exporters – When Trump unilaterally imposes higher taxes on trade, other nations almost always respond with tit-for-tat protectionism. And when these other nations target American products, that necessarily reduces exports.

Manufacturers – One of the big buzz phrases in business is “global supply chains,” which is simply a way of saying that companies have developed intricate networks to ensure the best inputs at the best prices. Trump’s tariffs have disrupted these networks by raising the prices of certain inputs. But the damage isn’t just higher prices.

Investors – At the end of the interview, I said Trump’s latest protectionist measures were akin to going from 1 month pregnant to 3 months pregnant. Except we’re talking about Rosemary’s Baby, not a bundle of joy. At the risk of mixing my cinematic references, continued 1930s-style protectionism eventually could produce Chucky after 9 months.

Hmmm…., maybe I should stick to economics and let movie critics develop analogies.

Since investors were my last category of victims, it’s very appropriate that we conclude today’s analysis by looking at some passages from a very good columnby the Chief U.S. Economist for Morgan Stanley in the New York Times.

A protracted, escalating cycle of trade tensions has begun. In the latest action, the United States has proposed a 10 percent tariff on $200 billion in Chinese goods. …Even if all the proposed actions don’t go into effect, prolonged uncertainty alone can have a measurable impact on economic growth, and we should not underestimate the risks. …Just the threat of trade actions, even if there is no follow-through, is enough to dent business sentiment and investment. …roughly half of the growth we are seeing now is a result of a side effect of trade tensions — “doomsday prepping.” Global companies are stockpiling raw materials, intermediate goods and finished goods before tariffs take effect and raise the prices of those goods.

But the damage of protectionism will show up in other ways as well.

While the most direct effects will likely come from retaliatory measures that dent American exports, those impacts are just a fraction of what should be considered. Economists also need to consider the indirect effects of tariffs on consumer demand. Of the first $50 billion of announced tariffs, less than 2 percent apply to consumer goods. So the spillover effect on consumer demand — tariffs passed on as higher prices to consumers — should be quite small. But consumer goods represent more than 30 percent of the latest round of tariffs…firms can absorb the tariffs and cut costs elsewhere, but labor is the largest line item, which means layoffs or slower hiring. …At some point, investors will start to question whether global supply chains can withstand the escalating pressures from multiple rounds of tariffs, and financial markets may start to react.

In other words, there are no winners in a protectionist battle. Except, of course, for the army of lobbyists who get fat contracts to manipulate the system. So the swamp wins, but the rest of us lose.

P.S. As I noted in the interview, I don’t buy the argument that Trump is using protectionism to fight protectionism.

The Second Social Security Crisis

Sun, 07/15/2018 - 12:09pm

If you did man-on-the-street interviews across America and asked people about Social Security, I suspect most of them would have some degree of understanding about the program’s looming fiscal crisis.

Since they’re not policy wonks, they presumably wouldn’t know the magnitude of the problem (not that I blame them since I once underestimated the shortfall by $16 trillion).

I also doubt many of them would be able to explain why the so-called Trust Fund is an accounting fiction, which is understandable since even supposedly knowledgeable people pretend IOUs are real assets.

But at least they know the program’s finances are a giant mess and that we face a fiscal crisis.

That being said, there’s a second crisis in the program that doesn’t get nearly as much attention. Simply stated, the program is a rotten deal for workers.

I explained both crises in this CF&P video.

Today, thanks to a new report from the Heritage Foundation, we have a great opportunity to peruse up-to-date numbers on the second Social Security crisis.

Here’s the problem, succinctly defined.

With Social Security consuming such a large component of workers’ paychecks and offsetting their own private savings, it is important that workers receive a valuable benefit from Social Security—one at least as good as they, as a whole, could obtain from saving on their own. This analysis looks across the United States and across generations to see if Social Security does in fact provide that.

Sadly, Social Security does a crummy job of giving workers a decent amount of retirement income.

Taking an average of all 50 states and the District of Columbia, the average worker receives significantly less from Social Security than he would have if he had conservatively invested his Social Security payroll taxes in the market. …Individuals with lower life expectancies often lose greatly. This occurs because they receive little or nothing in benefits and cannot pass along all their lost contributions to their surviving family members. …Younger workers face lower, and even negative, returns from Social Security compared to older workers. This comes as a result of paying higher average Social Security tax rates over their lifetimes, coupled with a two-year increase in Social Security’s normal retirement age—as well as the benefit cuts that will occur.

The bottom line is that the implicit rate of return from Social Security is very inadequate compared to the genuine rate of return that could be obtained if workers could invest their payroll taxes in personal retirement accounts.

Here’s the key table from the Heritage study, showing rates of return for today’s young workers based on how long they live.

You have to wonder why so many young people are intrigued by socialism when they’re the ones getting screwed by big government!

Anyhow, there are 12 tables in the report showing lots of additional data, including breakdowns based by state. The entire study is worth a look.

But for those short on time, the conclusion is a very clear summary of why we need to fix Social Security’s rate-of-return crisis as well as the program’s fiscal crisis.

The results are overwhelmingly clear. Americans would be better off keeping their payroll tax contributions and saving them in private retirement accounts than having to sacrifice them to the government’s broken Social Security system. Social Security’s design has, over the decades, presumed that many Americans are too incompetent to make informed decisions for themselves, but few Americans believe that the government knows better than they do what is best for them and their families. Moreover, Social Security’s financial structure effectively guarantees that workers will receive extremely low, or even negative, returns on their payroll taxes.

P.S. Fixing Social Security is simple, but it won’t be easy. Benefits would have to be preserved for current retirees and older workers, so there would be a “transition cost” as we shift to a “funded” system of personal accounts.

P.P.S. But reform is possible. If you want real-world role models of retirement systems based on private saving, take a look at the Australian system, the Chilean system, the Hong Kong system, the Swiss system, the Dutch system, the Swedish system, or even the system in the Faroe Islands.

P.P.P.S. Our friends on the left have a solution – albeit misguided – for Social Security’s fiscal crisis. But their approach would greatly worsen the rate-of-return crisis.

Protecting Taxpayers with Supermajority Requirements

Sat, 07/14/2018 - 12:12pm

The best budget rule in the United States is Colorado’s Taxpayer Bill of Rights. Known as TABOR, this provision in the state’s constitution says revenues can’t grow faster than population plus inflation. Any revenue greater than that amount must be returned to taxpayers.

Combined with the state’s requirement for a balanced budget, this means Colorado has a de facto spending cap (similar to what exists in Switzerland and Hong Kong).

The second-best budget rule is probably a requirement that tax increases can’t be imposed without a supermajority vote by the legislature.

The underlying theory is very simple. It won’t be easy for politicians to increase the burden of government spending if they can’t also raise taxes. Particularly since states generally have some form of rule requiring a balanced budget.

Basically a version of “Starve the Beast.”

Anyhow, according to the National Council of State Legislatures, 14 states have some type of supermajority requirements.

And more states are considering this reform.

Here are some excerpts from a column in the Washington Post.

Florida Republicans are pursuing a plan to make it harder for lawmakers to raise taxes in the state, adding new hurdles for Democrats hoping to enact bold social programs such as “Medicare for all” and more robust education spending. …Florida’s Republican lawmakers have approved a ballot measure that, if approved by the voters, would require a two-thirds “supermajority” of the legislature to enact any new taxes. …In…additional states — …Oregon and North Carolina — conservative lawmakers and business groups are currently advancing similar measures… The supermajority requirements have proved effective at keeping taxes low in the states where they have been implemented, said Joel Griffith of the American Legislative Exchange Council… “These supermajority rules make policymaking incredibly difficult,” said Elaine Maag, senior research associate at the Tax Policy Center, a nonpartisan think tank. “If a state can’t increase spending because of these very high bars for raising taxes, they can’t expand programs.”

Dean Stansel crunched the numbers in 1998 and got some encouraging data.

There is some evidence that supermajority requirements have at least helped to restrain the growth of taxes. From 1980 to 1996, state tax burdens as a share of personal incomeincreased by 1.1 percent in states with supermajority requirements. Taxes rose five times faster in states without such requirements. In 10 states, residents face higher top personal income tax rates today than they did in 1990. None of those states require supermajority approval for tax hikes. None of the 13 supermajority states have higher top rates today than they did in 1990, and three of them have lowered their top rate in the 1990s.

Academic experts also have found positive effects.

In a 1990 study published in the William and Mary Law Review, Jim Miller and Mark Crain found some evidence of modest spending restraint.

Seven states require approval of tax proposals by a super-majority vote in the legislature. …According to this hypothesis, the amount of revenue available to politicians resembles a budget constraint, and when this constraint shifts, government spending consequently changes. …the tax-and-spend literature suggests a causal connection that should be controlled. This variable is expected to produce a negative coefficient because in making an increase in revenues more difficult, the requirement tightens the total constraint on spending options. …The super-majority required to increase taxes variable is negative, as expected, although it is significant at only the 10% level in the three models.

In a 2000 study published in the Journal of Public Economics, Brian Knight also determined that supermajority provisions limited taxation.

This paper measures the effect of state-level supermajority requirements for tax increases on tax rates. …A model is presented in which legislatures controlled by a pro-tax party adopt a supermajority requirement to reduce the majority party agenda control. The propensity of pro-tax states to adopt supermajority requirements results in an underestimate of the true effect of these requirements on taxes. To correct this identification problem, the paper first uses fixed effects to control for unobserved attitudes and then employs instruments that measure the difficulty of amending state constitutions. The paper concludes that supermajority requirements have significantly reduced taxes.

In a 2014 study published in State Politics & Policy Quarterly, Soomi Lee concluded that a supermajority has restrained the fiscal burden in California.

My article examines whether supermajority vote requirements (SMVR) to raise taxes in California’s constitution suppresses state tax burdens. The rationale behind the rule is to contain the growth of government by making it costly to form a winning coalition to raise taxes. …I take a different approach from extant literature and estimate the causal effect of SMVR by using synthetic control methods. The results show that, from 1979 to 2008, SMVR reduced the state nonproperty tax burden by an average of $1.44 per $100 of personal income, which is equivalent to 21% of the total tax burden for each year. The effect…has abated over time.

This last study is remarkable. The long-run fiscal outlook is quite grim in California, so just imagine how much worse it would be if the supermajority requirement didn’t exist.

I’ll close with this amateurish visual that I created.

Though the evidence from California shows the kitten shouldn’t be peacefully sleeping if there is a supermajority requirement.

The best way to think of such a provision is that it is akin to putting locks on your doors in a crime-ridden neighborhood. The crooks may figure out how to mug you on the street or break through your windows, so you’re still in danger.

But having locks on your doors is definitely better than not having them.

P.S. It’s not a fiscal rule, but the best tax policy for a state is to have a zero income tax. The second best rule is for a state to have a flat tax.

Is Norway a Role Model for “Democratic Socialism”?

Fri, 07/13/2018 - 12:59pm

Earlier this year, I explained why Nordic nations are not socialist. Or, to be more precise, I wrote that if they are socialist, then so is the United States.

And my slam-dunk evidence was this chart from the Fraser Institute’s Economic Freedom of the World., which shows that there is almost no difference in overall economic liberty when comparing the United States with Finland, Norway, Sweden, and Denmark.

This doesn’t mean, incidentally, that we have identical policies. I pointed out that the United States gets a better (less worse) score on fiscal policy, but also reiterated that Nordic nations are more market oriented than America when looking at other variables (especially rule of law).

The net effect, though, is that we wind up with near-identical scores.

I’m rehashing this old data because there’s a column in The Week that celebrates Norway as an example of “democratic socialism.”

The spectacular upset victory of Alexandria Ocasio-Cortez in her recent New York congressional primary election has catapulted the topic of democratic socialism to the top of America’s political discussion. …we have a country that very closely approximates the democratic socialist ideal. It’s a place that is…considerably more successful than the United States on virtually every social metric one can name. I’m talking about Norway. …Norwegian workers are heavily protected, with 70 percent of workers covered by union contracts, and over a third directly employed by the government. The Norwegian state operates a gigantic sovereign wealth fund, and its financial assets total 331 percent of its GDP… Meanwhile, its state-owned enterprises are worth 87 percent of GDP. Of all the domestic wealth in Norway, the government owns 59 percent, and fully three-quarters of the non-home wealth.

I don’t know if those specific statistics are true, but I certainly don’t disagree with the assertion that Norway has a large public sector.

But here are a couple of passages that don’t pass the laugh test.

Norway is unquestionably more socialist than Venezuela… Indeed, it is considerably more socialist than supposedly-communist China.

This is absurdly inaccurate. If there was a thermonuclear version of wrong, you would be seeing a giant mushroom cloud.

Here’s the data on overall economic freedom for Norway, Venezuela, and China. As you can see, Norway is far more market oriented.

So how does the author, Ryan Cooper, rationalize his fantastical assertion of Norwegian super-socialism?

If you read the article, he has a tortured definition of democratic socialism. One of his variables is government ownership, which normally would be a reasonable piece of data to include.

But it’s an artificial number when looking at Norway since the government controls the nation’s oil and also has a big sovereign wealth fund that was financed by oil revenue.

In other words, Norway is geographically lucky because all that oil boosts Norwegian GDP. It makes Norwegians relatively prosperous. And it definitely helps partially offset the economic damage of big government.

But it’s nonsensical to argue that oil-rich Norway somehow provides evidence for overall notion of democratic socialism. It’s sort of like looking at data for Kuwait and asserting that the best economic system is a hereditary sheikdom.

Yet he wants people to support socialism simply because of Norway, as illustrated by this final excerpt.

…when it comes to building a decent place to live, Norway is completely blowing America out of the water. So while conservatives have been pointedly ignoring the most obvious and relevant piece of evidence in their spittle-flecked tirades against socialism, Norwegians can and do point to the United States as an example of what happens when you let capitalism run wild.

But there’s one itsy-bitsy, teeny-weeny problem. As you can see from the chart, Norway and the United States have almost identical levels of economic liberty.

So if America is “capitalism run wild,” then so is Norway. Or if Norway is “socialism,” then so is the United States.

The bottom line is that both the United States and Norway are admirable nations by global standards. We both rank in the top-20 percent for overall economic freedom.

But we’re not Hong Kong or Singapore, so we both obviously should do a better job of following the recipe for greater prosperity.

For additional information about what’s good and bad about Norway and other countries in the region, I recommend these columns from January 2015 and June 2015.

For additional information about why socialism is bad (both democratic and totalitarian versions), just open your eyes and look at world evidence. Or you can also peruse these columns from June 2017 and August 2017.

Trade, Farm Subsidies, and Mitchell’s Law

Thu, 07/12/2018 - 12:54pm

A couple of days ago, I shared a segment from a TV interview about trade and warned that retaliatory tariffs were a painful consequence of Trump’s protectionism.

I also was asked in that interview about the negative effect on farmers. I speculated that farmers (and many other groups) were giving Trump the benefit of the doubt in hopes that this process might actually lead to trade liberalization – sort of like what Trump suggested at the G7 meeting.

While I was depressed and glum in that interview, it turns out that things are worse than I thought.

Instead of keeping their fingers crossed for trade liberalization, farmers may be nonplussed by protectionism because President Trump’s expansion of bad trade policy may also wind up being the pretext for an expansion of bad agricultural policy.

The Wall Street Journal opines on the upside-down logic of Washington.

When pork prices collapsed amid a global trade war during the Great Depression, the Roosevelt Administration in 1933 had an idea—slaughter six million piglets. Put a floor under prices by destroying supply. It didn’t work. Now the Trump Administration may try its own version of Depressionomics by using the Commodity Credit Corporation (CCC) to support crop prices walloped by the Trump tariffs: Hurt farmers and then put them on the government dole.

Given the economic misery of the 1930s, it should be obvious that copying the awful policies of Hoover or Roosevelt is never a good idea.

But that’s not stopping the crowd in Washington.

In 2012 Congress put limits on CCC purchases of surplus commodities and on price supports after the Obama Administration used it for a costly 2009 disaster program without Congressional approval. But then out of the blue this year, Congress lifted the limits on CCC’s power to remove surplus crops from the market to support prices. Republicans made that change because the Trump Administration wants to use the CCC to mitigate the damage to U.S. crop prices from the Trump trade war. In a June 25 USA Today op-ed, Agriculture Secretary Sonny Perdue wrote that the Administration is ready to “begin fulfilling our promise to support producers, who have become casualties of these disputes.” Too bad these U.S. casualties were caused by friendly fire.

And don’t be surprised if today’s handouts wind up becoming permanent entitlements.

The bigger danger is that the need for Mr. Perdue’s “help” is unlikely to be temporary. …With the higher tariff, Beijing will turn even more to Brazil and Argentina for soy and grains; Australia and Chile for fruit, nuts and wine; and Canada and the European Union for some or all. …The CCC is a relic of Dust Bowl America. Today the American farmer is high-tech, productive and eager to compete. Mr. Trump’s trade policy is creating a problem that didn’t exist and next he may create another one to ease the pain he has caused.

In other words, one bad government policy is being used the justify another bad government policy.

This is a classic example of Mitchell’s Law, otherwise known as the lather-rinse-repeat cycle of government failure.

We see it when government over-spending is used as an excuse for big tax increases.

We see it when government-run healthcare is used as an excuse to impose nanny-state policies.

We see it when government drug-war failures are used as an excuse to push for gun control.

And now we’re seeing it when bad trade policy is leading to more bad farm subsidies.

I realize this is pure fantasy, but wouldn’t it be nice to have the reverse approach? How about we simultaneously eliminate trade barriers and get rid of the Department of Agriculture?

Given the inherent corruption of Washington, I won’t hold my breath for that outcome. I’ll have more luck waiting for this fantasy to become reality.

A Primer on Marginal Tax Rates

Wed, 07/11/2018 - 12:41pm

Three years ago, I shared two videos explaining taxation and deadweight loss (i.e., why high tax burdens are bad for prosperity).

Today, I have one video on another important principle of taxation. To set the stage for this discussion, here are two simple definitions

  • The “average tax rate” is the share of your income taken by government. If you earn $50,000 and your total tax bill is $10,000, then your average tax rate is 20 percent.
  • The “marginal tax rate” is the amount of money the government takes if you earn more income. In other words, the additional amount government would take if your income rose from $50,000 to $51,000.

These definitions are important because we want to contemplate why and how a tax cut helps an economy.

But let’s start by explaining that a tax cut doesn’t boost growth because people have more money to spend.

I want people to keep more of their earnings, to be sure, but that Keynesian-style explanation overlooks the fact that the additional “spending power” for taxpayers is offset when the government borrows more money to finance the tax cut.

Instead, when thinking about taxes and prosperity, here are the three things you need to know.

1. Economic growth occurs when we increase the quantity and/or quality of labor and capital.

2. Taxes increase the cost of whatever is being taxed, and people respond by doing less of whatever is being taxed.

3. To get more prosperity, lower tax rates on productive behaviors such as work, saving, investment, and entrepreneurship.

All this is completely correct, but there’s one additional point that needs to be stressed.

4. The tax rate that matters is the marginal tax rate, not the average tax rate.

I discussed the importance of marginal tax rates in 2016, pointing out that Cam Newton of the Carolina Panthers was going to lose the Super Bowl (from a financial perspective) because the additional tax he was going to pay was going to exceed the additional income he would earn. In other words, his marginal tax rate was more than 100 percent.

Mon Dieu!

But I also included an example that’s more relevant to the rest of us, looking at our aforementioned hypothetical taxpayer with a 20 percent average tax rate on annual earnings of $50,000. I asked about incentives for this taxpayer to earn more money if the marginal tax rate on additional income was 0 percent, 20 percent, or 100 percent.

Needless to say, as shown in my simple illustration, the incentive to earn $51,000 will be nonexistent if all of the additional $1,000 goes to government.

That’s why “supply-side economics” is focused on marginal tax rates. If we want more productive behavior, we want the lowest-possible marginal tax rates so people have the greatest-possible incentive to generate more prosperity.

Here’s a very short video primer on this issue.

One very important implication of this insight is that not all tax cuts (or tax increases) are created equal. For instance, as I explained in a three-part series (herehere, and here), there will be very little change in incentives for productive activity if the government gives you a tax credit because you have kids.

But if the government reduces the top tax rate or lowers the tax bias against saving and investment, the incentive for additional productive behavior will be significant.

And this helps to explain why the country enjoyed such positive results from the supply-side changes to tax policy in the 1920s1960s, and 1980s.

Let’s close with some good news (at least relatively speaking) for American readers. Compared to other industrialized countries, top marginal tax rates in the United States are not overly punitive.

Admittedly, this is damning with faint praise. Our tax system is very unfriendly if you compare it to MonacoHong Kong, or Bermuda.

But at least we’re not France, where there’s a strong argument to be made that the national sport is taxationrather than soccer.

P.S. I’m not saying tax preferences for kids are wrong. But I am saying they’re not pro-growth.

P.P.S. I mentioned above that Cam Newton – based on his personal finances – lost the Super Bowl even before the opening kickoff. Well, there’s scholarly evidence that teams in high-tax states actually win fewer games.

P.P.P.S. Today’s analysis focuses on the individual income tax, but this analysis also applies to corporate taxation. A company with clever lawyers and accountants may have the ability to lower its average tax rate, but the marginal tax rate is what drives the incentive to earn more income. Which is why reducing the federal corporate rate from 35 percent to 21 percent was the best part of last year’s tax bill.

The Miracle of Compounding Growth

Tue, 07/10/2018 - 12:17pm

When I give speeches about public policy issues, people sometimes ask about the impact of various policies on economic growth.

I always respond with a giant caveat about economists being lousy forecasters, and I also warn that there are many policies that determine prosperity, which makes it inherently difficult to estimate the impact of one policy.

But when pressed, I’ll toss out a number – say 2/10ths of 1 percent. And that type of answer almost always seems to disappoint the audience. It’s as if there’s a collective assessment that we shouldn’t waste time fighting for or against certain policies if the impact on growth is so trivially small.

And if you’re planning on dying in the next six months, then maybe it isn’t worth it.

In reality, though, even small differences in growth can make a big difference to prosperity if they can be sustained. This chart, which starts with the Commerce Department’s estimate of GDP for 2017 and is then adjusted for the Census Bureau’s population projections, shows how a “trivial” increase in the growth rate over the next 25 years winds up generating big increases in per-capita GDP.

Maybe I’m not a big and bold thinker, but this kind of improvement is worth fighting for.

Back in 2014, I tried to make this same point with a chart showing how long it takes an economy to double in size based on different growth rates.

It seems obvious that it’s better to be at the top of that chart, like Hong Kong and Singapore, instead of the bottom, like Italy or Greece.

And Veronique de Rugy, in a column for National Review, shared a more sophisticated version of the chart. At the risk of stating the obvious, you want the big circles to happen faster.

Let’s share one more chart, and I put it together because I’m sometimes asked about the potential impact on growth if all libertarian policies were adopted?

Once again, I give a standard caveat about economists and forecasting. And I also explain the principle of convergence so the audience understands it’s more difficult for a rich country to achieve very high growth rates.

But eventually I’ll speculate that an ideal set of policies might increase growth by 1 percent annually.

Which, once again, doesn’t seem to impress people.

In the future, though, I’m going to share this chart, showing historical numbers for U.S. and Mexican per-capita GDP from the Maddison database, augmented by a second (yellow) line showing where America would be if per-capita GDP increased by one-percentage point less each year.

In other words, an additional percentage point of growth may not sound amazingly impressive, but over time it generates amazingly impressive outcomes.

The bottom line is that even trivial pro-growth reforms are worth the effort. Even if it takes a few years for the growth to materialize or if the growth only lasts for a limited period of time.

Payback’s a B*tch: Americans Suffer Blowback from Trump’s Protectionism

Mon, 07/09/2018 - 12:13pm

The theoretical case against protectionism is very straightforward. Economic growth suffers when politicians interfere with markets.

The empirical case against protectionism also is very straightforward since there’s lots of data showing that it’s a job killer.

There’s also a political case against protectionism because governments almost always respond to protectionism with protectionism.

I try to summarize those concerns in this short segment from a recent interview with Neil Cavuto.

Unfortunately, retaliation by our trading partners already is causing problems.

Let’s look at a sampling of recent stories.

How about this headline for the Wall Street Journal?

Or this headline from Missouri?

And this headline from CNBC?

Here’s another headline from the Wall Street Journal.

How about this headline from Utah?

And here’s part of a headline from the New York Times.

There are hundreds of such headlines that could be shared, so maybe it’s time to look at the issue from another perspective.

Here’s a map showing the retaliation against American exporters. And it’s only showing the retaliation against Trump’s steel and aluminum tariffs.

But I don’t want to be too depressing.

So let’s consider some good news. Most trade is still unaffected, at least based on this interesting data from the Washington Post.

Though maybe this is also bad news since it shows how much additional damage Trump can do to the global economy.

My nightmare scenario is that Trump imposes additional trade taxes, which leads other nations to respond with their own trade taxes. Trump then gets offended by those responses by levying another layer of taxes, which triggers more retaliation by other nations.And so on and so on.

Lather, rinse, repeat, all the way to a global downturn (a repeat of the Great Depression is unlikely since that would require big increases in income taxes and many other bad policies as well).

Statism in Five Images

Sun, 07/08/2018 - 12:53pm

Last month, we summarized libertarianism in five images.

In the interest of fairness, now let’s give equal time to the other side. After all, statists deserve an opportunity to present their case.

And we’ll start with this image, which makes the same point about coercion found in the “two-sentences” column I shared two months ago.

Unfortunately for our leftist friends, coercion doesn’t lead to effectiveness.

So this next image aptly captures the inherent problem of statist solutions.

So now you understand why Santa Claus sometimes has a problem.

And what happens when you mix the coercive nature of government with the fantasy world of government-provided goodies? Well, President Eisenhower already gave us the answer, but here’s the visual version.

But let’s not forget somebody has to pay for this collectivist utopia.

And that brings us to the joy of taxation.

Last but not least, we’ll close with an image that illustrates how statism works in practice, which is why the message in this poster is so painfully true.

Having now presented five images for libertarianism and five images for statism, I suppose I could put together a poll to see which philosophy has more support.

But since libertarians are against untrammeled majoritarianism, that somehow doesn’t seem right. So instead I’ll simply recycle this bit of humor on the difference between the public sector and the private sector. Actually, there’s a scene from Ghostbusters that tells us everything we need to know.

5000 Columns

Sat, 07/07/2018 - 12:39pm

Although the original goal for my blog was to periodically share information with congressional staffers and journalists, the audience has expanded and the site has now become the primary outlet for my work on public policy.

And today is a milestone of sorts since it is my 5,000th column, something I would not have predicted when I posted my first entry back on March 29, 2009.

So that gives me an excuse to update the readership data from 2015.

Back then, based on visits as a share of population, I noted that I was most popular in Washington, DC. Though perhaps “most popular” would be the wrong term since I’m sure some readers from that corrupt city do not like my message.

In any event, those numbers were not surprising since DC is filled with people who work on public policy, so they have a reason to read my work. And I also wasn’t surprised that Virginia as in second place since that’s the home of many people who work in DC-related public policy.

And that hasn’t changed based on these updated numbers showing where I get the most readers and fewest readers.

For what it’s worth, I’ll make the claim that Colorado is the most libertarian-leaning state based on this data. The folks in the Centennial State read my writings without having a work-related reason. So I hope they all paid close attention to my column about TABOR.

And New Hampshire would be in second place based on that analysis, which probably isn’t too surprising since it’s the home of the Free State crowd.

The data on international readership is even more interesting, in part because I have access to data on both visits and page views. Here are the numbers, both expressed as a percentage of the jurisdiction’s population.

The most striking result is that Vatican CIty (which wasn’t even in the top-20 three years ago) is where I have the highest percentage of readership. Though I definitely don’t think this means “most popular” since my columns about the economic views of Pope Francis have been less than flattering (see herehereherehere, and here).

Measured by page views, however, the Cayman Islands and Monaco take the top two spots. Given my work on tax havens and tax competition, I’m guessing that these readers actually like my writings.

Indeed, you’ll notice that “offshore” jurisdictions are very well represented, whether based on visits or page views.

The second-most striking result is that Iceland appears on both lists and even ranks above the United States for page views. In my fantasies, I’ll assume the striking women of Iceland are avid readers. In reality, it’s more likely to be the burly fishermen.

Another odd outcome is that there’s a high level of page views from the Faroe Islands. Are they big fans of their private Social Security system? My writings on Australian pension reform may also explain the high level of visits from Down Under.

Since I’m writing a narcissistic column today, I’ll close with by sharing my recent interview with “Spanish Libertarian.” He asked several very good questions about the challenges of trying to expand freedom.

P.S. There are some places where people don’t appreciate my work. I’ve never had a single visit or page view from Niue, Norfolk Island, Svalbard, or Tokelau. Given the very small populations of those obscure jurisdictions, I’ll try not to take it personally. Oh, and I’ve also never had a visitor or page view from North Korea. But I’m assuming that nation’s totalitarian government blocks access so citizens don’t get exposed to this or this.

P.P.S. I’m no Cal Ripken or Lou Gehrig, but I have a personal streak. I’ve written a column every day since November 10, 2009. I realize the world won’t end if I skip a day, but maintaining this streak is a way of forcing myself to stay productive. Now I have to figure out how to be effective.

Debating Trump’s Tax Reform

Fri, 07/06/2018 - 12:58pm

Guided by the principles of a simple and fair flat tax, I’ve been toiling for decades in the vineyard of tax reform. At the risk of mixing my metaphors, I usually feel like Don Quixote, engaged in a futile quest. Convincing politicians to reduce their power is not an easy task, after all.

But it is possible to make incremental progress. I’ve argued, ad nauseam, about the need to lower the corporate tax rate and the benefits of ending the state and local tax deduction, and we actually took big steps in the right direction last year.

Indeed, while the final legislation was far from perfect, it was certainly better than I expected.

But there’s no such thing as a permanent victory in Washington. The debate has now shifted from “is the tax plan a good idea?” to “is the tax plan working?” And that was the focus of my recent CNBC debate with Austan Goolsbee, the former Chairman of Obama’s Council of Economic Advisers.

Interestingly, Austan and I agreed on several issues.

At the risk of digressing, I should have mentioned that Trump’s corporate rate cut, while a big step in the right direction, should be viewed as a first step. As illustrated by this chart, the overall US corporate rate is still higher than the average for other advanced nations.

Let’s now get back to the interview. Goolsbee and I didn’t agree on everything.

  • Austan is fixated on class warfare, which I think is very bad economics because it means high marginal tax rates and/or a heavier tax bias against saving and investment.
  • He also frets about deficits, which is rather ironic since he didn’t seem to worry about red ink when Obama was pushing his failed stimulus scheme. In any event, I pointed out that there is no long-run tax cut.

Last but not least, here are some additional points from the interview

  • I repeatedly expressed concern that good tax policy won’t be very sustainable unless politicians restrain the excessive growth of government spending, both in the short run and long run.
  • I also pointed out that the restriction on the state and local tax deduction will help the national economy if it deters some big states from raising taxes (though that reform certainly isn’t slowing down the big spenders in New Jersey).
  • Even small differences in economic growth, if sustained over time, can make a big difference in living standards.
  • We should be worried that Trump will sabotage his tax cut with protectionism.

The bottom line is that last year’s tax plan resulted in a less-destructive tax code. That doesn’t guarantee fast growth since we also have to look at other policies, but it will help.

P.S. I indirectly tangled with Goolsbee about taxes in 2010 and about spending in 2012.

The Western World’s Second-Most Depressing Chart

Thu, 07/05/2018 - 12:48pm

Last week, I shared very grim data, going all the way back to 1880, on the growth of the welfare state.

I even claimed that the accompanying graph was the “western world’s most depressing chart” because it showed the dramatic increase in the burden of government spending for redistribution programs.

And I didn’t even mention that the numbers likely will get even worsebecause of changing demographics.

Now it’s time for the western world’s second-most depressing chart. Like the first chart, the data for this second chart comes from “Our world in data,” only this time it shows the relentless and astounding (in a depressing way) expansion in tax burdens starting in 1868. It only shows four countries, but other western nations would show the same pattern.

What isn’t shown in this chart is that the tax burden used to be reasonable because governments generally did not have income taxes.

The United Kingdom was an early adopter, but France, Sweden, and the United States didn’t impose that onerous levy until the 1900s. And it’s no coincidence that the tax burden exploded once politicians learned to exploit that source of revenue.

An obvious lesson is that it is never a good idea to give politicians a new source of revenue. We see in the above chart what happened once nations imposed income taxes. We’ve also seen increases in fiscal burdens in nations that imposed value-added taxes (which is why Americans should fight to their dying breaths before allowing that levy in the United States).

From the perspective of politicians, they like new sources of revenue because that increases “tax capacity,” which is an Orwellian term that describes their ability to grab more money from the economy’s productive sector.

And here’s another chart from “Our world in data” showing how income taxes and VATs (along with income-tax withholding) have become ubiquitous.

Very depressing trends. Reminds me of the biased grading of tax regimes from the World Bank.

Let’s close with the tiny bit of good news from the website. Here’s a chart showing how top rates for the personal income tax dropped substantially between 1979 and 2002.

This happened, needless to say, because of tax competition. As globalization expanded, it became easier and easier for taxpayers to move themselves and/or their money from high-tax nations to low-tax jurisdictions.

Politicians thus were forced to lower tax rates so the geese with the golden eggs didn’t fly away.

Sadly, updated versions of this chart now show top tax rates heading in the wrong direction, in large part because tax havens have been weakened and politicians no longer feel as much competitive pressure.

Calvin Coolidge, the Declaration of Independence, and Limits on the Power of Government

Wed, 07/04/2018 - 12:37pm

To keep with tradition, it’s time to expand my collection of 4th-of-July columns.

  • In 2010, I contemplated the issue of libertarians and patriotism. My view, for what it’s worth, is captured by this t-shirt.
  • In 2011, I pondered research about the partisan implications of patriotism and also created a satirical Declaration of Dependency for my left-wing friends.
  • In 2012, I shared an inspirational video about freedom and individualism from Ronald Reagan.
  • In 2013, I discussed the proper meaning of patriotism in the aftermath of revelations about NSA snooping.
  • In 2014, I decided on a humorous approach with one a Remy video about government being “up in your grill.”
  • In 2015, I waded into the controversial topic of what happens when flag burning meets the modern regulatory state.
  • In 2016, I looked at how government has increased the cost of celebrating Independence Day.
  • In 2017, I explained the difference between the statist vision of “positive liberty” and the libertarian vision of “negative liberty.”

Today, we’re going to commemorate a great speech by one of America’s best Presidents.

In 1926, Calvin Coolidge spoke on the 150th anniversary of the signing of the Declaration of Independence. Here’s some of what he said.

When we come to examine the action of the Continental Congress in adopting the Declaration of Independence in the light of what was set out in that great document and in the light of succeeding events, we can not escape the conclusion that it had a much broader and deeper significance than a mere secession of territory and the establishment of a new nation. …It was not because it was proposed to establish a new nation, but because it was proposed to establish a nation on new principles, that July 4, 1776, has come to be regarded as one of the greatest days in history. …In its main features the Declaration of Independence is a great spiritual document. It is a declaration not of material but of spiritual conceptions. Equality, liberty, popular sovereignty, the rights of man — these are not elements which we can see and touch. They are ideals. …It was in the contemplation of these truths that the fathers made their declaration and adopted their Constitution. It was to establish a free government, which must not be permitted to degenerate into the unrestrained authority of a mere majority or the unbridled weight of a mere influential few. …These are our guaranties of liberty. As a result of these methods enterprise has been duly protected from confiscation, the people have been free from oppression.

If you have the time, click on the link and read the entire speech.  But if you don’t have time, I hope the passages I excerpted reveal Coolidge’s appreciation for the philosophy of American independence.

I also like how he links those principles to economics, which is nicely captured in the last sentence.

Sadly, the Supreme Court no longer protects our economic liberties (John Roberts providing the most recent example), but it was nice while it lasted.

Speaking of which, here’s a great conversation between James Buchanan and Walter Williams on the meaning and importance of the Constitution. But that’s just the tip of the iceberg. They cover lots of additional material, including spending limitstax reform, and free trade.

For what it’s worth, my favorite part of the conversation is about how markets are mutually beneficial, whereas government is a zero-sum, or negative-sum game.

Let’s close with a celebration of the great American tradition of civil disobedience against the state.

Sadly, with the likely exception of gun owners, we no longer seem to have the same ornery attitude as our ancestors. Though Charles Murray has a plan to recreate a culture of civil disobedience.

P.S. Here’s a first-hand account of what patriotism means.

Trial Infrastructure Program Offers Deal for Taxpayers

Tue, 07/03/2018 - 9:06pm

Originally published by Townhall.com on July 2, 2018.

Getting anything done legislatively during an election year is difficult. That’s especially true in the current political environment, now compounded by the coming fight over filling the Supreme Court vacancy left by Justice Kennedy’s retirement. Yet there remains opportunity for legislative victories, even bipartisan ones, as evidenced by a recent initiative offering to pay for infrastructure by selling certain government assets.

The Generating American Income and Infrastructure Now (GAIIN) Act takes the approach of aligning the interests of both parties and several ideological factions. The result is legislation that not only offers potential wins for interests as varied as the Republican Study Committee, Congressional Black Caucus, and House Freedom Caucus, all of which feature a member as sponsor, but more importantly, for taxpayers.

It works like this: The Agriculture Department would sell its distressed loan debt, worth over $50 billion, through public auctions. Borrowers would be given 30-days’ notice of any sale and the opportunity to refinance at the potential sale price. Those loans that remain outstanding would then be sold for servicing in the private market.

Half of the proceeds would go to pay down the federal debt. The other half would be used to fund infrastructure programs in the nation’s poorest communities.

Free market advocates are often skeptical of government spending on infrastructure, and for good reason. Federal infrastructure spending has a mixed record, with promises often outstripping results, due to its vulnerability to cronyism and the tendency of politics to drive spending decisions instead of economics. So, it’s possible that the economic benefits of GAIIN Act spending will prove to be overstated. It will depend heavily on what projects are undertaken and how they are chosen.

On the more optimistic side, the spending would be concentrated in the 100 poorest congressional districts. If there are pro-growth infrastructure projects to be found, it stands to reason that they are more likely to be located where infrastructure is most neglected.

It’s also important to consider the political environment. President Trump campaigned on $1 trillion in new infrastructure spending and should Democrats win control of either chamber of Congress in November, a big infrastructure spending package is likely to prove a tempting area of common ground with the White House. But if some or all of Trump’s desired infrastructure package can be financed by selling government assets, it keeps taxpayers off the hook.

So even for those skeptical of federal spending, or who cringe at anything that sounds like “shovel ready” stimulus, the key point is this: without the political support that comes with the infrastructure programs, any effort to sell distressed assets and pay down the federal debt would never get off the ground. For fiscal conservatives, it’s either half the pot or none of it.

The good news is that GAIIN would just be a trial run. If all goes well, the program could expand beyond the USDA and as much as $2 trillion could eventually be available for new projects and national debt payments.

Given the sorry state of the nation’s finances, what have we got to lose?

Young People and the Socialist Delusion

Tue, 07/03/2018 - 12:27pm

In 2016, I posed a rhetorical question about whether young people are so stupid that they shouldn’t be allowed to vote. After all, many of them thought Bernie Sanders would make a good president (of America, not Greece or Venezuela).

Well, maybe we really should increase the voting age. It seems 2016 was not an anomaly. Millennials are dangerously ignorant.

Here’s some analysis from CNN.

Millennials are…bringing a distinctly Millennial approach to policy and governing. And that might include Democratic socialism. Case in point: Alexandria Ocasio-Cortez, the 28-year-old Democratic socialist who won her primary in New York Tuesday in an upset over a 10-term incumbent. More than any other generation before them, Millennials are OK with socialism. A 2016 Gallup poll found 55% of those then aged 18-29 said they had a positive view of it (it’s worth noting 57% supported capitalism and 78% supported free enterprise). …Bernie Sanders’ presidential campaign was instrumental in mainstreaming Democratic socialism.

What’s particularly galling is that young people are pessimistic about their economic future and they’ve decided to blame capitalism for problems that exist because of excessive government!

Millennials’ economic situation also plays a role. …A recent study by the Federal Reserve Bank of St. Louis found Millennials born in the ’80s have a net worth 34% below what was expected. And student debt since 2009 has doubled to $1.4 trillion… For many cash-strapped Millennials in debt, Democratic socialism isn’t radical, it’s a way to fix a system they believe failed them.

In other words, young people want to make Mitchell’s Law a never-ending reality.

Let’s look at another example. Here’s some of what Michelle Goldberg wrote in a fawning column in the New York Times.

…all over the nation, people, particularly women, are working with near supernatural energy to rebuild democracy from the ground up… For younger people who see Donald Trump’s election as the apotheosis of a rotten political and economic system, it often means trying to remake that party as a vehicle for democratic socialism. …Alexandria Ocasio-Cortez, a 28-year-old democratic socialist, shook the Democratic Party by toppling Joseph Crowley, a 19-year incumbent, chairman of the Queens County Democratic Party and potential heir to House minority leader Nancy Pelosi. …the real red wave may be democratic socialism’s growing political influence, especially among young people. …The D.S.A., to which Ocasio-Cortez belongs, is the largest socialist organization in America. Its growth has exploded since the 2016 election… Many of the D.S.A.’s goals, reflected in Ocasio-Cortez’s platform, are indistinguishable from those of progressive democrats. But if the D.S.A. is happy to work alongside liberals, its members are generally serious about the “socialist” part of democratic socialist. Its constitution envisions “a humane social order based on popular control of resources and production, economic planning, equitable distribution, feminism, racial equality and non-oppressive relationships.”

In other words, these cranks are real socialists. They actually want government to own and manage the means of production (“popular control of resources and production” and “economic planning”).

This is a problem for the non-crazy left.

Talk of popular control of the means of production is anathema to many older Democrats, even very liberal ones. …After Ocasio-Cortez’s win, Pelosi denied Republican claims that socialism is ascendant in the Democratic Party. It’s hard to blame her for being defensive, since for generations “socialist” was considered a slur, and it’s one that’s hurled at Democrats indiscriminately.

But young people seem prone to fantasy.

…one recent survey shows that 61 percent of Democrats between 18 and 34 view socialism positively. The combination of the Great Recession, the rising cost of education, the unreliability of health insurance and the growing precariousness of the workplace has left young people with gnawing material insecurity. They have no memory of the widespread failure of Communism, but the failures of capitalism are all around them.

Needless to say, Ms. Goldberg doesn’t list the “failures of capitalism,” but it’s a very safe bet that she’s blaming free markets for problems caused by government (a common theme in US economic history).

No wonder young people are so deeply confused. This is probably what they’re taught in government schools.

But there is a silver lining. Courtesy of Libertarian Reddit, we can enjoy some humor poking fun at Ms. Ocasio-Cortez’s overly earnest form of socialism.

Amusing, but very unfair to religion. After all, we can’t go back in time to confirm details from the bible.

But we can look today at countries like CubaGreeceVenezuela, and North Koreato confirm the utter insanity of supporting any type of socialism.

Let’s close with a video from 2013. It’s about Obamanomics and young people, but it’s really about why big government makes it hard for young people to get ahead.

I especially like the explanation of how young people are big losers because of the entitlement state.

Makes me wonder if Ms. Ocasio-Cortez will take the lead on, say, Social Security reform when she gets to Congress?

Needless to say, I won’t be holding my breath.

P.S. Young people aren’t a (totally) lost cause. They may not like capitalism, perhaps because they confuse it with cronyism, but they are sympathetic to “free enterprise.”

New Jersey Doubles Down on Class Warfare and Big Government

Mon, 07/02/2018 - 12:19pm

New Jersey is a fiscal disaster area.

It’s in last place in the Tax Foundation’s index that measures a state’s business tax climate.

It’s tied for last place in the Mercatus Center’s ranking of state fiscal conditions.

And it ranks in the bottom-10 in measures of state economic freedomand measures of unfunded liabilities for bureaucrat pensions.

All of this led me, last October, to warn that the state was suffering from fiscal decay.

Then, two months ago, James Freeman of the Wall Street Journal wrote about how New Jersey’s uncompetitive fiscal system was encouraging highly productive taxpayers to leave the state.

The Garden State already has the third largest overall tax burden and the country’s highest property tax collections per capita. Now that federal reform has limited the deduction for state and local taxes, the price of government is surging again among high-income earners in New Jersey and other blue states. Taxpayers are searching for the exits. …says Jeffrey Sica, founder of Circle Squared, an alternative investments firm. “We structure real estate deals for family offices and high-net-worth individuals and at a record pace those family offices and individuals are leaving the TriState for lower-tax states. Probably a dozen this year at least,”…In the decade ending in 2016, real economic growth in New Jersey clocked in at a compound annual percentage rate of 0.1, just slightly higher than John Blutarsky’s GPA and less than a tenth of the national average for economic growth. The Tax Foundation ranks New Jersey dead last among the 50 states for its business tax climate. …Steven Malanga calls Mr. Murphy’s plan “the U-Haul Budget” for the new incentives it gives New Jersey residents to flee.

You would think that New Jersey politicians would try to stop the bleeding, particularly given the impact of federal tax reform.

But that assumes logic, common sense, and a willingness to put the interests of people above the interests of government. Unfortunately, all of those traits are in short supply in the Garden State, so instead the politicians decided to throw gasoline on the fire with another big tax hike.

The Wall Street Journal opines today on the new agreement from Trenton.

Governor Phil Murphy and State Senate leader Steve Sweeney have been fighting over whether to raise tax rates on individuals or businesses, and over the weekend they decided to raise taxes on both. Messrs. Murphy and Sweeney agreed to raise the state’s income tax on residents making more than $5 million to 10.75% from 8.97% and the corporate rate on companies with more than $1 million in income to 11.5% from 9%. This will give New Jersey the fourth highest marginal income tax rate on individuals and the second highest corporate rate after Iowa.

New Jersey is pursuing class warfare, but the politicians don’t seem to realize that the geese with the golden eggs can fly away.

The two Democrats claim this will do no harm because about 0.04% of New Jersey taxpayers will get smacked. But those taxpayers account for 12.5% of state income-tax revenue and their investment income is highly mobile. The state treasurer said in 2016 that a mere 100 filers pay more than 5.5% of all state receipts. Billionaire David Tepper escaped from New Jersey for Florida in 2015, and other hedge fund managers could follow. Between 2012 and 2016 a net $11.9 billion of income left New Jersey, according to the IRS. The flight risk will increase with the new limit of $10,000 on deducting state and local taxes on federal tax returns. …About two-thirds of New Jersey’s $3.5 billion income outflow last year went to Florida, which doesn’t have an income tax. …The fair question is why any rational person or business that can move would stay in New Jersey.

That’s not merely a fair question, it’s a description of what’s already happening. And it’s going to accelerate – in New Jersey and other uncompetitive states – when additional soak-the-rich schemes are imposed (unless politicians figure out a way to put fences and guard towers at the border).

A few months ago, I conducted a poll on which state would be the first to suffer a fiscal collapse. For understandable reasons, Illinois was the easy “winner.” But I won’t be surprised if there are a bunch of new votes for New Jersey. Simply stated, the state is committing fiscal suicide.

P.S. What’s amazing (and depressing) is that New Jersey was like New Hampshire as recently as the 1960s, with no state sales tax and no state income tax.

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